Q3 2025 Ares Management Corp Earnings Call

November 3, 2025

Prince call.

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

As a reminder, this conference call is being recorded on Monday November 3rd 2025.

I will now turn the call over to Greg Mason co head of public markets Investor Relations for Ares management.

Michael Arougheti: With eight semi-liquid products gaining momentum, we believe that we're well-positioned to meet evolving investor needs for durable income, diversified equity growth, and tax-advantaged real asset exposure that can protect against inflation. Our wealth distribution footprint continues to expand. Yet, of our 80-plus partnerships, about half currently distribute only one product, highlighting significant white space for multi-product expansion. We're also deepening engagement across the RIA and IBD channels, where we see meaningful opportunity for private markets adoption. We believe the secular shift toward private markets in wealth portfolios is still in its early innings. Our ability to innovate, deliver strong investment performance, and broaden access globally positions us well to lead this transformation. Let me say a few words about our market outlook and recent investing activities. Overall, we're excited about the breadth and quality of the opportunities, and the positive tone in the market.

Good morning, and thank you for joining us today for our third quarter 2025 conference call I'm joined today by Michael <unk>, Our Chief Executive Officer, and Gary 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 contains certain forward looking statements and are subject to risks and uncertainties <unk>.

Including those identified in our risk factors in our SEC filings.

Speaker #3: If you need assistance during your conference today, please press star zero. Welcome to the Aries Management Corporation's third quarter 2025 earnings conference call. At this time, all participants are in the listen-only mode.

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 areas or in Ares Fund.

During this call we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles.

Michael Arougheti: We're seeing a pickup in underlying activity that should support strong M&A volumes in the fourth quarter and into 2026. Credit markets are open, bankers are reporting stronger new transaction activity, and the potential for lower short-term rates should encourage sponsors to take advantage of improved financing conditions. Bid-ask spreads are narrowing as multiples have increased and as financing costs have declined. As a result, we're seeing higher-quality companies able to access the markets on acceptable terms. Historically, declining rates have driven increased deployment activity and accelerated growth in our fee-paying AUM. We're also seeing lower rates benefiting our real estate strategies, where valuations are starting to improve, transaction activity is increasing, and supply-demand balances are improving, particularly in logistics and multifamily.

Speaker #3: As a reminder, this conference call is being recorded on Monday, November 3rd, 2025. I will now turn the call over to Greg Mason, co-head of public markets, investor relations for Aries Management.

Please refer to our third 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.

Speaker #2: Good morning, and thank you for joining us today for our third quarter 2025 conference call. I'm joined today by Michael Arougheti, our chief executive officer, and Jarrod Phillips, our chief financial officer.

This morning, we announced that we declared a quarterly dividend of $1 12 per share on our class a nonvoting common stock.

Speaker #2: 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.

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

The dividend will be paid on December 31, 2025 to holders of record as of December 2017.

As we have in the past, we expect to announce an increase in our quarterly dividend level beginning with the first quarter of next year now I will turn the call over to Mike who will start with some comments on the current market environment and our third quarter financial results.

Speaker #2: 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.

Speaker #2: 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 Aries or any Aries fund.

Thank you Greg and good morning, we appreciate you joining us areas.

Michael Arougheti: We also continue to see robust opportunities to support the energy and data center needs for the digital economy, as demand is significantly outstripping supply and data center vacancy is running at historic lows. In the past several weeks, we've announced several very large infrastructure transactions and are drawing on our expertise across the platform to support these attractive investment opportunities. Lastly, before I turn the call over to Jarrod, I want to provide an update on an important industry initiative that Ares is leading. Last month, Ares and eight other managers launched a new program called Promote Giving, where all managers committed to donate a portion of select fund performance fees to charitable organizations to support global health, education, and other causes.

<unk> generated another outstanding quarter of financial results, reflecting the broad based strength of our investment platform. Our leadership in many of the fastest growing private market segments and the continued strong fund performance that we're providing to our investors.

Speaker #2: 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.

Our third quarter results included strong year over year growth in management fees of 28%.

Speaker #2: Please refer to our third 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.

Sorry of 39% and realized income of 34%.

We raised more than $30 billion of new capital in the quarter, which was our highest quarter on record year.

Speaker #2: Note that we plan to file our form 10Q later this month. This morning, we announced that we declared a quarterly dividend of $1.12 per share on our class A and non-voting common stock.

Year to date, we've raised over $77 billion in over the.

Last 12 months, we've raised over 105 billion up 24% from $85 billion in the comparable prior year period.

Speaker #2: Representing an increase of 20% over our dividend from the same quarter a year ago. The dividend will be paid on December 31st, 2025, to holders of record as of December 17th.

Michael Arougheti: The Ares Pathfinder series of funds has been at the forefront of this initiative, and to date, our funds have already accrued over $45 million in pledged charitable contributions, with half coming from employees. This new industry initiative, coupled with the significant growth in, and impact of, the Ares Charitable Foundation, is a testament to the culture of our firm and our core values. With that, I'll turn the call over to Jarrod to provide additional details on our financial results. Jarrod?

Our gross deployment was even stronger totaling over $41 billion invested in the quarter, 55% higher than the second quarter and 30% above our previous high in the fourth quarter of last year.

Speaker #2: As we have in the past, we expect to announce an increase in our quarterly dividend level beginning with the first quarter of next year.

Speaker #2: Now, I'll turn the call over to Mike, who will start with some comments on the current market environment and our third quarter financial results.

As a result AUM.

AUM increased to more than $595 billion and fee paying AUM increased to 368 billion bolt up 28% year over year.

Speaker #3: Thank you, Greg, and good morning. We appreciate you joining us. Aries generated another outstanding quarter of financial results reflecting the broad-based strength of our investment platform, our leadership in many of the fastest-growing private market segments, and the continued strong fund performance that we're providing to our investors.

We're experiencing significant growth across nearly every major investment strategy as demand for both institutional and individual investors continues to increase.

Greg Mason: Thanks, Mike. Good morning, everyone. As Mike stated, our business continued its acceleration in the third quarter with 20+% year-over-year growth in both AUM and FPAUM, translating into robust management fee and FRE growth and culminating in 25% year-over-year growth in after-tax realized income per share of Class A stock. We see broad-based positive momentum across our businesses as we continue to attract significant capital in the institutional and wealth channels, source differentiated new deployment opportunities, and ultimately seek to deliver attractive risk-adjusted investment returns for our investors. Now, let me walk through a summary of our quarterly results. Management fees were a record $971 million, representing a 28% year-over-year increase. Along with the significant final close of our third infrastructure secondaries fund that Mike discussed, we generated $29 million in catch-up fees during the quarter.

Investors are seeking durable income above what they can find in the traded markets as well as differentiated private market solutions and asset classes like infrastructure real estate secondaries and global private credit.

Speaker #3: Our third quarter results included strong year-over-year growth in management fees of 28%, FRE of 39%, and realized income of 34%. We raised more than $30 billion of new capital in the quarter, which was our highest quarter on record.

As a result based on our continued strong fund performance and the strength and breadth of our fund raising channels. We now expect to meaningfully exceed last year's 93 billion.

Speaker #3: Year to date, we've raised over $77 billion, and over the last 12 months, we've raised over $105 billion, up 24% from $85 billion in the comparable prior year period.

We continue to see strong fundamental credit performance and solid growth metrics across our portfolios.

Our net realized loss rates remained very low and are consistent with our cumulative average annual loss rate of just one basis point that we've generated in our direct lending strategy over the past two decades.

Speaker #3: Our gross deployment was even stronger, totaling over $41 billion invested in the quarter—55% higher than the second quarter and 30% above our previous high in the fourth quarter of last year.

We're also seeing the transaction market is starting to rebound across many of our investment groups and believe that we are well positioned for new deployment opportunities with nearly $150 billion in dry powder.

Greg Mason: Excluding all catch-up fees, management fees increased at a 21% annualized rate compared to the second quarter due to the strong net deployment and a 21% annualized run rate increase in FPAUM during the quarter. While we anticipate that catch-up management fees will return to more normalized levels next quarter, the pipeline for new deployment remains elevated. We have $81 billion of AUM not yet paying fees that is available for future deployment and $4.6 billion of development assets not yet stabilized that could generate over $770 million in additional management fees. Other fees were up modestly over the second quarter, largely due to a small amount of leasing fees from our new Japan data center development fund. Fee-related performance revenues totaled $85 million in the quarter. The most notable contribution was the annual payment from our open-ended core alternative credit fund.

Speaker #3: As a result, AUM increased to more than $595 billion, and fee-paying AUM increased to $368 billion, both up 28% year-over-year. We're experiencing significant growth across nearly every major investment strategy, as demand from both institutional and individual investors continues to increase.

And our firm wide investment pipeline remains at elevated levels near our record pipeline that we discussed three months ago.

Our fund raising continues to benefit from our strong and diverse product lineup of approximately 40 funds in the market.

We're seeing continued high demand for our private credit strategies for both institutional and individual investors and accelerating interest in areas outside of private credit.

During the quarter, we held the final close for our third infrastructure Secondaries Fund.

We noted on last quarter's call.

Would hit its hard cap of $3 billion and the final close due.

Due to investor demand, we increase the hard cap and closed on $3 3 billion in equity commitments, which resulted in the fund being over three times larger than its predecessor, including $2 million in related vehicles. We believe that this $5 $3 billion pool of capital is among the largest ever raised in the <unk>.

Greg Mason: As a reminder, this fund crystallizes FRPR annually in the third quarter for the prior year period. This year's crystallization represents 2024's AUM and returns. As Mike mentioned, this fund continues to increase its AUM. This gives us good insight into 2026's potential FRPR, which, assuming continued performance of the fund, has the potential to be larger at this time next year, simply due to the growth in AUM. As we look to the fourth quarter, we anticipate approximately $125 million in FRPR from the credit group, which would bring total FRPR year-over-year growth to approximately 17%. This anticipated growth reflects the strong net additions in our FRPR eligible funds and solid credit performance, which more than offsets the 100 basis point decline we saw in base rates.

Restructure secondaries market.

The market opportunity for deployment is strong and building as GP seek solutions and Lp's liquidity.

And even with the significant upside in this fund we estimate that 35% of the fund could be committed by the end of the year.

Also in the infrastructure sector, we anticipate additional closings this week, marking the first official close of our sixth infrastructure debt fund, which would bring the total to $5 3 billion in capital inclusive of related vehicles and leverage with $2 billion raised post quarter end.

Greg Mason: I would note that our fourth quarter payments are based on total returns for the year and could be impacted by changes in market values into year-end. Within real estate, our diversified non-traded REIT is on a trajectory that could enable us to generate a small amount of FRPR in the fourth quarter, assuming continued performance at the current annualized level, as the fund is above its high-water mark and approaching its 5% hurdle rate. We now believe we're positioned to generate FRPR from our diversified non-traded REIT next year, depending on the market backdrop and fund performance.

Notably the team is already committed to $5 billion of capital across North America and Europe.

We're seeing significant momentum across our entire infrastructure platform, which includes that core and opportunistic equity data centers and secondaries.

Over the past 12 months, including the commitments to infrastructure debt early in the fourth quarter, we've raised over $10 billion across our various infrastructure products.

We had another strong quarter in our credit strategies, raising $19 3 billion with particular strength in our perpetual capital funds.

Greg Mason: To put the potential FRPR in perspective, hypothetically, if we had started off 2025 at our high-water mark and just needed to exceed the 5% annual hurdle, we estimate that the diversified non-traded REIT would have been able to generate approximately $30 million in gross FRPR, or about $12 million of net FRPR at the current annualized level. Based on a continuation of its current performance trajectory, our industrial non-traded REIT could also exceed its high-water mark in 2026. Compensation and benefit expenses increased 4.6% quarter over quarter, reflecting headcount growth and higher performance expectations, but it increased at a slower rate than our non-part one management fees, which grew 7.6%. This excludes both part one and FRPR, which remain at fixed ratios on associated revenues.

And alternative credit our open ended core alternative credit fund raised over $1 billion and its semiannual subscription on September 30, bringing total AUM in the fund to over $7 4 billion we.

And even with the significant upsides in this fund we estimate that 35% of the fund could be committed by the end of the year.

We believe that this is the largest non rated asset based finance fund in the market and we've now raised three out of the four largest institutional ABF funds in the non rated market.

Also at quarter end over $3 4 billion of LP commitments and Pathfinder, two representing more than half of total fund commitments elected to extend the reinvestment period for another two years, providing additional investment capacity for our Pathfinder series.

Greg Mason: Excluding supplemental distribution fees, which increased $4 million over the previous quarter due to record fundraising in the wealth channel, G&A expenses also grew at a slower rate than management fees. We expect that G&A expenses should not grow more than 50% to 75% of the rate of management fees on a long-term basis, and we expect continued improvement in that percentage as we scale various strategies. Fee-related earnings of $471 million for the quarter increased 39% year-over-year. FRE margins totaled 41.4% in the third quarter, up slightly from the second quarter, but as expected, the integration of GCP continued to temporarily compress margins in the third quarter. We expect full-year FRE margins to be at or slightly above 2024 levels, including the impact from GCP.

Notably the team has already committed $2 5 billion of capital across North America and Europe.

Our leadership position could further widen next year with the launch of our third alternative credit fund in January.

We're seeing significant momentum across our entire infrastructure platform, which includes that core and opportunistic equity data centers and secondaries.

Also within credit we held the final close for our inaugural specialty Healthcare fund with one 5 billion in total available capital, including anticipated leverage.

Over the past 12 months, including the commitments to infrastructure debt early in the fourth quarter, we've raised over $10 billion across our various infrastructure products.

Within real estate, we're also seeing positive fundraising momentum.

Our fifth Japan Industrial development fund is targeting a significant first close in the first quarter of 2026, and we anticipate our 11th U S value add real estate fund could hit its hard cap of $2 6 billion in the first part of next year significantly exceeding the $1 8 billion raised in the prior vintage.

We had another strong quarter in our credit strategies, raising $19 3 billion with particular strength in our perpetual capital funds.

And alternative credit our open ended core alternative credit fund raised over $1 billion in its semi annual subscription on September 30th bringing total AUM in the fund to over seven 4 billion.

We believe our real estate business is benefiting from its strong track record as certain Lps are rotating away from other real estate managers to Ares.

Greg Mason: Given the expense reductions in growth and revenue we expect in GCP throughout 2026, next year is expected to be a better year for margin expansion, and we expect to be closer to the top end of our 0 to 150 basis point annual margin expansion guidance. Turning to our performance-related balances, we experienced very strong market appreciation across our investment portfolios this quarter, and net accrued performance income on an unconsolidated basis also increased 9.2% to $1.2 billion at the end of the quarter, of which over $1 billion is in European-style waterfall funds, with the remaining $180 million in American-style funds. We currently expect more material amounts of these potential American-style performance fees could be recognized in 2026 and beyond. With respect to our European-style funds, we continue to expect $500 million in total net realized performance income across 2025 and 2026 combined.

We believe that this is the largest non rated asset based finance fund in the market and we've now raised three out of the four largest institutional ABF funds in the non rated market.

Last week, we also held a final close for a cough seven bringing total commitments and the fund to $3 8 billion.

Final close was above our most recent expectation as we believe both <unk> six continued top quartile performance and <unk> seven seed portfolio and strong pipeline provided some late stage momentum.

Also at quarter end over $3 4 billion of L. P commitments and Pathfinder, two representing more than half of total fund commitments elected to extend the reinvestment period for another two years, providing additional investment capacity for our Pathfinder series or.

A cop seven turned on its management fees on November one.

Our leadership position could further widen next year with the launch of our third alternative credit fund in January.

As we look to next year, we see continued strong demand for our institutional funds. In addition to the funds in the market I mentioned previously we anticipate good momentum into the final close for our third special opportunities fund, which is closed on over $5 9 billion and we expect a number of new funds.

Also within credit we held the final close for our inaugural specialty Health care fund with $1 5 billion in total available capital, including anticipated leverage.

Within real estate, we're also seeing positive fundraising momentum.

In market, including our seven special situations fund in Asia, our 10th Real estate Secondaries Fund and a new large global fund and our digital infrastructure business based upon our global seed portfolio just to name a few.

Greg Mason: From a timing perspective, it is difficult to be precise on the specific quarters, but we anticipate we will see approximately $450 million over the next five quarters, including $200 million in Q4 and early Q1 combined. Realized income totaled $456 million for the quarter, a 34% year-over-year increase. During the quarter, our effective tax rate on realized income was 8.6%, which is in line with our range of 8% to 12% for 2025. As you can see in the earnings presentation, we continue to generate strong performance across our strategies, with nearly every composite reporting solid quarterly and annual returns. In credit, our primary strategies have generated double-digit returns ranging from 10% to 23% over the last 12 months, and that strong performance continued in the third quarter.

And in late 2026, there is potential for the launch of our fourth U S senior direct lending fund.

The strength of our institutional fund raising this quarter was matched by continued momentum in our wealth business.

We believe our real estate business is benefiting from its strong track record at certain Lps are rotating away from other real estate managers to Ares.

Again marked a new monthly record for equity capital raised across our semi liquid funds, surpassing $2 billion and fueling our highest quarterly equity inflows in our history at $5 4 billion.

Last week, we also held a final close for a cough seven bringing total commitments and the fund to $3 8 billion.

The final close was above our most recent expectation as we believed both a cough six continued top quartile performance and a cough seven seed portfolio and strong pipeline provided some late stage momentum.

Year to date through the third quarter, we have raised over $12 billion in gross equity capital and our semi liquid wealth strategies up more than 70% year over year and our market share for the third quarter exceeded 10% ranking us number two in industry fundraising per industry data.

Greg Mason: Quarterly gross returns were 7.2% for our APAC credit strategy, 5.6% for alternative credit, 4.8% for US junior direct lending, 4.2% for opportunistic credit, 2.6% for US senior direct lending, and 2.3% for European direct lending. As we've scaled our direct lending funds, we've generally seen performance as good, if not better, than the predecessor fund. In real estate, we continue to see improvements in rent growth and property values. Our Americas real estate equity composite is up 9.1% on a gross basis over the last 12 months, and our diversified non-traded REIT has generated a net return of 7.9% for the first nine months of the year. In our various group, APMF continues its strong performance with gross returns of 14.7% over the last 12 months. I'll now turn the call back to Mike for some concluding remarks.

<unk> seven turned out its management fees on November 1st.

Our results reflect the enhanced scale diversity and durability of our global wealth platform.

40% of third quarter inflows came from outside the U S, including strong demand from Japan. Following our first dedicated product launch there.

We also saw early momentum in our sports and infrastructure offerings, which are expanding our reach across <unk> and family offices and key geographies, such as Canada, the Middle East and Asia Pacific.

Including our seven special situations fund in Asia, our 10th Real estate Secondaries Fund and a new large global fund and our digital infrastructure business based upon our global seed portfolio just to name a few and in late 2026, there is potential for the launch of our fourth U S senior direct lending fund.

The third quarter was also a record fundraising quarter for our diversified non traded REIT driven by our industry, leading 10, 31 exchange program and the highest quarterly common stock raise in over two years.

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The strength of our institutional fundraising this quarter was matched by continued momentum in our wealth business.

We remain the market leader in the 10 31 exchange space with over 20% market share and we recently closed on the largest transaction in history approaching $100 million size, which underscores our ability to execute complex exchange opportunities at scale.

August marked a new monthly record for equity capital raised across our semi liquid funds, surpassing $2 billion and fueling our highest quarterly equity inflows in our history at $5 4 billion.

Michael Arougheti: Thanks, Jarrod. Before wrapping up the call, I want to provide some thoughts about current credit market conditions. Due to several high-profile bankruptcies or instances of fraud in the news, there have been many questions and concerns about what this could mean for a credit cycle and private credit players like Ares. Based upon the strength that we're seeing in our portfolios and what we're hearing from our peers and general credit trends, these events appear to be idiosyncratic and isolated, and not the sign of a turn in the credit cycle. From our vantage point, our credit portfolios also remain healthy, and we've not seen any deterioration in credit fundamentals or changes in amendment activity that would indicate a turn in the cycle is coming. Within corporate credit, over 93% of our credit exposures are senior debt.

Year to date through the third quarter, we've raised over $12 billion in gross equity capital and our semi liquid wealth strategies up more than 70% year over year and our market share for the third quarter exceeded 10% ranking us number two in industry fundraising per industry data.

We continue to see strong inflows this quarter and remain confident in the long term growth of our wealth business.

Just last month, we raised our 2028 AUM target for semi liquid wealth products from 100 billion to a 125 billion, reflecting both our current run rate and the strength of advisor demand across geographies and channels.

Our results reflect the enhanced scale diversity and durability of our global wealth platform.

With eight semi liquid products, gaining momentum, we believe that we're well positioned to meet evolving investor needs for durable income diversified equity growth and tax advantaged real asset exposure that can protect against inflation.

Approximately 40% of third quarter inflows came from outside the U S, including strong demand from Japan. Following our first dedicated product launch there.

We also saw early momentum in our sports and infrastructure offerings, which are expanding our reach across our A's and family offices and key geographies, such as Canada, the Middle East and Asia Pacific.

Michael Arougheti: Our loans on non-accrual at our publicly traded BDC, Ares Capital Corporation, are 1% at fair value and 1.8% at cost, a decline from the second quarter and 100 basis points below ARCC's historical average. From a fundamental standpoint, we continue to see healthy year-over-year double-digit EBITDA growth across our US direct lending strategies, and interest coverage ratios are improving. Loan-to-value ratios remain conservative and near historic lows at roughly 42% in the US and 48% in Europe. This means that our corporate borrowers would have to lose, on average, more than 50% of their enterprise value, resulting in a total loss for the private equity sponsor before we lose a dollar of our principal. Within our asset-based finance strategy, we're materially underweight non-residential consumer assets, which represent less than 5% of our entire ABF portfolio, while the broader industry is closer to 1/3 of their portfolios.

Our wealth distribution footprint continues to expand yet of our 80 plus partnerships about half currently distribute only one product highlighting significant white space for multi product expansion.

We're also deepening engagement across the <unk> and.

In IBD channels, where we see meaningful opportunity for private market's adoption.

We believe the secular shift towards private markets and wealth portfolio is still in its early innings our.

Our ability to innovate deliver strong investment performance and broaden access globally positions us well to lead this transformation.

And now let me say a few words about our market outlook and recent investing activities.

We continue to see strong inflows this quarter and remain confident in the long term growth of our wealth business.

Overall, we're excited about the breadth and quality of the opportunities and the positive tone in the market.

We're seeing a pickup in underlying activity that should support strong M&A volumes in the fourth quarter and into 2026 credit markets are open bankers are reporting stronger new transaction activity and the potential for lower short term rates should encourage sponsors to take advantage of improved financing conditions.

With eight semi liquid products, gaining momentum, we believe that we're well positioned to meet evolving investor needs for durable income diversified equity growth and tax advantage, it's real asset exposure that can protect against inflation.

Michael Arougheti: Our alternative credit strategy has negligible exposure to subprime consumer assets at less than 1%, and its total auto exposure, which is mostly prime, is about 1% of our ABF AUM. Our non-accrual rate in alternative credit is essentially zero, and we're not seeing a material change in loss curves relative to our underwritten estimates. Our credit team operates with an open-source investment model focused on identifying attractive relative value across different asset classes. This means that we're never forced to invest in any particular sub-industry. Over 90% of our investments are either sourced through proprietary channels or via limited processes. These investments are directly structured, allowing us to embed collateral protections using our own downside analysis. Looking at the bigger picture, we believe that Ares would benefit if a credit cycle were to occur, as we have in past cycles.

Bid ask spreads are narrowing as multiples have increased and as financing costs have declined.

As a result, we're seeing higher quality companies able to access the markets on acceptable terms.

Our wealth distribution footprint continues to expand yet of our 80 plus partnerships that have currently distribute only one product highlighting significant white space for multi product expansion.

Historically declining rates have driven increased deployment activity and accelerated growth in our fee paying AUM.

We're also seeing lower rates benefiting our real estate strategies, where valuations are starting to improve transaction activity is increasing and supply demand balances are improving particularly in logistics and multifamily.

We're also deepening engagement across the our a and IBD channels, where we see meaningful opportunity for private market's adoption.

We believe the secular shift towards private markets and wealth portfolio is still in its early innings.

We also continue to see robust opportunities to support the energy and data center needs for the digital economy as demand is significantly outstripping supply and data center vacancy is running at historic lows in the past several weeks, we've announced several very large infrastructure transactions and are drawing on our <unk>.

Our ability to innovate deliver strong investment performance and broaden access globally positions us well to lead this transformation.

And now let me say a few words about our market outlook and recent investing activities.

Overall, we're excited about the breadth and quality of the opportunities and the positive tone in the market.

Expertise across the platform to support these attractive investment opportunities.

Michael Arougheti: Performing for our investors is always our top priority, and we take pride in our historical track record of performance during previous credit cycles, where we've generated higher returns than the pure average and the comparable traded credit markets. This outperformance has enabled us to be front-footed and accelerate our growth during these periods. For example, during the GFC, from the end of 2007 through the end of 2010, ARCC had no aggregate net realized losses for that three-year period and generated 540 basis points of annual incremental return above the bank loan index, with an annualized return of 11.2% over that three-year period versus a 5.8% annual return for the leveraged loan index. The combination of higher spreads, credit outperformance, and the ability to raise capital from institutional investors during the market dislocation enabled us to increase our management fees at a 27% CAGR.

And lastly, before I turn the call over to Jared I want to provide an update on an important industry initiative that areas is leading.

Last month, Aries and eight other managers launched a new program called promote giving where all managers committed to donate a portion of select fund performance fees to charitable organizations to support global health education and other causes.

Bid ask spreads are narrowing as multiples have increased and as financing costs have declined.

Ares Pathfinder series of funds has been at the forefront of this initiative and to date, our funds have already crude over $45 million and pledged charitable contributions with half coming from employees.

As a result, we're seeing higher quality companies able to access the markets unacceptable terms.

Historically declining rates have driven increased deployment activity and accelerated growth in our fee paying AUM.

This new industry initiatives, coupled with the significant growth in an impact of the <unk> charitable Foundation is a testament to the culture of our firm and our core values.

And with that I'll turn the call over to Jared to provide additional details on our financial results Jared.

Michael Arougheti: We executed a similar playbook again during 2020 and 2021 through credit outperformance, as exemplified by ARCC's lower non-accruals and net realized losses versus peers. When we combined our credit outperformance with our deployment of our significant dry powder, our management fees at Ares increased again at a 27% CAGR from year-end 2019 through 2021. We'd expect to see strong growth again if the credit cycle were to turn for a few key reasons. First, typically more than 85% of our annual revenue is generated by management fees, and our management fees and fee-related earnings are generally insulated from credit losses. As an asset-light third-party asset manager, we have minimal direct exposure to loans and bonds, and we do not use significant amounts of leverage.

Thanks, Mike.

Morning, everyone.

Mike stated our business continued its acceleration in the third quarter with 20 plus percent year over year growth.

And after you.

Translating into robust management fee and FRE growth, culminating in 25% year over year growth in after tax realized income per share of class a stock.

<unk> across the platform to support these attractive investment opportunities.

We see broad based positive momentum across our businesses as we continue to attract significant capital in the institutional and wealth channels.

And lastly, before I turn the call over to Jared I want to provide an update on an important industry initiative that areas is leading.

Differentiated new deployment opportunities and ultimately seek to deliver attractive risk adjusted investment returns for our investors.

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

Management fees were a record $971 million, representing a 28% year over year increase.

The Aries Pathfinder series of funds has been at the forefront of this initiative and to date, our funds have already accrued over $45 million in pledged charitable contributions with half coming from employees.

Along with the significant final close of our third infrastructure Secondaries fund that Mike discussed, we generated $29 million in catch up fees during the quarter, excluding all catch up management fees increased at a 21% annualized rate compared to the second quarter due to the strong net deployment and a 21% annualized run rate increase in AUM.

Michael Arougheti: At the end of the third quarter, we had a corporate investment portfolio of over $2.6 billion with approximately $331 million in credit assets compared to our $368 billion in fee-paying AUM. Second, when a credit cycle does occur, investors understand that it is often providing a superior vintage for returns as capital is scarce. For Ares, in every vintage year that was originated during the last two recessions, from 2008 to 2009 and 2020 to 2022, we generated returns that exceeded our 20-year averages for both our US senior and junior debt loans, and nearly all were 100 to 500 basis points better. In order to outperform, a firm must have capital to invest when others retrench. On that point, Ares possesses among the highest, if not the highest, amount of credit dry powder among our peers.

This new industry initiatives, coupled with the significant growth in an impact of the area's charitable foundation is a testament to the culture of our firm and our core values.

During the quarter.

While we anticipate that catch up management fees will return to more normalized levels next quarter the pipeline for new deployment remains elevated.

And with that I'll turn the call over to Jared to provide additional details on our financial results Jared.

We had $81 billion of AUM.

Thanks, Mike.

AUM not yet paying fees that is available for future deployment and $4 6 billion of development assets, not yet stabilized that could generate over $770 million in additional management fees.

Everyone.

As Mike stated our business continued its acceleration in the third quarter with 20 plus percent year over year growth in AUM.

And after you are.

Translating into robust management fee and FRE growth, culminating in 25% year over year growth in after tax realized income per share of class a stock.

Other fees were up modestly over the second quarter, largely due to a small amount of leasing fees from our new Japan datacenter development.

Fee related performance revenues totaled $85 million in the quarter. The most notable.

See broad based positive momentum across our businesses as we continue to attract significant capital in the institutional and wealth channels source differentiated new deployment opportunities and ultimately seek to deliver attractive risk adjusted investment returns for our investors.

Contribution was the annual payment from our open ended core alternative credit fund.

Michael Arougheti: Our ability to provide flexible capital and accelerate deployment has been key to our outperformance in previous cycles, along with our deep underwriting processes, significant diversification, strong restructuring teams, and emphasis on investing in cycle-resilient businesses and industries. Our experience tells us that the small potential for loss management fees should be more than offset by new management fees from deploying a small portion of capital already raised and not yet paying fees. Maybe now to conclude. We believe that the credit markets remain healthy, and private credit spreads continue to offer meaningfully better risk-adjusted returns relative to traded credit markets where spreads are near historical tights across investment grade, syndicated bank loans, and high yield. Private activity is increasing, spurred by the need for DPI, prospects of lower rates, and continued healthy cash flow growth.

As a reminder, this fund crystallizes FRP or annually in the third quarter for the prior year period. So this year's crystallization represents 2020 fours AUM and returns.

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

Management fees were a record $971 million, representing a 28% year over year increase along with a significant final close of our third infrastructure Secondaries fund that Mike discussed, we generated $29 million in catch up fees during the quarter, excluding all catch up fees management fees increased at a 21% annualized rate compared to the <unk>.

As Mike mentioned this one continues to increase its AUM.

That's good insight into 2026 as potential FRP.

Assuming continued performance of the fund has the potential to be larger at this time next year simply due to the growth in AUM.

As we look to the fourth quarter, we anticipate approximately $125 million in FRP or from the credit group, which would bring total FRP our year over year growth to approximately 17%.

Quarter due to the strong net deployment and a 21% annualized run rate increase in AUM.

AUM during the quarter.

While we anticipate that catch up management fees will return to more normalized levels next quarter the pipeline for new deployment remains elevated.

This anticipated growth reflects the strong net additions and our FRP are eligible funds and solid credit performance, which more than offset the 100 basis point decline we saw in base rates.

We have $81 billion of AUM, not yet paying fees that is available for future deployment and $4 6 billion of development assets not yet stabilized the could generate over $770 million in additional management fees.

Note that our fourth quarter payments are based on total returns for the year and could be impacted by changes in market values and the year end.

Michael Arougheti: When we enter the next credit cycle, we believe that Ares, with its balance sheet light, management fee-centric model, will be well-positioned to outperform and even potentially accelerate growth for the reasons that I cited. We continue to actively invest in growing and expanding our investment teams across products and geographies, and when combined with our significant fundraising efforts, we're better positioned than ever before to provide a broad range of investment solutions to our investors around the globe. I'm excited to see how 2025 wraps up, and I believe that we have very strong momentum heading into next year. Finally, we understand that we are now the largest eligible financial company not in the S&P 500 index, and when that time comes, we believe that entry would be beneficial to our shareholders.

Within real estate, our diversified non traded REIT is on a trajectory that could enable us to generate a small amount of FRP or in the fourth quarter. Assuming continued performance of the current annualized level as the fund is above its high watermark and approaching 5% hurdle rate.

Other fees were up modestly over the second quarter, largely due to a small amount of leasing fees from our new Japan datacenter development.

Fee related performance revenues totaled $85 million in the quarter.

The most notable contribution was the annual payment from our open ended core alternative credit fund.

We now believe we are positioned to generate FRP arm from our diversified non traded REIT next year dependent on the market backdrop and fund performance.

As a reminder, this fund crystallizes FRP or annually in the third quarter for the prior year period. So this year's crystallization represents 2020 fours AUM in returns.

Potential with our PR and perspective.

Pathetically, if we had started off 2025, and our high watermark and just needed to exceed the 5% annual hurdle, we estimate that the diversified non traded REIT would have been able to generate approximately $30 million and growth of our PR or about $12 million of net <unk> at the current annualized level.

As Mike mentioned this fund continues to increase its AUM. This gives us good insight into 2026 as potential fr PR, which assuming continued performance of the fund has the potential to be larger at this time next year simply due to the growth in AUM.

Based on a continuation of its current performance trajectory, our industrial non traded REIT could also exceeded its high watermark in 2026.

Michael Arougheti: As always, I'm just so 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. I think with that, operator, could you please open the line for questions?

As we look to the fourth quarter, we anticipate approximately $125 million in FRP or from the credit group, which would bring total FRP our year over year growth to approximately 17%.

Compensation and benefit expenses increased four 6% quarter over quarter, reflecting head count growth and higher performance expectations, but an increase of a slower rate than our non part one management fees, which grew seven 6%. This excludes both part one and FRP VR, which remain at fixed ratios on associated revenues.

This anticipated growth reflects the strong net additions and our FRP are eligible funds and solid credit performance, which more than offsets. The 100 basis point decline we saw in base rates.

Operator: At this time, if you would like to ask a question, please press star, then one on your touchstone phone. We ask you to 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. Please go ahead.

I would note that our fourth quarter payments are based on total returns for the year and could be impacted by changes in market values and the year end.

Excluding supplemental distribution fees, which increased $4 million over the previous quarter due to record fund raising in the wealth channel G&A expenses also grew at a slower rate than management fees. We expect the G&A expenses should not grow more than 50% to 75% of the rate of management fees on a long term basis, and we expect continued improvement in that percentage as we scale various strategy.

Within real estate, our diversified non traded REIT is on a trajectory that could enable us to generate a small amount of FRP or in the fourth quarter. Assuming continued performance at the current annualized level as the fund is above its high watermark and approaching 5% hurdle rate.

[Analyst] (Goldman Sachs): Hey, Mike. Good morning, everybody. Lots of good callers on credit, I actually was going to ask you guys something on a different topic, which is about real estate and maybe real assets broadly. It feels like there's a number of green shoots across the real estate market, as you pointed out. Maybe you could expand a little bit on how you envision your franchise position in case LP appetite starts to normalize and resume in the real estate channel across both the institutional bases, as well as your wealth clients. Thanks.

<unk>.

B related earnings of $471 million for the quarter increased 39% year over year.

We now believe we are positioned to generate FRP or from our diversified non traded REIT next year dependent on the market backdrop and fund performance.

Alrighty margins totaled 41, 4% in the third quarter up slightly from the second quarter, but as expected the integration of <unk> continued to temporarily compressed margins in the third quarter.

But the potential FRP Arne perspective, hypothetically, if we had started off 2025, and our high watermark and just needed to exceed the 5% annual hurdle, we estimate that the diversified non traded REIT would have been able to generate approximately $30 million in gross up our PR or about $12 million of net FRP or at the current annual.

We expect full year FRE margins to be.

Jarrod Phillips: Thanks, Alex. I think, as people know now, our real estate business is global, and I think we are the third-largest institutional real estate manager in the market. That gives us many of the benefits of scale that we've experienced over the years in other parts of our business in terms of origination, the ability to invest in portfolio management, access to financing, and I think most importantly, our transformation to a fully vertically integrated platform. When you look at the business today, which, as I think we've talked about before, is largely concentrated in industrials and multifamily, as our two highest conviction sectors, we now have the ability to develop through to asset manage the entirety of the business, and that's a highly, highly differentiated skill set. As you mentioned, there are tailwinds occurring in real estate.

At or slightly above 2024 levels, including the impact from JCB.

Given the expense reductions and growth in revenue, we expect in GCB. Throughout 2026 next year is expected to be a better year for margin expansion and we expect to be closer to the top end of our zero to 150 basis point annual margin expansion guidance.

At this level.

Based on a continuation of its current performance trajectory, our industrial non traded REIT could also exceeded its high watermark in 2026.

Compensation and benefit expenses increased four 6% quarter over quarter, reflecting head count growth and higher performance expectations, but it increased at a slower rate than our non part one management fees, which grew seven 6%. This excludes both part one and FRP or which remain at fixed ratios on associated revenues.

Turning to our performance related balances.

We experienced very strong market appreciation across our investment portfolio. This quarter net accrued performance income.

On consolidated basis also increased nine 2% to $1 2 billion at the end of the quarter.

Of which over $1 billion and European style waterfall funds with the remaining $180 million in American style funds. We currently expect more material amounts of these potential American style performance fees could be recognized in 2026 and beyond.

Excluding supplemental distribution fees, which increased $4 million over the previous quarter due to record fund raising in the wealth channel G&A expenses also grew at a slower rate than the management fees. We expect the G&A expenses should not grow more than 50% to 75% of the rate of management fees on a long term basis. We expect continued improvement in that percentage as we scale various strategies.

With respect to our European style funds, we continue to expect $500 million in total net realized performance income across 2025 and 2026 combined.

B related earnings of $471 million for the quarter increased 39% year over year FRE margins totaled 41, 4% in the third quarter up slightly from the second quarter, but as expected the integration of GCB continued the temporarily compressed margins on the third quarter.

Jarrod Phillips: We are coming out of a period of pretty meaningful supply constraint in the market, which has supported values and rent growth across the portfolio. As we begin to see rates come down, that's usually pretty constructive for real estate transaction volumes. We're already beginning to see that. If you were to look at our real estate deployment quarter over quarter, Q3 versus Q2, we deployed about 51% more than we did last quarter. If you were to look at year-over-year deployment in real estate around the globe, we're about 78% higher year-on-year. We're already beginning to see the green shoots materialize, and I think given our position, I think we'll be a pretty big beneficiary of that increased transaction volume.

From a timing perspective, it is difficult to be precise on the specific quarters, but we anticipate we will see approximately $450 million over the next five quarters, including $200 million in Q4 and early Q1 combined.

Realized income totaled $456 million for the quarter of 34% year over year increase.

We expect full year FRE margins to be.

At or slightly above 2024 levels, including the impact from GCB.

During the quarter, our effective tax rate unrealized income was eight 6%, which is in line with our range of 8% to 12% for 2025.

And you can see in the earnings presentation, we continued to generate strong performance across our strategies with nearly every composite reporting solid quarterly and annual returns.

Turning to our performance related balances we.

We experienced very strong market appreciation across our investment portfolio. This quarter met accrued performance income on an unconsolidated.

Credit our primary strategies have generated double digit returns ranging from 10% to 23% over the last 12 months and that strong performance continued in the third quarter.

80 basis also increased nine 2% to $1 2 billion at the end of the quarter.

Operator: We'll go next to Stephen Chubbock with Wolfe Research. Please go ahead.

Quarterly gross returns were seven 2% for our APAC credit strategy five 6% for alternative credit four 8% for U S Junior direct lending four 2% for opportunistic credit two 6% for U S senior direct lending and two 3% for European direct lending.

[Analyst] (Wolfe Research): Hi, good morning, and thanks for taking my question. I also appreciate the caller, Mike, on credit performance trends and the historical perspective. I, too, am going to ask on a separate topic of fundraising. The momentum you've seen is quite impressive, especially given the small contribution from campaign fundraising this past year. As we look ahead to next year, given a more meaningful contribution or anticipated contribution in campaign fundraising, and the near-record transaction pipeline you cited, how are you thinking about the outlook, especially versus a tough 2025 fundraising comp, and how will that mix of deployment potentially evolve as we look ahead to next year?

With respect to our European style funds, we continue to expect $500 million in total net realized performance income across 2025 and 2026 combined.

We've scaled our direct lending funds, we've generally seen performance as good if not better than the predecessor fund.

In real estate, we continue to see improvements in rent growth and property values are Americans real estate equity composite is up nine 1% on a gross basis over the last 12 months and our diversified non traded REIT has generated a net return of seven 9% for the first nine months of the year.

And our various group Atms continues its strong performance with gross returns of 14, 7% over the last 12 months.

Realized income totaled $456 million for the quarter of 34% year over year increase.

Jarrod Phillips: Yeah, thanks, Steve. It's a good question. We came into this year giving you all commentary on two fronts. One, that we felt, given what we saw in the world, that we might be able to surpass our prior record of $93 billion, and here we are now after three quarters, expressing high conviction that we, in fact, will. That's obviously a function of outstanding underlying performance that's supporting continued investor demand. I also think it just reflects the continued investment that we're making in our global distribution, both wealth and institutional. Interestingly, when we came into this year, it was in the absence of the large flagship credit funds that we made the prediction that we could beat our record. I think what that's demonstrating is the diversity of strategies is actually resonating with investors.

During the quarter, our effective tax rate unrealized income was eight 6%, which is in line with our range of 8% to 12% for 2025.

I'll now turn the call back to Mike for some concluding remarks.

Thanks, Jared before wrapping up the call I want to provide some thoughts about current credit market conditions.

As you can see in the earnings presentation, we continued to generate strong performance across our strategies with nearly every composite reporting solid quarterly and annual returns.

Due to several high profile bankruptcies or instances of fraud in the news there have been many questions and concerns about what this could mean for credit cycle and private credit players like Ares.

Credit our primary strategies have generated double digit returns ranging from 10% to 23% over the last 12 months and that strong performance continued in the third quarter.

Based upon the strength that we're seeing in our portfolios and what we're hearing from our peers in general credit trends. These events appear to be idiosyncratic and isolated and not the sign of a turn in the credit cycle.

Quarterly gross returns were seven 2% for our APAC credit strategy five 6% for alternative credit four 8% for U S Junior direct lending for 2% for opportunistic credit two 6% for U S senior direct lending and two 3% for European direct lending.

From our vantage point, our credit portfolios also remain healthy and we have not seen any deterioration in credit fundamentals or changes in amendment activity that would indicate a turn in the cycle is coming.

As we've scaled our direct lending funds, we've generally seen performance as good if not better than the predecessor fund.

Jarrod Phillips: We had over 40 funds in the market this year institutionally, and absent the large flagships, we've been able to put forward the type of results that we are. As I mentioned in the prepared remarks, I think next year you're going to see us tying up some of our large funds that are currently in the market, opportunistic credit, some of our real estate funds, and then we will give way to some of our flagship credit funds again, like our Pathfinder series and potentially our senior direct lending fund. Lastly, I would just mention, and it's really the combination of wealth, but also just the way that the product portfolio has transformed to include open-ended funds, SMAs, broad global strategic partnerships, investments in growing our insurance business, to name a few, the floor for annual fundraising just continues to be raised year in and year out.

Within corporate credit over 93% of our credit exposures are senior debt.

In real estate, we continue to see improvements in rent growth and property values, our Americas real estate equity composite is up nine 1% on a gross basis over the last 12 months and our diversified non traded REIT has generated a net return of seven 9% for the first nine months of the year.

Our loans on non accrual at our publicly traded BDC Ares capital Corporation, or 1% at fair value and one 8% at cost a decline from the second quarter and 100 basis points below Arcc's historical average.

And our various group Atms continues its strong performance with gross returns of 14, 7% over the last 12 months.

From a fundamental standpoint, we continue to see healthy year over year double digit EBITDA growth across our U S direct lending strategies and interest coverage ratios are improving.

I will now turn the call back to Mike for some concluding remarks.

Loan to value ratios remained conservative at near historic lows at roughly 42% in the U S and 48% in Europe.

Thanks, Jared before wrapping up the call I want to provide some thoughts about current credit market conditions.

This means that our corporate borrowers would have to lose on average more than 50% of their enterprise value, resulting in a total loss for the private equity sponsor before we lose a dollar of our principle.

Jarrod Phillips: Unlike 10 years ago, where we saw much more volatility year over year, we go into any given year now just with a much higher level of conviction around what that base number could be. We're pretty excited about next year. Obviously, we'll know more when we get into the year and we see what the market looks like and what our LP allocations are, but we don't expect this to slow down.

Within our asset based finance strategy, we're materially underweight, nonresidential consumer assets, which represent less than 5% of our entire ABF portfolio, while the broader industry is closer to one third of their portfolios.

From our vantage point, our credit portfolios also remain healthy and we've not seen any deterioration in credit fundamentals or changes in amendment activity that would indicate a turn in the cycle is coming.

Our alternative credit strategy has negligible exposure to subprime consumer assets at less than 1% and its total auto exposure, which is mostly prime is about 1% of our ABS AUM.

Operator: We'll go next to Craig Siegenthaler with BofA Securities. Please go ahead. Craig Siegenthaler, your line is open. Please go ahead.

Within corporate credit over 93% of our credit exposures are senior debt.

Our non accrual rate in alternative credit is essentially zero and we're not seeing a material change in loss curve is relative to our underwritten estimates.

Our loans on non accrual that are publicly traded BDC Ares capital Corporation, or 1% at fair value and one 8% at cost a decline from the second quarter and 100 basis points below Arcc's historical average.

Our credit team operates with an open source investment model focused on identifying attractive relative value across different asset classes.

[Analyst] (Wolfe Research): Can you guys hear me okay?

Jarrod Phillips: Yes.

[Analyst] (Wolfe Research): Oh, perfect. Good morning, Mike, Jarrod. Hope everyone's doing well. My question is on the potential for lower yields in private credit, driven mostly by lower base rates. How do you think investors will react to lower yields if the Fed continues to cut? Could we see softer private credit fundraising if they pivot to other asset classes, or do you expect some of that record cash and money market funds on the sidelines to provide a new source of flows?

From a fundamental standpoint, we continue to see healthy year over year double digit EBITDA growth across our U S direct lending strategies and interest coverage ratios are improving.

This means that we're never forced to invest in any particular sub industry.

Over 90% of our investments are either sourced through proprietary channels or via limited processes. These.

Loan to value ratios remained conservative at near historic lows at roughly 42% in the U S and 48% in Europe.

These investments are directly structured, allowing us to embed collateral protection using our own downside analysis.

Looking at the bigger picture, we believe that areas would benefit if a credit cycle were to occur as we have in past cycles.

Performing for our investors is always our top priority and we take pride in our historical track record of performance during previous credit cycles, where we've generated higher returns than the peer average and the comparable traded credit markets.

Jarrod Phillips: It's a good question, Craig. I would say, in terms of investor appetite, and I've talked about this before when we've been in transitioning rate environments, that the investor appetite for private credit exposures is not an expression of a desire for absolute return. It's about relative return, relative to the traded alternatives. When you look at where private credit spreads are, both high-grade and sub-investment grade, they're still offering a significant amount of excess return relative to the loan market, the bond market, and the IG market. If you look at private credit spreads today, they're probably 225 basis points in excess of the traded alternative, and that's kind of right in line with what we've seen historically. If you look at the numbers that are coming through real-time in wealth in October and November, we're just not seeing any negative investor reaction to a shift in base rates.

Within our asset based finance strategy, we're materially underway nonresidential consumer assets, which represent less than 5% of our entire ABF portfolio, while the broader industry is closer to one third of their portfolios.

This outperformance has enabled us to be front footed and accelerate our growth during these periods.

For example, during the Dfc from the end of 2007 through the end of 2010 ARCC had no aggregate net realized losses for that three year period, and generated 540 basis points of annual incremental return above the bank loan index with an annualized return of 11 two.

Our alternative credit strategy has negligible exposure to subprime consumer assets at less than 1% and its total auto exposure, which is mostly prime is about 1% of our ABS AUM.

Our non accrual rate in alternative credit is essentially zero and we're not seeing a material change in loss curve is relative to our underwritten estimates.

<unk> percent over that three year period versus a five 8% annual return for the leveraged loan index.

Our credit team operates with an open source investment model focused on identifying attractive relative value across different asset classes.

The combination of higher spreads credit outperformance and the ability to raise capital from institutional investors during the market dislocation enabled us to increase our management fees at a 27% CAGR.

This means that we're never forced to invest in any particular sub industry.

Over 90% of our investments are either sourced through proprietary channels or via limited processes. These investments are directly structured, allowing us to embed collateral protections using our own downside analysis.

We executed a similar playbook again during 2020 in 2021 through credit outperformance as exemplified by Arcc's, lower non accruals and net realized losses versus peers.

Jarrod Phillips: I'd also highlight that if you were to go look at the disclosures in ARCC, the business model is just not that sensitive to a decline in rates. Our historical experience has been that when rates are coming down, two things happen. One, credit spreads typically widen, and we've actually seen a modest widening already taking place within the private market. Two, transaction activity tends to pick up dramatically, and deployment increases, and fees go up. When you look at the impact of lower rates generally on the business, it tends to be a net tailwind, not a net headwind.

Looking at the bigger picture, we believe that areas would benefit if a credit cycle were to occur as we have in past cycles.

When we combined our credit outperformance with our deployment of our significant dry powder or management fees at areas increased again at 27% CAGR from year end 2019 through 2021.

We would expect to see strong growth again, if the credit cycle were to turn for a few key reasons.

This outperformance has enabled us to be front footed and accelerate our growth during these periods for.

First typically more than 85% of our annual revenue is generated by management fees and our management fees and fee related earnings are generally insulated from credit losses.

For example, during the GMC from the end of 2007 through the end of 2010 ARCC had no aggregate net realized losses for that three year period, and generated 540 basis points of annual incremental return above the bank loan index with an annualized return of 11 two.

As an asset light third party asset manager, we have minimal direct exposure to loans and bonds and we do not use significant amounts of leverage.

Operator: We'll go next to Patrick Davitt with Autonomous Research. Please go ahead.

[Analyst] (Autonomous Research): Hi, good morning. Thanks. Just touching on the point you just made on spread, obviously had some wobbles in the bank loan market, had some deals pulled and repriced, which theoretically, to your point, I think should be good for direct lending dynamics. Curious if you're seeing any sign that banks are getting more conservative, so potentially less competitive, and through that lens, kind of how the new origination spreads track through Q3 and looking so far in Q4. Thank you.

At the end of the third quarter, we had corporate investment portfolio of over $2 6 billion with approximately $331 million credit assets compared to our $368 billion and fee paying AUM.

Percent over that three year period versus a five 8% annual return for the leveraged loan index.

Second when a credit cycle does occur investors understand that it is often providing a superior vintage for returns as capital is scarce.

For areas and every vintage year that was originated during the last two recessions from 2008 to 2009 and 2020 to 2022, we generated returns that exceeded our 20 year averages for both our U S senior and junior debt loans and nearly all were $100 to 500 basis points better.

Jarrod Phillips: Yeah. I think Cort and team did a good job talking about our positioning on the ARCC earnings call, and we've tried as best we can globally to maintain a broad exposure to all parts of the private credit market, from lower middle market through to upper. Non-sponsored, sponsored, with really deep industry capabilities, not to mention all of the great work that we do in our ABF business. When we're looking at the bank behavior at the top end of the market, it's just less relevant to us than it is to, I think, other players who haven't made the investments in that core middle market origination. I would say right now we're not seeing a meaningful pullback in risk appetite, but we are seeing spread moderation in our market. We probably saw 25 basis points of spread widening in the third quarter, and that may persist and continue.

We executed a similar playbook again during 2020 in 2021 through credit outperformance as exemplified by Arcc's, lower non accruals and net realized losses versus peers.

When we combined our credit outperformance with our deployment of our significant dry powder or management fees at areas increased again at 27% CAGR from year end 2019 through 2021.

In order to outperform a firm must have capital to invest when others retrench.

On that point Ares possesses among the highest if not the highest amount of credit dry powder among our peers.

We would expect to see strong growth again, if the credit cycle were to turn for a few key reasons.

Our ability to provide flexible capital and accelerate deployment has been key to our outperformance in previous cycles, along with our deep underwriting processes significant diversification strong restructuring teams and emphasis on investing cycle resilient businesses and industries.

First typically more than 85% of our annual revenue is generated by management fees and our management fees and fee related earnings are generally insulated from credit losses as.

As an asset light third party asset manager, we have minimal direct exposure to loans and bonds and we do not use significant amounts of leverage.

Our experience tells us that the small potential for loss management fees should be more than offset by new management fees from deploying a small portion of capital already raised and not yet paying fees.

At the end of the third quarter, we had a corporate investment portfolio of over $2 6 billion with approximately 331 million credit assets compared to our $368 billion and fee paying AUM.

Jarrod Phillips: As volumes pick up and the supply demand in the market gets back to stasis, that's generally a good thing for spreads as well. Even if we're in an environment where banks are still taking risk when transaction volumes pick up, we tend to see more price stability. I think the good news for us is if it happens, we can go in and take share. If the banks continue to drive volumes into the loan and bond market, obviously that's a big boon to our liquid credit business, and we tend to participate there. I've always felt like we were well hedged against that behavior at the upper end of the market.

So maybe now to conclude.

We believe that the credit markets remained healthy and private credit spreads continue to offer meaningfully better risk adjusted returns relative to traded credit markets, where spreads are near historical tights across investment grade syndicated bank loans and high yield.

Second when a credit cycle does occur investors understand that it is often providing us peer of vintage for returns as capital is scarce.

For Aries and every vintage year that was originated during the last two recessions from 2008 to 2009 and 2020 to 2022, we generated returns that exceeded our 20 year averages for both our U S senior and junior debt loans and nearly all 100 to 500 basis points better.

Private activity is increasing spurred by the need for DPI prospects of lower rates and continued healthy cash flow growth.

And when we enter the next credit cycle, we believe it areas with its balance sheet light management fee centric model will be well positioned to outperform and even potentially accelerate growth for the reasons that I cited.

In order to outperform a firm must have capital to invest when others retrench on that point Ares possesses among the highest if not the highest amount of credit dry powder among our peers.

Operator: We'll move next to Bill Katz with Cowen. Please go ahead.

We continue to actively invest in growing and expanding our investment teams across products and geographies and when combined with our significant fundraising efforts, we're better positioned than ever before to provide a broad range of investment solutions to our investors around the globe.

[Analyst] (Autonomous Research): Okay, thank you very much. I joined a couple minutes late, so I apologize if this question is a bit redundant. Maybe just to change topics a little bit, I just wanted to give us an update on the GCP transaction. Seems like the integration is going very well from Jarrod's comments on the margin opportunity to next year. I wonder if you could talk a little bit about the growth opportunity, whether it be on the infrastructure side or the real estate side. Seems like still pretty fertile areas as well. Thank you.

I am excited to see how 2025 reps up and I believe that we have very strong momentum heading into next year.

Finally, we understand that we are now the largest eligible financial company not in the S&P 500 index and when that time comes we believe that entry would be beneficial to our shareholders.

Jarrod Phillips: Jarrod, do you want to handle that one?

Michael Arougheti: Hey, Mike. Hey, Bill. Great to hear from you. GCP is going very, very well, as I mentioned in my prepared remarks. We're really excited about a number of different phases of that transaction. You highlighted what I mentioned in the prepared remarks around our expense synergies, but you also highlighted there in your question too that things we're pretty excited about. One is the expansion of the real estate platform. As Mike mentioned, that took us to one of the three largest alternative real estate managers in the marketplace today. That gives us advantages of scale, it's helping us to build out our vertically integrated real estate platform, and it's making us a player globally in a number of different geographies that we didn't have a presence before. The second piece, and probably the most exciting piece, is the opportunities in data centers.

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

So maybe now to conclude.

And I think with that operator could you. Please open the line for questions.

At this time, if you would like to ask a question. Please press Star then one on your Touchtone phone.

Private activity is increasing spurred by the need for DPI prospects of lower rates and continued healthy cash flow growth.

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

Our first question comes from Alex Blaustein with Goldman Sachs. Please go ahead.

Hey, Mike Good morning, everybody.

Lots of good color on credit so I actually was going to ask you guys something on a different topic, which is about real estate and maybe real assets broadly. It feels like there is a number of green shoots across the real estate market as you pointed out.

Michael Arougheti: This is something I've talked to a lot of you about in the past, and we've talked to the market about pretty extensively, but we're very excited with the land that we've banked and the opportunity set that we have there. Not all data centers are necessarily created equal, and what we've looked for and what we've banked are urban-adjacent sites that will provide low latency to those urban centers and be very attractive to cloud computing and be a beneficiary of AI, but not necessarily dependent on AI.

So maybe you could expand a little bit how you envision.

Our franchise position in case LP appetite starts to normalize and resume in the real estate channel grows both the institutional basis as well as your wealth clients.

I'm excited to see how 2025 reps up and I believe that we have very strong momentum heading into next year.

Thanks, Alex.

Finally, we understand that we are now the largest eligible financial company not in the S&P 500 index and when that time comes we believe that entry would be beneficial to our shareholders.

I think as people know now our real estate business is global and I think we are the third largest institutional real estate manager in the market.

That gives us many of the benefits of scale that we've experienced over the years in other parts of our business in terms of origination.

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

Michael Arougheti: These are really high-quality sites that investors are looking forward to, and the ability to put them either into single-site funds like we did with our Japanese data center or to put them into funds that are commingled with a number of different sites in them is really exciting as we see that market demand on the fundraising side for these properties and these high-quality properties and the ability to grow off of that. Right now, we have about $6 billion in the ground that we're going to be able to develop and manage, and that will be leading our next series of funds. That's not to mention some of the smaller things around the edges, like the self-storage business, which we see meaningful tailwinds in and a lot of growth opportunities.

The ability to invest in portfolio management access to financing and I think most importantly.

And I think with that operator could you. Please open the line for questions.

Our transformation to a fully vertically integrated platform and so when you look at the business today, which as I think we've talked about before is largely concentrated in industrials and multifamily as our two highest conviction sectors. We now have the ability to develop.

At this time, if you would like to ask a question. Please press Star then one on your Touchtone phone.

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

Our first question comes from Alex Blaustein with Goldman Sachs. Please go ahead.

Through to asset manage the entirety of the business and that is a highly highly differentiated skill set.

Hey, Mike Good morning, everybody.

As you mentioned there are.

<unk> occurring in real estate, we are coming out of a period of pretty meaningful supply constraint in the market, which has supported values and rent growth across the portfolio.

Michael Arougheti: Really, across the growth front from GCP, it matches the profile of what we're trying to do as a business, which is continue to grow at that 16% to 20% FRE that we set out for you and the 20% plus RI targets that we've set out. This fits beautifully in that, and we're very excited to have them on board.

So maybe you could expand a little bit of how you envision.

Our franchise position in case LP appetite starts to normalize and resume in the real estate channel grows both the institutional basis as well as your wealth clients. Thanks.

And as we begin to see rates come down.

That's usually pretty constructive for real estate transaction volumes.

We're already beginning to see that if you were to look at our real estate deployment.

Thanks, Alex.

Operator: We'll go next to Brennan Hawken with BMO. Please go ahead.

I think as people know now our real estate business is global and I think we are the third largest institutional real estate manager in the market.

Quarter over quarter Q3 versus Q2, we deployed about 51% more than we did last quarter and if you were to look at year over year deployment and real estate around the globe, we're about 78% higher year on year. So we're already beginning to see the green shoots materialize and I think given our position.

Jarrod Phillips: Hi, thanks for taking my question. I wanted to touch on wealth and fundraising. Mike, you spoke to the floor being higher in fundraising, and it looked like you had a nice acceleration on the wealth front. You also spoke to offshore being particularly strong. Was there anything in particular in the quarter that caused the pickup in fundraising on wealth to be particularly noteworthy? Is this just a building pace that you expect to continue to see strengthen? Thanks. Sure. Yeah, we're super excited about the progress that we've made in wealth. I think, as folks know, we have eight semi-liquid products, all of which are growing nicely. We continue to add distribution partners and deepen our relationships with our existing platform partners as well. It was a very strong quarter, obviously.

That gives us many of the benefits of scale that we've experienced over the years in other parts of our business in terms of origination.

The ability to invest in portfolio management access to financing and I think most importantly.

I think it will be a pretty big beneficiary of that increased transaction volume.

Our transformation to a fully vertically integrated platform.

And we'll go next to Steven <unk> with Wolfe Research. Please go ahead.

So when you look at the business today, which as I think we've talked about before is largely concentrated in industrials and multifamily as our two highest conviction sectors. We now have the ability to develop.

Hi, good morning, and thanks for taking my question.

So also I appreciate the color Mike on.

Credit performance trends and historical perspective, I too I'm going to ask on a separate topic of fundraising just the momentum youre seeing is quite impressive, especially given the smaller contribution from campaign fundraising. This past year. So as we look ahead to next year, just given a more meaningful contribution or anticipated contribution and campaign fundraising.

Through to asset manage the entirety of the business and that is a highly highly differentiated skill set.

As you mentioned there are.

Tailwind occurring in real estate, we are coming out of a period of pretty meaningful supply constraint in the market, which has supported values and rent growth across the portfolio.

Jarrod Phillips: As you can see, Q4 is shaping up to probably be our second highest quarter on record relative to this quarter. We've seen $1.3 billion of equity in October, another $1.6 billion in November, and then we'll see how December shakes up. Q4 is shaping up to be a pretty strong quarter. I would highlight two things. It probably elevated the Q3 numbers slightly relative to the run rate going into Q4. Number one is we meaningfully launched our efforts in the Japanese market, and we saw very high demand in Q3 as we onboarded our platform partners there. I think we'll continue to see demand coming out of that market, but we won't get that big pop.

The near record transaction pipeline you cited how are you thinking about the outlook, especially versus a tough 2025 fundraising com and how will that mix of deployment potentially evolve as we look ahead to next year.

And as we begin to see rates come down that's.

Thats, usually pretty constructive for real estate transaction volumes.

Already beginning to see that if you were to look at our real estate deployment.

Yes, Thanks, Steve It's a good question we came into this year.

Quarter over quarter Q3 versus Q2, we deployed about 51% more than we did last quarter and if you were to look at year over year deployment and real estate around the globe, where about 78% higher year on year. So we're already beginning to see the green shoots materialize and I think given our position.

Giving you all commentary on two fronts, one that we felt given what we saw in the world that we might be able to surpass our prior record of <unk> $93 billion and here. We are now after three quarters.

Expressing high conviction that we in fact will that's obviously a function of outstanding underlying performance that supporting continued investor demand.

I think it will be a pretty big beneficiary of that increased transaction volume.

Also I think it just reflects the continued investment that we're making in our global distribution, both wealth and institutional.

Yeah.

Jarrod Phillips: Two, as some of these new funds are coming online, like an ACI or an SME, you tend to see a little bit of front-loaded demand as those funds are getting seated early in their distribution life cycle. I think Q4 is going to be really strong. My sense is it's shaping up to be the second highest, but it will probably fall short of Q3 just because of those few things I mentioned.

And we'll go next to Steven <unk> with Wolfe Research. Please go ahead.

Hi, good morning, and thanks for taking my question.

Interestingly when we came into this year it was in the absence of the large flagship credit funds.

So also appreciate the color on mic on.

That we made the prediction that we could beat our record and I think what thats demonstrating is the diversity of strategies is actually resonating with investors. We had over 40 funds in the market this year institutionally.

Operator: We'll go next to Ken Worthington with J.P. Morgan. Please go ahead.

And absent the large flagships, we have been able to to put forward the type of results.

[Analyst] (J.P. Morgan): Hi. Good morning. Thanks for taking the question. Can you talk about the acquisition of BlueCove and Liquid Credit and how it fits into the insurance capabilities and your operations there?

The near record transaction pipeline you cited how are you thinking about the outlook, especially versus a tough 2025 fundraising comp and how will that mix of deployment potentially evolve as we look ahead to next year.

We are as I mentioned in the prepared remarks, I think next year Youre going to see is tying up some of our large funds that are currently in the market opportunistic credit.

Jarrod Phillips: Yeah, thanks, Ken. It's a good question. We didn't talk about this a lot, but Ares started our partnership with BlueCove in 2023. We made a minority investment and began to spend time with the company. Took a seat on the company's board, began to actively collaborate with the platform in our insurance business, and our quantitative research group. We watched AUM go from about $1.8 billion to $5.5 billion. While still relatively small for Ares, we're seeing some pretty significant growth in demand. I think this is a very interesting complement to our existing actively managed loan and bond business. They have a very interesting systematic IG capability, which to your specific question, I think will be a meaningful value add to our affiliated insurance platform, as well as our third-party clients.

Some of our real estate funds and then we will give way to some of our flagship credit funds again like our Pathfinder series and potentially our senior direct lending fund.

Yes, Thanks, Steve It's a good question we came into this year.

Giving you all commentary on two fronts, one that we felt given what we saw in the world that we might be able to surpass our prior record of <unk> 93 billion and here. We are now after three quarters.

Lastly, I would just mention and then it's really the combination of wealth, but also just the way that the product portfolio has transformed to include open ended funds SMA is broad global strategic partnerships.

Expressing high conviction that we in fact will that's obviously a function of outstanding underlying performance that supporting continued investor demand.

Investments in growing our insurance business.

I'm a few the floor for annual fund raising just continues to be raised year in and year out and so unlike 10 years ago, where we saw much more volatility year over year. We go into any given year now just with a much higher level of conviction around what that what that base number could be so.

I also think it just reflects the continued investment that we're making in our global distribution, both wealth and institutional.

Interestingly when we came into this year it was in the absence of the large flagship credit funds.

We're pretty pretty excited about next year, obviously, we'll know more when we get into the year and we see what the market looks like and what our LP allocations are but we don't expect this to slow down.

We'll go next to Craig Siegenthaler with Bank of America. Please go ahead.

Jarrod Phillips: Our expectation is that the full acquisition will close in Q1, but that you're going to begin to see meaningful synergies as we introduce our global investor base to their capability set. We're super excited about them.

Absent the large flagships, we have been able to to put forward. The type of results that we are as I mentioned in the prepared remarks, I think next year youre going to see is tying up some of our large funds that are currently in the market opportunistic credit.

Craig Siegenthaler. Your line is open. Please go ahead.

Can you guys hear me okay.

Some of our real estate funds and then we will give way to some of our flagship credit funds again like our Pathfinder series.

[Analyst] (J.P. Morgan): Great. Thanks.

Yes.

Perfect sounds good morning, Mike Jared I hope everyone's doing well.

Operator: We'll go next to Michael Cypress with Morgan Stanley.

My question is on the potential for lower yields in private credit driven mostly by lower base rates. So how do you think investors will react to lower yields.

And potentially are senior direct lending fund.

[Analyst] (Morgan Stanley): Hey, good morning. Thanks for taking the question. I wanted to ask about asset-based finance, big market opportunity, but comprised of many different types of assets, as you noted, including some smaller niche areas. I was hoping you could talk about how you go after this market opportunity in scale, and talk about how you're expanding your sourcing funnel from partnerships to flow agreements, acquisitions, and how that sourcing funnel might evolve and look three to five years from now as compared to today.

Lastly, I would just mentioned and then it's really the combination of wealth, but also just the way that the product portfolio has transformed to include open ended funds SMA is broad global strategic partnerships.

That continues to cut.

So could we see software private credit fund raising if they pivot to other asset classes or do you expect some of that record cash and money market funds on the sidelines to provide a new source of flows.

Investments in growing our insurance business to name a few the floor for annual fund raising just continues to be raised year in and year out and so unlike 10 years ago, where we saw much more volatility year over year. We go into any given year now just with a much higher level of conviction around what that.

It's a good question, Craig I would say in terms of investor appetite.

About this before when we've been transitioning rate environments that the investor appetite for private credit exposure is not an expression of desire for absolute return, it's about relative return relative to the traded alter.

Jarrod Phillips: Yeah, I appreciate the question. Look, we've got one of the largest, if not the largest, businesses in the non-rated part of the market. As we've talked about, we just feel that the opportunity to lead there gives us high profit, high margin, really durable alpha, and the ability to deliver differentiated performance to our investors. That's not to say that we're not focused on the IG part of the market. About 50% of our business continues to be in the rated side of the business, but we think that we need to be balanced between the IG and the non-IG part of the market. Depending on where we are, that's obviously going to drive sourcing differently. We have close to 100 people in that business now.

What that base number could be so we're we're pretty pretty excited about next year. Obviously, we'll know more when we get into the year and we see what the market looks like and what our LP allocations are but we don't we don't expect this to slow down.

Alternatives.

When you look at where private credit spreads are both high grade and sub investment grade they are still offering a significant amount of excess return.

We'll go next to Craig Siegenthaler with Bank of America. Please go ahead.

Relative to the loan market the bond market and the market. If you look at private credit spreads today.

There are probably 225 basis points in excess of the traded alternative and that's kind of right in line with what we've seen historically.

Craig Siegenthaler. Your line is open. Please go ahead.

Can you guys hear me okay.

Yes.

If you look at the numbers that are coming through real time in wealth.

Perfect sounds good morning, Mike Jared I hope everyone's doing well.

Jarrod Phillips: They are doing everything from calling directly on specialty finance companies and aggregators, building relationships with banks to have flow agreements across the asset waterfront, and in some instances, acquiring minority or control positions in asset aggregation platforms themselves. Unlike some of our peers, we've probably been less focused exclusively on platform acquisition. We've done it, but it's not the core way that we're thinking about sourcing. I think we'll continue to do it in situations where we see durable demand from our clients for a certain asset type where we think that we want to lock in flow. I think the bank conversation is continuing. The combination of SRTs, portfolio purchases, and forward flow agreements continues to be a big driver of deployment there.

My question is on the potential for lower yields in private credit driven mostly by lower base rates. So how do you think investors will react to lower yields if the fed continues to cut.

October and November were just not seeing any negative investor reaction to a shift in base rates.

Also highlight that if you were to go look at the disclosures in ARCC.

So could we see softer private credit fund raising if they pivot to other asset classes or do you expect some of that record cash and money market funds on the sidelines to provide a new source of flows.

<unk>.

The business model is just not that sensitive to a decline in rates. Our historical experience has been that when rates are coming down two things happen one credit spreads typically widen and we've actually seen a modest widening already taking place within the private market and then to transaction activity.

It's a good question, Craig I would say in terms of investor appetite.

Talked about this before when we've been in transitioning rate environments that the investor appetite for private credit exposure is not an expression of desire for absolute return, it's about relative return relative to the traded.

Tends to pick up dramatically.

And deployment increases in fees go up so when you look at the impact of lower rates generally on the business. It tends to be a net tailwind not a net headwind.

Alternatives and when you look at where private credit spreads are both high grade and sub investment grade Theres still offering a significant amount of excess return.

And we'll go next to Patrick Davitt with Autonomous Research. Please go ahead.

Relative to the loan market the bond market and the market. If you look at private credit spreads today.

Hi, good morning. Thanks.

Jarrod Phillips: When you look at the gross deployment trends in the business, we're just seeing a significant uptick as we head into the end of the year. If you look at Q3 versus Q2, we had nearly double the deployment in that part of the business. If you look year over year, it's well in excess of 30%. The pipeline in that business, particularly going into Q4 and Q1, is significant. I think the momentum continues, and as I mentioned, we'll be coming into the market with our next vintage fund early in the new year.

Just touching on the point you just made on spread obviously had some wobbles in the bank loan market had some deals pulled and reprice, which theoretically to your point I think it should be good for direct lending dynamics. So curious if youre seeing any sign that banks are getting more conservative so potentially less competitive and through that lens.

There are probably 225 basis points in excess of the traded alternative and that's kind of right in line with what we've seen historically.

If you look at the numbers that are coming through real time in wealth.

October and November were just not seeing any negative investor reaction to a shift in base rates I would also highlight that if you were to go look at the disclosures in ARCC.

The new origination spreads tracked through <unk> and looking so far in <unk>. Thank you.

Yes.

I think cort and team did a good job talking about our positioning on the ARCC earnings call and we've tried as best we can globally to maintain a broad exposure to all parts of the private credit market from lower middle market through the upper <unk>.

<unk>.

Operator: We'll go next to Ben Boudish with Barclays. Please go ahead.

[Analyst] (Deutsche Bank): Hi, good morning, and thanks for taking the question. I was wondering if you could unpack the deployment in the quarter a little bit more. I think the sequential step-up was quite a bit larger than I think a lot of folks expected. You talked about the pipeline sort of remaining near your all-time highs. Was there anything that stood out this quarter? Should this be a number that is repeatable in upcoming quarters? You talked about, again, a very robust pipeline, a lot of opportunity in the next few quarters, but just curious if anything stood out, anything unusual that may not be repeatable in the near term. Thank you.

Non sponsored sponsored with really deep.

Industry capabilities not to mention all of the great work that we do in our ABS.

Business and so when we're looking at the bank behavior at the top end of the market.

Tends to pick up dramatically.

And deployment increases and fees go up so when you look at the impact of lower rates generally on the business. It tends to be a net tailwind not a net headwind.

It's just less relevant to us than it is to I think other players are having made the investments in that core middle market origination.

I would say right now, we're not seeing a meaningful pullback in risk appetite.

And we'll go next to Patrick Davitt with Autonomous Research. Please go ahead.

Jarrod Phillips: Yeah, no, I don't think there's anything special other than, as we've talked about, the transaction market is coming back to life. It's a combination of just strong economic fundamentals, a decline in rates, or at least a forward trajectory of declining rates, and a general pro-business, deregulatory tone coming out of the current administration that I think is bringing capital into the market. What I've been so pleased with, if you look at the deployment, it's been very broad-based across each of our businesses. We don't have one asset class or one geography that's really driving the deployment. There have been quarters in prior years where we've seen, for example, direct lending carrying a significant amount of weight. When you look at the distribution of the deployment, it is very broad-based, and I would expect that to continue.

But we are seeing spread moderation in our market and we probably saw 25 basis points of spread widening in the third quarter and that may.

Hi, good morning. Thanks.

May persist and continue.

As volumes pick up in the supply demand in the market gets back to stasis. That's generally a good thing for spreads as well so even if we're in an environment, where banks are still taking risk when transaction volumes pick up we said, we tend to see more price stability.

The new origination spreads track through <unk> and looking so far in <unk>. Thank you.

I think the good news for US is if it happens we can go in and take share and if the banks continue to drive volumes into the loan and bond market. Obviously, that's a big boon to our liquid credit business and we tend to participate there so.

Yes.

<unk> always felt like we were well hedged against that that behavior at the upper end of the market.

Non sponsored sponsored with really deep.

Industry capabilities not to mention all of the great work that we do in our ABS.

And we'll move next to Bill Katz with Cowen. Please go ahead.

Business and so when we're looking at the bank behavior at the top end of the market.

Operator: Our next question comes from Brian McKenna with Citizens. Please go ahead.

Michael Arougheti: Okay, great. Thanks. Good morning, everyone. You had a great outcome in the quarter for a direct lending portfolio company. It was actually an underperforming asset that was previously on non-accrual status. The investment got restructured. It became the equity owner. You actually sold it in the quarter for $260 million and generated a 15% IRR on the investment. That's probably more than what you would have generated if the loan had performed. How critical is your portfolio management and workout capabilities to get outcomes like this? Can you just remind us of historical recovery rates within your direct lending business?

Just less relevant to us than it is I think other players who haven't made the investments in that core middle market origination.

Seems like the integration is going very well from <unk> comments on the margin opportunity into next year I Wonder if you could talk a little bit about the growth opportunity whether it be on the infrastructure side of the real estate side. It seems like still pretty fertile areas as well. Thank you.

I would say right now, we're not seeing a meaningful pullback in risk appetite.

But we are seeing.

Fred moderation in our market and we probably saw 25 basis points of spread widening in the third quarter and that May may persist and continue.

Okay.

Karen do you want to handle that one.

Hi, Mike.

Okay, great to hear from you.

GPP is going very very well as I mentioned in my prepared remarks, we're really excited about it.

As volumes pick up in the supply demand in the market.

Gets back to stasis, that's generally a good thing for spreads as well so even if we're in an environment, where banks are still taking risk when transaction volumes pick up we said, we tend to see more price stability.

Number of different phases of that transaction.

Jarrod Phillips: Sure. I'm glad you highlighted it because, again, when we spend time talking about how you create value, we're trying to anchor people on the loan-to-value statistics within the portfolio. The reason that's so important, and this is a perfect example, is if you were sitting in a capital structure at 40% loan-to-value and there's 60% of the equity below you, that gives you a significant amount of optionality to capture or recapture all or a portion of that equity value when a company or an asset underperforms. If you go back and look at our 30-year history, we've actually had 100 basis points plus of positive impact to our returns because of that phenomenon. Now, in order to do that, to your question, you need very deep, very experienced portfolio management and restructuring teams. I think we probably have the largest capability in the market.

You highlighted I mentioned in the prepared remarks around our expense synergies.

You also highlighted there in your question to the things we're pretty excited about one is the expansion of the real estate platform and as Mike mentioned that took us to one of the three largest.

Alternative real estate managers in the marketplace today that gives us advantages of scale that is helping us to build out our vertically integrated real estate platform.

And that's making US a player globally in a number of different geographies that we didn't have a presence before the second piece and probably the most exciting pieces the opportunities in data centers. This is something I've talked to a lot of you about in the past and we've talked to the market about pretty extensively, but we're very excited with.

And we will move next to Bill Katz with Cowen. Please go ahead.

Okay. Thank you very much joined a couple minutes late so I apologize. If this question is if it redundant and maybe just to change topics. So I was wondering if you give us an update on the <unk> transaction. It seems like the integration is going very well from Jarrett his comments on the margin opportunity into next year, but wonder if you could talk a little bit about the growth opportunity whether it be on the <unk>.

The land that we banked and the opportunity set that we have theyre not all data centers are necessarily created equal and what we've looked for and what we bank are urban adjacent sites that will provide low latency to the to those urban centers and be very attractive to cloud <unk>.

Infrastructure side of the real estate side, it seems like still pretty fertile areas as well. Thank you.

Jarrod Phillips: Last I checked, directionally, we probably have 65 people doing that business in the US and maybe 35 or 40 people doing that business in Europe. Our portfolio management team is probably larger than most people's entire teams that are competing with us in private credit. I think this is going to be critical. You're going to see dispersion of return when we hit a cycle. In order to capture this upside, you need not just portfolio management capability, but you need dry powder. As we've talked about, we're always making sure that we're going into any potential cycle with enough liquidity to actually capture that option value.

Okay.

Karen do you want to handle that one.

Hi, Mike.

<unk> and be a beneficiary of AI, but not necessarily dependent on AI. So these are really high quality sites that investors are looking forward to and the ability to put them either in two single site bonds like we did with our Japanese data center or to put them into funds that are co mingled with number.

Bill Great to hear from you.

GPP is going very very well as I mentioned in my prepared remarks were really excited about a number of different phases of that transaction.

You highlighted what I mentioned in the prepared remarks around our expense synergies, but you also highlighted there in your question to the things we're pretty excited about one is the expansion of the real estate platform and as Mike mentioned that took us to one of the three largest alternative real estate managers in the marketplace today that gives us.

Different sites on them is really exciting as we see that market demand on the fundraising side for these properties in these high quality properties and the ability to grow off of that right. Now we have about $6 billion in the ground that we're going to be able to develop and manage.

Vantage is a scale that is helping us to build out our vertically integrated real estate platform.

Jarrod Phillips: In terms of recovery rates, if you were to look historically, US direct lending, and we look at this kind of on an MOIC, meaning front to back, what did I recover, it's about $0.93, or 93%, in US direct lending and 95% in European direct lending.

And that will be leading our next series of funds and that's not to mention some of the smaller things around the edges like the self storage business, which we see meaningful tailwind.

And it's making us a player globally in a number of different geographies that we didn't have a presence before the second piece and probably the most exciting pieces the opportunities in data centers. This is <unk>.

And a lot of growth opportunity, so really across the growth front from GPP matches. The profile of what we're trying to do as a business, which has continued to grow at that 16% to 20% FRE that south for you on the 20% plus ROIC targets that we've set out.

Something I've talked to a lot of you about in the past and we've talked to the market about pretty extensively, but we're very excited with the land that we've banked and the opportunity set that we have theyre not all data centers are necessarily created equal in what.

Operator: We'll go next to Brian Bedell with Deutsche Bank. Please go ahead.

[Analyst] (Deutsche Bank): Great. Thanks. Good morning. Thanks for taking my question. Maybe just to come back to comments you had at the opening, Mike, about the credit cycle and the idiosyncratic instances of fraud. We have had a few just in a very short time frame in the industry. Do you think there's anything structurally going on in the industry aside from a credit cycle that is creating these fraud events? Is this something that could be a concern for retail investors? I guess, what kind of questions are you getting from your financial advisor partners regarding this?

Yes.

Beautifully in that and we're very excited to have him on board.

We've looked for and what we banked or urban adjacent sites that will provide low latency to the.

And we'll go next to Brennan Hawken with BMO. Please go ahead.

Those urban centers and be very attractive to cloud computing and be a beneficiary of AI, but not necessarily dependent on AI. So these are really high quality sites that investors are looking forward to and the ability to put them either in two single site bonds like we did with our Japanese data center or to put them in.

Hi, Thanks for taking my question I wanted to touch on well.

Fundraising.

Mike spoke to the floor being higher in fundraising and it looks like you had a nice acceleration on the wealth front.

You also spoke to offshore being particularly strong was there anything in particular in the quarter that caused the pickup in fund raising on wealth to be particularly noteworthy.

Two funds that are co mingled with number of different sites on them is really exciting as we see that market demand on the fundraising side for these properties in these high quality properties and the ability to grow off of that right. Now we have about $6 billion in the ground that we're going to be able to develop and manage.

Or is this just a building pace that you expect to continue to see strength. Thanks.

Jarrod Phillips: Yeah, it's a good question. To be honest with you, it's a little bit of a head-scratcher because everything that we're seeing tells an opposite story. When you look at bank earnings, when you look at the top five banks in the country, they showed no meaningful increase in loan loss reserves. When you look at the card companies, you're not seeing any meaningful pickups or spikes in delinquencies and charge-offs. There's this kind of growing narrative about credit concern, but when you look at all of the data from the largest pools of capital, you're just not seeing it. It is altogether possible that it's just idiosyncratic and coincidental. I think we have to allow for that possibility.

Sure, Yes, we're super excited about the progress that we've made in well.

I think as folks know, we have a semi liquid products all of which are growing nicely.

And that will be leading our next series of funds and that's not to mention some of the smaller things around the edges like the self storage business, which we see meaningful tailwind and a lot of growth.

Continue to add distribution partners and deepen our relationships with our existing.

Platform partners as well.

Opportunity, so really across the growth front from DCP. It matches the profile of what we're trying to do as a business, which has continued to grow at that 16% to 20% FRE that we set out for you at <unk>.

It was a very strong quarter, obviously as you can see Q4 is shaping up to probably be our second highest quarter on record relative to this quarter. We've seen $1 3 billion of equity in October another one 6% in November and then we will see how December shakes up.

20% plus targets that we've set out.

Beautifully in that and we're very excited to have them onboard.

And we will go next to Brennan Hawken with BMO. Please go ahead.

Q4 is shaping up to be a pretty strong quarter I would highlight two things that probably elevated the Q3 numbers slightly relative to the run rate going into Q4 number one is we meaningfully launched our efforts in the Japanese market.

Jarrod Phillips: The other thing, it is possible that as the cycle progresses and deal flow is picking up, you have a lot of people that kind of want to participate in the growth in private credit. It is altogether possible that some of the smaller players, or new entrants, or the banks are taking risks or distributing risks that otherwise wouldn't be taken by some of the incumbents. If you look at our ABF business, for example, we have a list of things that we think are always interesting, sometimes interesting, and never interesting. Trade finance is kind of at the very top of the list of things that we just categorically avoid for some of these reasons, just in terms of collateral monitoring and the opportunities for fraud.

Hi, Thanks for taking my question.

Wanted to touch on well.

Im raising.

Mike you spoke to the floor being higher in fundraising and it looks like you had a nice acceleration on the wealth front.

And we saw very high demand in Q3 as we on boarded our platform partners. There I think we'll continue to see demand coming out of that market, but we won't get that big that big pop and then two as some of these new funds are coming online like in ACI or an SME you tend to see a little bit.

Also spoke to offshore being particularly strong was there anything in particular in the quarter that caused the pickup in fund raising on wealth to be particularly noteworthy.

Or is this just a building pace that you expect to continue to see strengthened thanks.

Frontloaded demand.

Sure, Yes, we're super excited about the progress that we've made in wealth.

As those funds are getting seeded early in their distribution lifecycle. So I think Q4 is going to be really strong my sense is it's shaping up to be the second highest but it will probably fall short of Q3, just because of those few things I mentioned.

As folks know we have a semi liquid products all of which are growing nicely. We continue to add distribution partners and deepen our relationships with our existing.

Jarrod Phillips: It could be a little bit of just an indication that there's growth in the sector and people are looking for ways to compete and maybe taking risks they shouldn't or taking risks that they don't understand. I don't think that that is a read across to the industry, and I think that's important. This industry is fairly well concentrated in the hands of the largest platforms. 65% and growing of the assets that get raised and deployed are in the hands of the large incumbents that I think are focused on the right types of risks and the right types of structures. When you see these types of things pop up, obviously, it's noteworthy. It's getting a lot of attention, but I don't see anything in our numbers or the adjacent numbers that we see that would indicate that it's anything more than kind of coincidental at this point.

Platform partners as well.

And we'll go next to Ken Worthington with Jpmorgan. Please go ahead hi.

It was a very strong quarter, obviously as you can see Q4 is shaping up to probably be our second highest quarter on record relative to this quarter. We've seen $1 3 billion of equity in October another one six in November and then we'll see how December shakes up but.

Hi, Good morning, Thanks for taking the question can you talk about the acquisition of Blue curve in liquid credit how it fits into the insurance capabilities in your operations there.

Yes, Thanks, Ken it's a good question.

We didn't talk about this a lot but areas started our partnership with Blue curve in 2023, we made a minority investment.

Q4 is shaping up to be a pretty strong quarter I would highlight two things it probably elevated the Q3 numbers slightly relative to the run rate going into Q4 number one is we meaningfully launched our efforts in the Japanese market and.

And began to spend time with the company.

Took a seat on the Companys board began to actively collaborate with the platform in our insurance business and our quantitative research group.

We saw very high demand in Q3 as we on boarded our platform partners. There I think we'll continue to see demand coming out of that market, but we won't get that big that big pop and then two as some of these new funds are coming online like in ACI or an SME you tend to see a little bit of.

We watched AUM gopher about $1 8 billion to $5 5 billion and so while still relatively small for areas. We are seeing some pretty significant.

Operator: Thank you. I will now turn the call back to Mr. Arougheti for any closing remarks.

Growth in demand.

Jarrod Phillips: I don't have any other than we're obviously really excited with the performance that we had this quarter. The momentum in the business continues, and we're looking forward to giving you all the update on our Q4 performance on the next earnings call. Thanks for joining us today.

This is a very interesting complement to our existing actively managed.

<unk> loaded demand.

Loan and bond business.

And they have a very interesting systematic IAG capability, which to your specific question I think it will be a.

Operator: 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 3 December 2025 to domestic callers by dialing 1-800-839-4992, and to international callers by dialing 1-402-220-2686. An archived replay will also be available on a webcast link located on the homepage of the investor resources section of our website.

Value add to our affiliated insurance platform as well as our third party clients.

And we'll go next to Ken Worthington with Jpmorgan. Please go ahead.

Our expectation is that the.

The full acquisition will close in Q1.

Hi, Good morning, Thanks for taking the question can you talk about the acquisition of Blue curve in liquid credit and how it fits into the insurance capabilities in your operations there.

But that youre going to begin to see meaningful synergies as we introduce our global investor base to their capability set so we're super excited about it.

Yes, Thanks, Ken it's a good question.

Great. Thanks.

And talk about this a lot but areas started our partnership with Blue curve in 2023, we made a minority investment.

We'll go next to Michael Cyprus with Morgan Stanley.

Hey, good morning, Thanks for taking the question I wanted to ask about asset based finance big market opportunity, but comprised of many different types of assets as you noted, including some smaller niche areas. I was hoping you could talk about how you go after this market opportunity and scale and talk about how you're expanding your sourcing funnel from partnerships to flow agreements.

And began to spend time with the company took.

Took a seat on the Companys board began to actively collaborate with the platform in our insurance business and our quantitative research group.

We watched AUM gopher about $1 8 billion to $5 5 billion and so while still relatively small for areas, we're seeing some pretty significant.

<unk> and how that sourcing funnel might evolve and look three to five years from now as compare to today.

Growth in demand I think this is a very interesting complement to our existing actively managed.

Okay. I appreciate the question look we've got one of the largest if not the largest businesses in the non rated part of the market and as we've talked about we just feel that the opportunity to lead there.

Loan and bond business.

And they have a very interesting systematic IAG capability, which to your specific question I think will be a meaningful value add to our affiliated insurance platform as well as our third party clients.

Gives us high profit high margin.

Really durable alpha and the ability to deliver.

Differentiated performance to our investors that's not to say that we're not focused on the part of the market about 50% of our business continues to be in the rated side of the business, but we think that we need to be balanced between the <unk> and the non <unk> part of the market.

Our expectation is that the the full acquisition will close in Q1.

<unk>.

But that youre going to begin to see meaningful synergies as we introduce our global investor base to their capability set so we're super excited about it.

Depending on where we are and Thats, obviously going to drive sourcing differently. We have close to 100 people in that business now.

Great. Thanks.

We will go next to Michael Cyprus with Morgan Stanley.

We're doing everything from calling directly on specialty finance companies and Aggregators building relationships with banks.

To have flow agreements across.

The asset waterfront.

And in some instances acquiring minority or control positions in asset aggregation platforms themselves.

Position and how that sourcing funnel might evolve and look three to five years from now as compare to today.

Unlike some of our peers, we've probably been less focused exclusively on platform acquisition.

We've done it but it's not the core way that we're thinking about sourcing I think we'll continue to do it in situations, where we see durable demand from our clients for certain asset types, where we think that we want to lock in Lac inflow.

Yes I appreciate the question look we've got one of the largest if not largest businesses in the non rated part of the market as we've talked about we just feel that the opportunity to lead there.

I think the bank conversation is.

Gives us high profit high margin.

Continuing.

The combination of Srt's portfolio purchases and forward flow agreements continues to be a big.

Really durable alpha and the ability to deliver.

Differentiated performance to our investors that's not to say that we're not focused on the <unk> part of the market about 50% of our business continues to be in the rated side of the business, but we think that we need to be balanced between the Iga and the non <unk> part of the market.

Big driver of deployment, there and when you look at the gross deployment trends.

In the business, we're just seeing a significant uptick as we head into the end of the year. If you look at Q3 versus Q2, we had nearly doubled the deployment.

Depending on where we are and Thats, obviously going to drive sourcing differently. We have close to 100 people in that business now that.

And that part of the business and if you look year over year, it's well in excess of 30% and the pipeline in that business, particularly going into Q4 and Q1 is significant so I think the momentum continues as I mentioned will be coming into the market with our next vintage fund early in the new year.

They are doing everything from calling directly on specialty finance companies and Aggregators building relationships with banks.

To have flow agreements across.

The asset waterfront.

And in some instances acquiring minority or control positions in asset aggregation platforms themselves.

We'll go next to Ben <unk> with Barclays. Please go ahead.

Unlike some of our peers, we've probably been less focused exclusively on platform acquisition.

Hi, good morning, and thanks for taking the question.

I was wondering if you could unpack the deployment in the quarter a little bit more I think the sequential step up was quite a bit larger than I think a lot of folks expected. If you could talk about the pipeline and sort of remaining mirror your all time highs.

We've done it but it's not the core way that we're thinking about sourcing I think we will continue to do it in situations, where we see durable demand from our clients for a certain asset types, where we think that we want to lock in Lac inflow.

Was there anything that stood out this quarter should should this be a number that is repeatable in upcoming quarters.

You talked about it but again, a very robust pipeline a lot of opportunity in the next few quarters, but just curious if anything stood out anything unusual that.

I think the bank conversation is.

Continuing.

The combination of Srt's portfolio purchases and forward flow agreements continues to be a big.

Not be repeatable in the near term. Thank you.

No I don't think Theres anything.

Big driver of deployment, there and when you look at the gross deployment trends in.

Special other than as we've talked about the transaction market is coming back to life.

In the business, we're just seeing a significant uptick as we head into the end of the year. If you look at Q3 versus Q2, we had nearly doubled the deployment.

A combination of just strong economic fundamentals.

The decline in rates or at least a forward trajectory of declining rates and a general probe business Deregulatory tone.

And that part of the business and if you look year over year, it's well in excess of 30% and the pipeline in that business, particularly going into Q4 and Q1 is as significant so I think the momentum continues and as I mentioned will be coming into the market with our next vintage fund early in the new year.

Coming out of the current administration and that I think is bringing capital into the market what I've been so pleased with if you look at the deployment its been very broad based across each of our businesses. We don't have one asset class or one geography, thats really driving the.

The deployment there have been quarters in prior years, where we've seen for example direct lending.

We'll go next to Ben <unk> with Barclays. Please go ahead.

Carrying a significant amount of weight, but when you look at the.

Hi, good morning, and thanks for taking the question.

I was wondering if you could unpack the deployment in the quarter a little bit more I think the sequential step up was quite a bit larger than I think a lot of folks expected you talked about the pipeline sort of remaining near all time highs.

The distribution of the deployment it is very broad based and I would expect that to continue.

Our next question comes from Brian Mckenna with citizens. Please go ahead.

Was there anything that stood out this quarter should should this be a number that is repeatable in upcoming quarters.

Okay. Great. Thanks, Good morning, everyone. So you had a great outcome in the quarter for direct lending portfolio company, there's actually an underperforming asset that was previously on non accrual status. The investment got restructured it became an equity owner.

You talked about it but again, a very robust pipeline a lot of opportunities in the next few quarters, but just curious if anything stood out to anything unusual that may not be repeatable in the near term. Thank you.

We saw it in the quarter for $260 million and generated a 15% IRR on the investment and that's probably more than what you would have generated alone had performed so how critical is your portfolio management and workout capabilities to get outcomes. Like this and then can you just remind us of historical recovery rates within your direct lending business.

Yes, no I don't think Theres anything.

Special other than as we've talked about the transaction market is coming back to life.

A combination of just strong economic fundamentals.

The decline in rates or at least the forward trajectory of declining rates and a general pro business Deregulatory tone.

Sure.

I'm glad to highlight it because again when we spend time talking about how you create value.

We're trying to anchor people on the loan to value statistics.

Within the portfolio and the reason that's so important and this is a perfect example is if you're sitting in a capital structure at 40% loan to value and there are 60% of the equity below you.

The deployment there have been quarters in prior years, where we've seen for example direct lending.

That gives you a significant amount of optionality to capture or recapture all or a portion of that equity value when a company or an asset underperforms and if you go back and look at our 30 year history.

Herring, a significant amount of weight, but when you look at the the distribution of the deployment. It is very broad based and I would expect that to continue.

Our next question comes from Brian Mckenna with citizens. Please go ahead.

We've actually had a 100 basis points plus of positive impact to our returns because of that phenomenon now in order to do that to your question you need very deep very experience.

Okay. Great. Thanks, Good morning, everyone. So you had a great outcome in the quarter for direct lending portfolio company was actually.

An underperforming asset that was previously on non accrual status. The investment got restructured it became an equity owner you actually saw it in the quarter for $260 million and generated a 15% IRR on the investment and Thats, probably more than what you would have generated alone had performed so how critical is your portfolio management work.

Portfolio management and restructuring teams.

I think we probably have the largest capability in the market last night check Directionally, we probably have 65 people doing that business in the U S and maybe 35 or 40 people doing that business in Europe. So our portfolio management team is probably larger than most people's entire teams that are competing with us in <unk>.

Out capability to get outcomes like this and then can you just remind us of historical recovery rates within your direct lending business.

Private credit.

Sure.

I think this is going to be critical youre going to see dispersion of return when we hit a cycle.

Glad you highlight it because again when we spend time talking about how you create value.

In order to capture this upside you need not just portfolio management capability, but we need dry powder and so as we've talked about we're always making sure that we're going into any potential cycle with with enough liquidity to actually capture that option value.

We're trying to anchor people on the loan to value statistics.

Within the portfolio and the reason that's so important and this is a perfect example is if you're sitting in a capital structure at 40% loan to value and there are 60% of the equity below you.

In terms of recovery rates, if you were to look historically.

U S direct lending and we look at this kind of an MLC, meaning front to back what did I.

What did I recovered that 93.

93% in U S direct lending and 95% and European direct lending.

We've actually had 100 basis points plus of positive impact to our returns because of that phenomenon now in order to do that to your question you need very deep very experience.

And we'll go next to Brian Bedell with Deutsche Bank. Please go ahead.

Great. Thanks. Thanks. Good morning, Thanks for taking my question, maybe just to come back to comments you had at the opening Mike about the credit cycle and.

Portfolio management and restructuring teams.

We probably have the largest capability in the market last I checked directionally, we probably have 65 people doing that business in the U S and maybe 35 or 40 people doing that business in Europe. So our portfolio management team is probably larger than most people's entire teams that are competing with us in price.

I think credit instances.

Fraud.

We have had a few just in a very short timeframe in the industry do you think there is anything structurally going on in the.

Industry aside from a credit cycle that is.

But credit.

This is creating these fraud events and it's something that.

I think this is going to be critical youre going to see dispersion of return when we hit a cycle.

That could be a concern for our retail investors I guess, what kind of questions are you getting from your financial advisor partners regarding this.

In order to capture this upside you need not just portfolio management capability, but you need dry powder and so as we've talked about we're always making sure that we're going into any potential cycle with with enough liquidity to actually capture that option value in terms of.

Yes, it's a good question to be honest with you, it's a little bit of a head scratcher because everything that we're seeing.

Tells an opposite story.

And when you look at Bank earnings when you look at the top five banks in the.

Recovery rates, if you were to look historically.

<unk> they showed no meaningful increase in loan loss reserves. When you look at the card companies youre, not seeing any meaningful pickups or spikes.

U S direct lending and we look at this kind of an MLR IC, meaning front to back what did I.

What did I recovered that 93.

93% in U S direct lending and 95% and European direct lending.

In delinquencies and charge offs. So there is kind of growing narrative about credit concern, but when you look at all of the data from the largest pools of capital that just you're just not seeing it.

And we'll go next to Brian Bedell with Deutsche Bank. Please go ahead.

Great. Thanks. Thanks. Good morning, Thanks for taking my question, maybe just to come back to comments you had at the opening Mike about the credit cycle and the <unk>.

So it is altogether possible.

Idiosyncratic and coincidental and.

And I think we have to allow for that possibility.

The other thing and it's it is possible that as the cycle progresses and deal flow is picking up you have a lot of people that want to participate in the growth in private credit.

Eddie idiosyncratic instances of fraud.

We have had a few just in a very short timeframe in the industry. Do you think there is anything structurally going on in the industry. You know aside from a credit cycle that is <unk>.

And it is altogether possible that some of the smaller players or new entrants.

It is creating these fraud events and is this something that.

Or the banks are taking risks or distributing risks that otherwise wouldn't be taken by some of the incumbents.

That could be a concern for retail investors I guess, what kind of questions are you getting from your financial advisor partners regarding this.

You look at our ABS business. For example, we have a list of things that we think are always interesting sometimes interesting and never interesting in trade finance is kind of at the very top of the list of things that we just categorically avoid.

Yes, it's a good question to be honest with you, it's a little bit of a head scratcher because everything that we're seeing.

Tells an opposite story.

And when you look at Bank earnings when you look at the top five banks in the.

For some of these regions just in terms of collateral monitoring and the opportunities for fraud.

<unk> they showed no meaningful increase in loan loss reserves. When you look at the card companies youre, not seeing any meaningful pickups or spikes in delinquencies and charge offs. So there's this kind of growing narrative about credit concern, but when you look at all of the data from the largest pools of <unk>.

It could be a little bit of just an indication that there is growth in this sector are people are looking for ways to.

To compete in maybe taking risks they should in or taking risks that they don't understand but I don't think that that is a read across to the industry and I think that's important.

Capital.

Youre just not seeing it.

This industry is fairly well concentrated in the hands of the largest platforms, 65% and growing of the assets that get raised and deployed or in the hands of the large incumbents that I think are focused on the right types of risks and the right types of structures and so when you see these types of things pop up obviously.

So it is altogether possible that it's just idiosyncratic and coincidental.

And I think we have to allow for that possibility.

The other thing and it's just it's it is possible that as the cycle progresses and deal flow is picking up you have a lot of people that want to participate in the growth in private credit.

It's noteworthy it is getting a lot of attention, but I just don't I don't see anything in our numbers or the adjacent numbers that we see that would indicate that its anything more than kind of coincidental at this point.

And it is altogether possible that some of the smaller players or new entrants or.

Or the banks are taking risks or distributing risks that otherwise wouldn't be taken by some of the incumbents. If you look at our ABS business. For example, we have a list of things that we think are always interesting sometimes interesting and never interesting in trade finance is kind of at the <unk>.

Thank you I will now turn the call back to Mr. <unk> for any closing remarks.

I don't I don't have any other than we're obviously really excited with the performance that we had this quarter the momentum in the business continues.

We're looking forward to giving you all the update on our Q4 performance on the next earnings call. So thank you for joining us today.

Top of the list of things that we just categorically avoid.

For some of these regions just in terms of collateral monitoring and the opportunities for fraud.

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

It could be a little bit of just an indication that there is growth in the sector and people are looking for ways to to compete in maybe taking risk they should in or taking risks that they don't understand but I don't think that that is a read across to the industry and I think that's important. This this industry is fairly well.

You missed any part of today's call an archived replay of this conference call will be available through December 3rd 2025 to domestic callers by dialing one 880 39499 and to international callers by dialing one 400 222268.

And archived replay will also be available on a webcast link located on the homepage of the Investor resources section of our website.

<unk> in the hands of the largest platforms, 65% and growing of the assets that get raised and deployed or in the hands of the large incumbents that I think are focused on the right types of risks and the right types of structures and so when you see these types of things pop up obviously its noteworthy it's getting a lot of attention, but I just.

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Don I don't see anything in our numbers or the adjacent <unk>.

Number is that we see that would indicate that its anything more than kind of coincidental at this point.

Uh huh.

Okay.

Yeah.

Thank you I will now turn the call back to Mr. <unk> for any closing remarks.

I don't I don't have any other than we're obviously really excited with the performance that we had this quarter the momentum in the business continues and we're looking forward to giving you all the update on our Q4 performance on next earnings call. So thank you for joining us today.

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 December 3rd 2025 to domestic callers by dialing one 808, 39, 49, 99 and to international callers by dialing one.

402220268.

And archived replay will also be available on a webcast link located on the homepage of the Investor resources section of our website.

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