Alex Blostein: Great. Thanks very much.
Operator: Our next question comes from the line of Ben Budish with Barclays. Please proceed with your question.
Ben Budish: Hi, good morning and thanks for taking the question. I wanted to ask about some of the LP dynamics. We’ve been seeing some reports in the media, not about Ares specifically, but about private credit in general, things like investors sort of asking for lower hurdles, pricing concessions. We’ve seen some competitors concede incentive fees in some of their credit funds. Just curious if there’s anything you’re seeing in your interactions with your clients that are similar to what we’ve been hearing elsewhere.
Michael Arougheti: We are absolutely not seeing that in any way, shape or form. I would not read into that at least vis-à-vis our platform or the market generally. I would maybe just make a comment that to the extent that someone was trying to play catch up in a growing market without a long track record of performance, you might have to cut fee in order to attract capital, but that has not been our experience in one bit.
Ben Budish: All right. That’s very clear. Maybe one follow-up. Just thinking — I know the speed is not a huge portion of your business, but thinking about the expected DOL proposed rule today, the beta fiduciary rule. Can you kind of just remind us what your sort of overall annuity exposure? How much of the business is — or how much of your growth prospects are sort of reliant on that channel? And what is sort of the makeup of that speed at today? Thanks.
Michael Arougheti: Sure. And we appreciate your hiring and obviously, this is all unfolding real time. So we’re digesting that the same way that you are. We have, as we’ve said before, taken a more measured approach to the growth of our insurance affiliate with some of our peers. We believe in the investment thesis of asset expertise married with insurance company balance sheets. But continue to have a very large and growing stable of important insurance partners in our third-party business and continue to grow that part of our company as well. Aspida today has raised close to $1 billion of capital and the total AUM there is about $11 billion, $10.6 billion. About 60% of that balance sheet is advised and sub-advised by Ares as one would expect.
If you go back to our Investor Day in the summer of 2021, when we put forward our guidance, you’ll see that we largely expected that Aspida would grow roughly $5 billion a year to get us to $25 billion of AUM at the end of 2025. So if you looked at the $500 billion that we put out for guidance, $25 billion for Aspida that would have it at about 5% of our assets. And if you look at where we are on that business plan, we’re kind of tracking to that. So I would expect that we will continue to grow that in a measured fashion. We do think that we have some technological advantages in terms of the way that we are originating and onboarding new business. And I think as many folks know, we’re obviously smaller, but we also do not have any legacy exposures given that this was a de novo build.
And so when you look at what is in the book, it’s all effectively new vintage credit. So we’ll keep an eye on this. But again, I think the good news is for at least for Ares, it’s a small part of what we do, and my expectation is that whatever develops here like we’ve seen in the past, it will largely hopefully be around enhanced disclosures around certain products in the channel, but not really change the economic proposition to the client.
Ben Budish: Got it. Appreciate all the color. Thanks, Mike.
Operator: Our next question comes from the line of Brennan Hawken with UBS. Please proceed with your question.
Brennan Hawken: Good morning. Thanks for taking my question. I know real estate is small for you, but could you maybe give some color on where the cap rates are in your non-traded REITs and maybe how much those have changed versus a couple of years ago? You had spoken to the rent growth there as an offset. But just kind of curious about the base cap rates?
Michael Arougheti: Bill, do you want to take that one? I thought Bill Benjamin, our Head of Real Estate was on. I’m happy to take it. If you look at the non-traded REITs for Q3 this year when you look at what’s underpinning the valuation, we had cap rates roughly 5.5% to 5.6% depending on the vehicle. If you go back a year, we were probably 50 to 70 basis points, tight of that 4.8% and 5.2%. So, we have seen cap rate expansion but as we mentioned, given that these funds are largely focused either exclusively on industrial logistics properties and multis, we are continuing to see pretty significant and healthy fundamental performance in terms of NOI growth and the development of the rent rolls.
Brennan Hawken: Excellent. Thanks for that. And then kind of curious about — on the European waterfall and expectations for 2024. I believe you said $160 million. But I thought that on the last call, that was more like about $175 million with the potential for upside. So, am I remembering that correctly? And could you maybe walk through what happened to that revision? And how we should be thinking about upside and what can drive that from here?
Jarrod Phillips: Sure, I’ll take that one. Ultimately, yes, what we tried to lay out, and we added the 2025 guidance with a little bit more clarity, kind of splitting out the periods between 2024 and 2025. Based on the current market environment, what we’re seeing is a little bit of the extension of the duration of the underlying assets of these funds, which means that it pushes out the overall maturity of the fund a little bit, actually ends up being a net positive for us in terms of these are assets — these are credit assets that are yielding well above the hurdle. But because of the current market environment, they actually aren’t refinancing quite as early as they used to. That’s what’s pushing out that duration. So, ultimately, what we’re seeing is a build over a longer period of time with — now we’re expecting it more to land in that 2025 period as opposed to towards the end of 2024.
And that’s a little bit of what we’ve seen happen here in Q4 as well as we’re expecting kind of a push of some of that in terms of what we’ve given as guidance in the past into 2024 and then some of that 2024 really extending into 2025. So, I wouldn’t really call it a loss of it. It’s actually a build and a larger build, but it’s pushing it out just a little bit due to the current market environment.
Brennan Hawken: Got it. And is it possible for that duration to continue to get extended, if we see conditions remain challenging for refi or that like a realistic worst case scenario right now?
Jarrod Phillips: Yes, not too much because we’re really approaching the natural maturity of a lot of those assets. So, it’s really just in terms of what the refi activity looks like. And if the market picks up, well, that could all cause refinances and turnover in those earlier portfolios which would then accelerate the recognition of that. So, it’s really just a matter of what is the exact timing. We know what the total amount could be and the total amount continues to grow. It’s when that will perfectly occur and there’s kind of arbitrary dates along the way.
