Marc Rowan: So I’m just going to leave you with this following sense, Alex. What we’re trying to do here is similar to what we’re doing in the rest of the business. As you know, I’ve said publicly, certainly for high net worth families, family offices, I think they will be 50% plus alternatives over the next five years. And we’re seeing that kind of uptake and traction. The difference between where we are and where I think we’re going to be is only education. When we say we’re on a platform, one of the big private banks, it may be 5% or 10% of the financial advisors. This is an education, an evangelical activity with more and more converts every day. And so if you take AAA, and I know you premised your question as a complex product, I’ll make it an easier product.
You can buy the S&P 500 at a 50 PE or you could buy roughly the same historical return at a much higher sharp ratio and give up liquidity. That is the choice we’re actually seeing investors make. And while private markets are something that many on this call and we are very familiar with, the vast majority of investors thinking back over the 40 years, they’ve been doing just fine, owning the S&P and the 30-year treasury. And my point of starting where I started is I don’t think with the absence of tailwinds, people are going to get the same performance. I don’t think what I’m saying is all that controversial. We’re now just in a period of education where people consider what does the market look like? How do I invest without tailwinds? What does it mean that public markets are less liquid on the way down?
What does it mean to have debanking? What does it mean to have indexation and concentration? I believe when you look forward at asset management more generally over the next five years, I think you’re going to see an asset management industry that is continuing to grow in its passive strategies. I think you will see boutiques who offer access to uncorrelated returns, or at least non-market correlated returns, such as ourselves and others grow. I think the tougher part of our industry, which you’re already seeing is active management, harder and harder for active managers to produce good returns, certainly in fixed income. I question whether there’s any alpha left in publicly traded fixed income markets. And given indexation and concentration, I think it’s very, very difficult in equity markets.
So I like where we sit. I like our hands of cards. It does not mean, again, we’re going to be the biggest or the fastest growing. In the retail market, we want to be thought of as prudent and creative, growing our footprint every quarter, but not spiking it, taking too much money at a point in time to chase a hot strategy just makes no sense. It ultimately produces concentration risk, which some of our peers have seen by taking too much money at a point in time. Slow and steady, constant build is what we’re seeking to do.
Operator: Thank you. The next question is coming from Michael Cyprys with Morgan Stanley. Please go ahead.
Michael Cyprys: Hi. Good morning. Thanks for taking the question. Just wanted to circle back to your commentary, Marc, on the DOL proposed rule. I was hoping you might be able to just elaborate a little bit on what aspects of the rule you find most troublesome for the business? And then what specific actions to products and features can be taken to address the rule? And then I think you mentioned about 10% of the business may be most impacted. I think it was in the wholesale channel. But what are other levers that you might be able to pull such as maybe altering the distribution strategy and maybe even thinking about going direct, because it doesn’t change the overall demand side to your earlier point that retail investors still have a demand for income.
Marc Rowan: Okay. So, look, it starts with investor demand for guaranteed lifetime income or guaranteed income is going up. And I think investors will ultimately seek out places to do that. Historically, products like annuities have been very complicated because they offer a variety of options and other things and therefore they have had more of a complex sell. Therefore, you have [ph] needed advice and that advice has therefore a more expensive distribution than something you can buy off the shelf. I remain skeptical on direct distribution. But I also see the proliferation of distribution. Increasingly, financial products like guaranteed income are being sold through the banking system, are being sold through RIAs. And if you focus in on the specific issue, these are not issues of the closure.
They’re actually not issues of product features. We and many in our industry have already made the changes going back seven years, because that was just best practice. I think there will be more pressure on fee. That clearly is what it’s at. And we can have both sides of that. I’m not going to say it’s good or bad. But I’ve watched in other places around the world where the focus has been on fee. Take Australia, you have the biggest or the best retirement system anywhere in the world, 3.5 trillion for 28 million of population. Well, they have a big problem there. They actually legislated out all the fees. So now there’s no advice. No one provides advice. And so at 65, when people get their big lump sum distribution from the superannuation product, they don’t know what to do with it, and people are dying between 35% and 40% of their retirement income intact.
The government doesn’t like that, because there’s been no advice on what I’ll call decumulation. How do you set yourself up to live through however long you’re going to live given increasing life spans? Eventually, I believe we’re going to come to a sensible place that may be lower fee and distribution. Truthfully, it doesn’t bother me in the slightest bit, a small piece of the business. I don’t think this is going to result in fundamental changes in distribution. I think it may change how product is priced, and that’s okay.
Operator: Thank you. The next question is coming from Brian Bedell of Deutsche Bank. Please go ahead.
Brian Bedell: Great. Thanks. Good morning, folks. Thanks for taking my question. Maybe just to zoom in, Martin, on the FRE guidance, the 15% to 20% next year. For the higher end of that or getting close to the higher end of that, would it be capital markets or capital solutions fees is the biggest swing factor? And then if you could just comment on the trajectory of that, definitely certainly much better again this year than last year. And I think you’re — maybe if you can just confirm, I think your guidance was for flat solutions fees baked into that 15% to 20%. So maybe the trajectory of that and what drivers would increase the solutions fees a little bit faster?
Martin Kelly: Great, Brian. So what I said is that’s sort of current best estimate, obviously. And so we’re focused on all the fundraising initiatives Scott raised. Putting money to work in an environment which we think is conducive to our investing orientation, and then continuing to build out the capital solutions business. And so any — we’ve made assumptions around each of the three of them, any of them could be a plus or minus to the guidance I gave. And so we’ll talk more about capital solutions on the 14th. That’s one of the objectives of the day to connect that back to the origination strategy, and our fixed income, origination and distribution focus. But yes, in the comments I made, we are assuming it’s flat. Is there upside?
Potentially, but we’re really, really happy with the growth of the business. A five-year plan in two years is pretty heroic. And so we’re focused on building out that business further and repeating the success we’ve had. So with a primary emphasis on credit and then building it out to other — to co-invest over time.
