Ares Management Corporation (NYSE:ARES) Q4 2023 Earnings Call Transcript

Ares Management Corporation (NYSE:ARES) Q4 2023 Earnings Call Transcript February 8, 2024

Ares Management Corporation beats earnings expectations. Reported EPS is $1.21, expectations were $1.1. Ares Management Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the Ares Management Corporation Fourth Quarter and Year Ended Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded on Thursday, February 8, 2024. I’ll now turn the call over to Greg Mason, Co-Head of Public Markets Investor Relations for Ares Management. Please go ahead, sir.

Greg Mason: Good morning. And thank you for joining us today for our fourth quarter and year-end 2023 conference call. I’m joined today by Michael Arougheti, our Chief Executive Officer; Jarrod Phillips, our Chief Financial Officer; and Carl Drake, who has moved to a new advisory role within our Public Markets Investor Relations team. 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 forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements.

Please also note that past performance is not a guarantee of future results, and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any 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. Please refer to our fourth quarter and full year earnings presentation available on the Investor Resources section of our website for reconciliations of the measures to the most directly comparable GAAP measures. Note that we plan to file our Form 10-K later this month. This morning, we announced that we declared a new higher level of quarterly dividends, starting with our first quarter common dividend of $0.93 per share on the company’s Class A and nonvoting common stock, representing an increase of 21% over our dividend for the same quarter a year ago.

The dividend will be paid on March 29, 2024, to holders of record on March 15. Jarrod will provide additional color on the drivers of this increase later in the call. Now I’ll turn the call over to Mike, who will start with some fourth quarter and year-end business highlights.

Michael Arougheti: Great. Thank you, Greg, and good morning, everyone. I hope everybody is doing well. We’re pleased to report that we ended a great year of execution on many fronts with a very strong fourth quarter. Despite a difficult year for fundraising across our industry, we experienced strong demand for our funds, raising more than $74 billion in 2023, including more than $21 billion in the fourth quarter. This was our second largest fundraising year, and it was a record amount of capital raised directly from institutional investors. We entered 2024 in the enviable position of having more than $110 billion in dry powder to invest in what we believe is an attractive vintage, providing the opportunity to drive strong earnings growth in the years ahead.

In the fourth quarter, transaction activity picked up as market participants gained greater certainty with respect to interest rates and the economy. Against this backdrop, we were able to leverage our growing investment platform to record our strongest quarter of deployment for the year, which matched our second highest quarter on record. Our Q4 deployment jumped more than 40% compared to our third quarter, and we’re encouraged that higher-than-typical levels of activity for this time of year have spilled over into the first quarter. We also continued to deliver strong relative investment performance for the year. And in fact, our U.S., Europe and Asia direct lending strategies generated double-digit returns in 2023. We believe that our consistent performance through cycles is resonating with investors, and our LPs are committing additional dollars across our broad set of strategies.

For the year, we drove double-digit growth across many of our key financial metrics, including 19% growth in AUM and management fees and 17% growth in our fee-related earnings. I’d add that our fee-related earnings, excluding FRPR, increased by more than 20% year-over-year. We believe that our ability to generate this level of fee-related earnings growth in a market where M&A activity was down over 35% speaks to the resiliency of our management fee-centric business. Going forward, we believe that we are headed for another strong year as Jarrod will walk you through a little later in the call, but I do want to highlight a few key points. First, we believe that the expectation for lower interest rates and better-than-expected economic growth is viewed as a significant relief for the deal markets.

And we expect it will help drive higher transaction activity to start the year. We also believe that other factors like the aging of private equity dry powder and the demands by LPs to return capital are also supportive of higher activity. Fortunately for us, we believe that we’re well positioned for a pickup in deployment activity due to the significant investments that we’ve made, adding 230 net investment professionals since the peak in market activity in 2021. We’ve built an origination engine that’s capable of doing much more and an increase in market activity should enable us to drive efficiencies across our greater headcount of investment professionals. Secondly, we believe that we’re approaching a step function in the growth of our net realized performance income.

We’re nearing an inflection point and a recognition of net realized performance income from our European waterfall funds that have been performing and growing since 2017. And therefore, we expect to ramp up this year and an acceleration in 2025 and beyond. As an added benefit, if market transaction activity does in fact improve, we could see more of this income pulled forward from realizations, but it’s still too early to make that call. Overall, we believe our business is well positioned to operate in a variety of market environments. We’re resilient in tougher, slower markets but can see deployment and realizations accelerate during more active market environments. Third, we have a lot of momentum with our investors as we experience strong demand for not only our private credit strategies but also our opportunistic real estate, real estate debt and our secondary strategy offerings.

In 2024, we believe that we’re set up for yet another strong year of fundraising as some of our largest fundraises spilled over into the new year, and we’re launching several new large funds with expected closings this year. Let me walk you through some recent activities to provide insights on where we stand heading into the new year. For the fourth quarter, the $21.1 billion we raised was our third highest quarter on record and just slightly behind what we raised in Q3. In our credit strategies, we continue to make great progress, raising our third U.S. senior direct lending fund with another $1.8 billion in new equity commitments in Q4, bringing the total equity commitments to $8.3 billion at year-end with total investment capacity of $15.2 billion, including anticipated leverage.

We’ve already surpassed the $8 billion in LP commitments from our previous vintage, and we anticipate a final close in the second quarter with the ability to add further leverage capacity thereafter. Our sixth European direct lending fund raised another €1.3 billion in equity commitments and a €2.5 billion leverage facility during the fourth quarter. With over €550 million closed thus far in the first quarter, our equity commitments for this new fund now total €11 billion. And with anticipated leverage, the fund has over €16 billion of investable capital. We’ve essentially matched the size of the previous vintage, and we expect further upside into a final close later in 2024. Pathfinder II held a final close in October, only seven months after its first close.

The fund received $6.6 billion in total commitments, surpassing our $5 billion target. The fund hit its hard cap and was almost 80% larger than its predecessor fund. And as with its predecessor fund, Pathfinder II is structured with a unique charitable tie-in whereby at least 10% of the carried interest will be donated by Ares and the team to support global health and education initiatives. To date, the Ares Pathfinder family funds have generated returns that would result in approximately $19 million of charitable contributions. We raised another $900 million in equity commitments for our fourth U.S. opportunistic real estate equity fund bringing total commitments to over $2 billion, exceeding the previous vintage. Within real estate, we also raised another $500 million in debt and equity commitments in our European real estate debt strategy, bringing total assets to approximately $2.4 billion.

Within private equity, we raised $1.4 billion of commitments during Q4, and we’ll continue our fundraising throughout most of 2024. In secondaries, we held a final close for our Real Estate Fund IX, raising $3.3 billion in commitments, inclusive of affiliated co-invest vehicles. This latest fundraise matched the size of the predecessor fund, which was the largest real estate secondaries fund closed in the market to date. We now have completed the top two largest real estate secondaries fundraisers, which puts us in a great market position. Fundraising in the wealth management sector continues to be an area of focus, and we see significant growth potential here over the next decade. We’re starting to see an acceleration within the wealth management channel as our broadening set of products is attracting a growing number of distribution partners.

For the fourth quarter, we raised $1.3 billion in equity commitments. For the full year, we raised $3.6 billion in equity commitments and nearly $5 billion, including debt commitments. According to third-party industry data, we were ranked in the top three among the public alternative managers and overall wealth management fundraising in 2023 as we were able to gain market share in a difficult environment. Our strong momentum in the fourth quarter has carried over into January as we had our largest month ever for wealth inflows, totaling over $600 million across our six products. Now after putting in place the infrastructure over the past 18 months, we’re also set to see our international fundraising efforts materially increase in the first half of this year.

Let me walk through an update on a few of these wealth products. Our non-traded BDC ASIF raised nearly $500 million in equity commitments during the fourth quarter. And our European equivalent ASIF raised over $150 million closing on January 2. During January, these two funds raised an additional $350 million in the aggregate, which underpins our expectation for continued strong fundraising in the wealth channel during 2024. Within private equity, we’re now seeing a significant ramp in our Ares Private Markets Fund or APMF, which launched on its first wire house in September and raised roughly $240 million in the fourth quarter. And with over $800 million in assets today, the fund is continuing to gain scale and momentum. Our two non-traded REITs raised $273 million combined in the fourth quarter and more than $1.3 billion for the full year.

Both funds continued to generate positive net flows for both Q4 and the full year as we meaningfully outperformed the overall non-traded REIT market on a net flow basis. Another area of high strategic focus is our affiliated insurance business. Aspida finished the year with nearly $12.5 billion in assets, more than doubling its $6 billion in AUM at the beginning of last year. And we remain on track with our target of $25 billion in AUM by the end of 2025. Aspida has now achieved operational scale and is generating attractive returns for both annuity holders and Aspida equity investors. We had very strong deployment in the fourth quarter totaling $24 billion, matching our second highest quarter on record. Fourth quarter deployment across the credit group increased nearly 60% over the third quarter driven by strong results from our U.S. and European direct lending and alternative credit groups.

Jarrod will discuss our fund performance in more detail, but our investment portfolios continue to be in excellent shape. We continue to see strong EBITDA growth across our credit and private equity portfolios. And in fact, we saw an acceleration of EBITDA growth to approximately 8% year-over-year within our U.S. direct lending segment. Our corporate credit portfolios, which were more than 95% invested in senior debt at the end of the year, continue to have low defaults and lower-than-historical levels of loan-to-value. Our global real estate portfolio continues to experience resilient fundamentals due to our allocation to the best performing sectors with 50% of the gross portfolio in industrial assets, 24% in multifamily and another 13% in similar adjacent sectors like student housing and self-storage.

We’re meaningfully underweight in U.S. office at about 4% of our total real estate portfolio and less than 1% of our AUM. Our opportunistic real estate and special opportunities teams recently formed a joint venture with a leading owner and investor in commercial real estate in New York. The JV has commitments of $500 million, and we’ll seek to invest in high-quality distressed office buildings in New York as capital for the asset class has become increasingly scarce. And now I’d like to turn the call over to Jarrod for additional commentary on our financial results and our outlook for the year. Jarrod?

Jarrod Phillips: Thanks, Mike, and hello, everyone. Despite a difficult market backdrop for deployment and monetizations, we experienced double-digit year-over-year growth in nearly every key financial metric, including management fees, fee-related earnings, realized income, AUM and FPAUM. Our management fees increased 19% for both the fourth quarter and for the full year driven primarily by strong deployment of our invested capital, especially within our global direct lending and alternative credit strategies. In the fourth quarter, FRE totaled $369 million, an increase of 10% from the fourth quarter of 2022 despite a steep decline in FRPR from real estate funds that contributed $65 million in FRE in 2022. For the full year, FRE exceeded $1 billion for the first time in our company’s history and increased 17% from the prior year.

Of course, our year-over-year FRE growth was partly impacted by the fact that we did not generate any FRPR from our non-traded REITs as we expected. Our FRE, excluding the FRPR specifically from our real estate non-traded REITs, increased 25% over 2022, a little ahead of our 20%-plus guidance that we provided a year ago. Our FRE-rich earnings remain a key differentiator for Ares as FRE again accounted for more than 90% of our realized income in 2023. Our FRE margin totaled 41% for the quarter and 40.9% for the full year. Excluding FRPR, which has a lower margin due to the contractual compensation ratio we’ve discussed in the past, our core FRE margin was 41.8% for the fourth quarter, which was up 120 basis points versus the comparable margin a year ago.

With over $74 billion raised in 2023 and an available capital balance of over $110 billion, we expect to see continued margin expansion as we deploy our capital. We continue to believe that we’re on track to reach our goal of roughly 45% core FRE run rate margin by the end of 2025. Let me turn to our fee-related performance revenues or FRPR. FRPR totaled $180 million in 2023 compared to $239 million in 2022. In the fourth quarter, FRPR from our credit group totaled $166 million, which was about $46 million above the high end of the guidance we provided on last quarter’s conference call. A large part of this outperformance was driven by higher-than-expected loan pricing as a result of tighter credit spreads as well as positive currency movements into year-end.

The remainder of our FRPR was generated in our secondaries group from APMF, a retail-focused product. We are excited about the momentum for APMF and could see growing contributions to FRPR as the fund scales. As I mentioned, we did not generate FRPR from our two non-traded REITs during 2023. And both AREIT and AIREIT will need to make up for negative returns in 2023 before earning any FRPR. Fundamentals across these real estate funds remain resilient, however. We will likely need to see interest rates moderate and cap rates stabilize before these funds can generate additional FRPR. For this reason alone, it is more likely that we would see FRPR from the two non-traded REITs resume in 2025 as opposed to 2024. Our realization activity increased significantly in the fourth quarter compared to Q3 with realized net performance income totaling $77 million in the quarter, including $57 million from European-style waterfall funds.

For full year, nearly 70% of our realized net performance income came from European waterfall style funds. In addition, we also generated net realized performance income from incentive fees, which occur on a regular basis that are not derived from perpetual funds. In 2023, we generated $27.5 million in net realized performance income from non-European style incentive fees, up from $20 million in 2022. As I talked about before, the European-style waterfalls are relatively predictable within a given time horizon, but can vary as to the exact quarter in which they’ll be received with the fourth and second quarters typically the most common for larger amounts. We’re reviewing last quarter’s estimate for 2024, European waterfall style net realized performance income, we recognized about $13 million that was pulled forward into this fourth quarter.

That said, our expectations for the next two years are modestly higher with approximately $420 million of net performance income from European-style waterfall funds. Of this amount, we expect approximately $145 million in 2024 and $275 million or more in 2025. Over the long term, we’re targeting more than $3.5 billion of net realized performance income over the life of these European-style funds already raised. As we have discussed, the timing of the early fee recognition depends on – partially on March – market transaction activity levels. In 2023, our balance of net accrued performance fees increased 10% to $919 million and nearly $700 million of this amount with an EU-style waterfall funds. The increase was largely driven by the deployment of incentive-eligible AUM that yields in excess of the hurdle rates leading to growth of our incentive-generating AUM and the compounding of higher floating rates, particularly in our private credit funds.

Realized income for the fourth quarter totaled a record $434 million and for the full year, realized income exceeded $1.2 billion, a 12% increase from 2022. For the full year 2023, our effective tax rate on our realized income was 9.1%. Last year, we benefited from tax deductions related to the exercise of options by employees. These options were granted as part of the IPO and are set to expire on the 10th anniversary of our IPO this year. As a result, only a trivial amount of these options remain unexercised. And accordingly, significant related tax deductions associated with the options will not recur. Therefore, we anticipate an effective tax rate on our realized income to be in a more normalized range of 12% to 15% in 2024. As of year-end, our AUM totaled nearly $419 billion, up 19% over the previous year and was driven almost entirely by organic growth.

Our fee-paying AUM totaled nearly $262 billion at year-end, an increase of 13% from year-end 2022. Our available capital totaled $111.4 billion. So we have nearly $63 billion of AUM not yet paying fees available for future deployment, representing over $621 million in incremental potential future management fees. As Mike highlighted, our portfolios continue to perform very well. For the full year, we experienced double-digit returns in our U.S., Europe and Asia direct lending strategies as well as in our special opportunity strategy. Within real assets, our infrastructure strategies performed in line with expectations, delivering a high single-digit return in volatile [ph] markets. In real estate, our returns were impacted by higher cap rates and interest rate volatility, which pressured valuation.

However, the underlying property fundamentals remained resilient, and we believe we are well positioned to generate strong performance once cap rates stabilize. For example, in 2023, our industrial portfolio saw a 50% rent growth on the same-store new and renewal lease rates, and our multifamily portfolio continue to see positive rent growth. Now let me provide some comments on our go-forward outlook and our new dividend level. We anticipate that our fundraising momentum will continue with additional closes on our large fundraises and process, as Mike stated earlier, coupled with recent or expect to launch this year of four more significant fund series across our strategies. We expect these larger fundraises will be supported by our ongoing and growing inflows from smaller co-mingled funds, wealth management funds, insurance, SMAs and other open- and closed-end vehicles.

In fact, we expect to have approximately 35 different funds in the market across 17 of our strategies in 2024. Although it will be unlikely that we match the amount we raised in 2023, we expect it to be another strong year. And we are already well ahead of our pace to reach our target of $500 billion in AUM by the end of 2025. Keep in mind that our fee-related earnings trajectory is more dependent on the pace of our deployment rather than fundraising activity. With a record amount of dry powder, we’re well positioned for higher deployment if market activity levels remain strong. This leads me to our dividend. At the beginning of each year, we set our quarterly dividend at a fixed level for the coming year. Based on the significant outperformance of our fee-related earnings relative to our dividends and our strong growth prospects for FRE this year, we’ve elected to increase our quarterly dividend to $0.93 per share on the company’s Class A and non-voting common stock, a 21% increase compared to 2023.

Finally, we continue to be on track with our 2021 Investor Day guidance of FRE and dividend per common share growth of 20% or more through 2025. And I’m pleased to announce that on May 21, we will hold another Investor Day to coincide with the 10-year anniversary of our public listing on the New York Stock Exchange. At that time, we’ll provide an update on our business goals and objectives. I’ll now turn the call back over to Mike.

Michael Arougheti: Great. Thanks, Jarrod. In closing, we believe that we’re very well positioned for the year ahead with a record amount of dry powder, a more promising market outlook, an expanded and more diversified investment platform and a strongly performing portfolio. The investments that we’ve made in new personnel, new strategies, new vehicles and new distribution across the platform over the past few years beginning to contribute more meaningfully to our business. For example, we’re seeing momentum in our insurance, wealth management, infrastructure, secondaries and Ares Asia platforms. Our fund performance also continues to be a source of differentiation, and our brand is strengthening with our investors and prospective portfolio companies.

Collectively, our business is positioned to deliver strong relative returns for our fund investors, drive further growth in assets under management and create better operational efficiencies in the years to come. And as Jarrod mentioned, when you combine our strong FRE growth prospects with the inflection point that we’re now reaching with our European waterfall realizations, we’re poised to generate meaningful realized income in the years ahead. I continue to believe that one of our greatest differentiators is our people and our culture. And as always, I’m so proud and grateful for the hard work and dedication of our employees across the globe. I’m also deeply appreciative of our investors’ continuing support for our company. And with that, operator, I think we could now open the line for questions.

Operator: Yes sir. [Operator Instructions] Our first question comes from Steven Chubak with Wolfe Research.

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Q&A Session

Steven Chubak: Hey, good morning, and thanks for taking my questions. So, I wanted to start off with one just on the Alt Credit outlook. Just given some expectation that Basel III end game proposal could get watered down, I was hoping to get your perspective on the deployment opportunity in Alt Credit. Do you still see a substantial opportunity in areas like ABF and red cap trades despite some of that potential softening? And what are you hearing from your bank partners specifically?

Michael Arougheti: Yes, it’s a good question. We’ve talked about this before. Obviously, we were early, I think, in identifying the growing opportunity in alternative credit. I think it’s important that people appreciate like so many things happening in private credit right now with both secular and cyclical. So a lot of the secular trends that have been driving more capital formation in Alt Credit actually started post the GSE with the dismantling of the larger securitization apparatus on the street and the proliferation of smaller finance companies in the wake of the GSE. And that trend, call it, the first wave has been very much intact for the last 10 years and has given us a nice backdrop to grow what we think is a market-leading business there.

Obviously, now with Basel III and some of the challenges that I think we all saw emerge in the banking sector generally early last year, there is an accelerated cyclical opportunity, obviously, to partner with banks largely in our Alt Credit business to help them navigate some of their balance sheet challenges. And that’s been a keen area of focus, but not an exclusive area of focus. We talked on our last call about a sizable partnership transaction that we did with PacWest. We were public about a recent trade that we did on the risk transfer side. And those dialogues are ongoing and continuing. And I actually think that they will continue regardless of the resolution of Basel III end game. I think what we learned coming out of the struggles in the sector were largely structural.

And once we get past this first phase of balance sheet restructuring and repositioning, I think you’re going to have a lot of banks, regional, super regional and GSIBs just rethinking core businesses and balance sheet positioning. And we put ourselves out there as a proven partner for them as they go through that. So, I think it’s – it bodes well for continued deployment. And we had a very strong fourth quarter in Alt Credit. We’re seeing that activity level spill over into the New Year, and I’d expect that to continue.

Steven Chubak: That’s great. Appreciate all the color. And for my follow-up, Jarrod, I was hoping to dig into some of the drivers of the dividend increase and especially in light of some of the constructive comments you made on FRE and deployment. Just given the magnitude of the increase, assuming a normal 75% payout, some modest share creep, it does imply close to 30% FRE growth in the coming year. Just wanted to get a sense that, that’s a reasonable expectation for FRE expansion. Maybe just help unpack some of the drivers of that FRE uplift.

Jarrod Phillips: Sure. And I think when we set our dividend policy out back in 2021, one of the things we articulated was that we pegged it with FRE, but didn’t necessarily match it perfectly to FRE. So as FRE grows, so do we expect the dividend to grow. And for the last couple of years, as I think everyone knows, we’ve had outpaced FRE growth against the dividend growth. And so certainly, that gives us a bit of a tailwind as we’re determining what the dividend is. And as we look forward, and we expect a positive year of deployment, especially with what we saw in the fourth quarter and what we’ve seen in terms of some of the trends so far this year, that gives us a lot of assurance in setting our FRE expectations as well as the dividend expectations for the year.

And then you combine that with some of the EU waterfall guidance that we provided, and we know that we’ll have adequate coverage in terms of what we generate for the year to establish that. So it’s not necessarily a one for one, and we haven’t historically targeted a 75% or a 90% ratio of what we would pay out for our dividend. So, we feel good at that 20% or more level. And we feel like that it is indicative of the positivity we have around FRE growth as well.

Operator: Our next question comes from Craig Siegenthaler with Bank of America.

Craig Siegenthaler: Morning, Mike, Jarrod. Hope everyone’s doing well.

Michael Arougheti: Morning.

Craig Siegenthaler: So our first one is on ASIF. It raised around $2 billion last year. And it sounds like that momentum carries on in January with another $350 million. So, I wanted to see if you could give us an update on how many platform shelves the U.S. and European vehicle sit on today? And how many platforms do you expect them to be on by year-end? And also, overall, how important is your long-term track record with ARCC in terms of speeding up the ramp with gatekeepers and advisers?

Michael Arougheti: Sure. Good question. Just to clarify, Craig, the $350 million was both ASIF and its European counterpart, but obviously, strong numbers relative to the momentum that we saw building into the end of the year. I do think that both ASIF and AESIF are benefiting from our long successful track record at scale in the public markets. Obviously, as the market leader in direct lending and having run BDCs through cycles, I think that, that is definitely a tailwind. And I think if you look at the early fundraising momentum that we’re enjoying both of those funds that compares well to competitor product. One of the reasons that we are so excited right now, both of those products are actually only on one platform. We had our first wealth closing in ASIF in August, and we actually now are expecting to add a significant number of new partners throughout the year, both in the U.S. and overseas, Europe and Asia.

So I think you’ll see that selling group increase dramatically as we get through the rest of the year. And needless to say that, that should result in some pretty good fundraising momentum. Similarly, on AESIF, we have one partner, and our expectation is that we’ll probably add two or three there as well in Q2 or Q3 of this year.

Craig Siegenthaler: Mike, that’s great. And let me just stick with the semi liquids here with AIREIT and AREIT. How do you expect redemption requests to trend as it looks like investors send them in real estate may have reached an inflection? And also, we did receive some positive guidance on redemptions from your major competitor two weeks ago. And then following a potential decline in redemptions, how quickly do you expect sales to snap back just given that they’re currently depressed?

Michael Arougheti: Yes, it’s interesting. I think – and we said this in the prepared remarks, we’re quite pleased with our performance relative to the rest of the non-traded REIT product in 2023, which was a difficult year just given performance headwinds and some of the redemption conversation around some of our larger peers. But if you look at the performance of both of the REITs, we actually had positive flows in the quarter and throughout the year, which I think is an outlier. I think that’s a combination of the positioning of those funds. There are some unique attributes in terms of our 1031 Exchange product that I think is a little stickier. Those funds are less leveraged. So, we’re going into 2024, obviously, having seen reduced sales but having positive net flows in both of those products.

And my expectation would be that as some of the peer performance improves and people begin to feel like we’re hitting bottom on cap rates and interest rates that you’ll begin to see sales pick up there. So again, it’s still early. Our experience in January would tell us that the sales are still there. But I think once we get to a place where interest rates are moderating and the redemption narrative within the peer set has moderated that we’ll see ourselves accelerate as well.

Operator: Our next question comes from Patrick Davitt, Autonomous Research.