And maybe stating the obvious, just given the depth of our GP relationships in each of these markets, corporate and real assets, I think we have a really strong origination advantage. So we are working hard to continue to raise capital in that business. As we talked about, we had a very successful fundraise for our leading real estate practice. Our PMF, which is our non-traded fund, continues to scale into the opportunity. We’re having very meaningful early success in growth of our credit secondaries business. So we’re enthusiastic about the growth opportunity in the secondaries market and our ability to capitalize on it. And it’s actually a really interesting example of an acquisition that we’ve made and transformed and repositioned into a new market.
But I don’t think it’s just secondaries. Again, I think it’s going to be the full product set that’s going to be coming into this market to try to resolve some of these situations.
Luke Bianculli: Sure. Understood. And appreciate all the detail. That was great. I guess, if we turn for my follow-up to credit real quick. With the outlook of perhaps a lower rate environment, at least relative to where it is today, how do you think about a potential shift in LP demand within credit? And is there a level at which lower interest rates become more of a headwind for fundraising? Or does the spread above base rates always make it an attractive asset class from an LP perspective? Thanks.
Michael Arougheti: Yes. I think you answered your own question. I mean, our experience would be that the investor base is buying the excess return available in these markets relative to the public market equivalents. They’re buying lower volatility. They’re buying non-benchmark exposures. They’re buying active management. But ultimately, we have not seen changes in investor demand through the different phases of this rate cycle or prior. We’ve been doing this a very long time, and rates go up, they go down. The balls go up, they go down, and we haven’t really seen impact on investor demand. I think we’re now at a point in the development of these markets while they’re still growing, they are becoming core exposures in most investor portfolios, both institutional and retail.
And I wouldn’t expect that as rates move that we’re going to see capital flowing out. One could argue maybe if rates come down that it could spur increased demand just because of our ability to continue to drive differentiated deployment, access and spread, but that’s TBD.
Operator: Our next question comes from Michael Cyprys with Morgan Stanley.
Michael Cyprys: Hi, good morning. Just wanted to circle back to some of your commentary on deployment. Pace of activity continues to pick up for you guys. It’s nice growth in the quarter. It sounds like the strength is continuing into the first quarter. So I was hoping you could elaborate on some of the areas of strength where you’re seeing the biggest improvement in deployment? How you expect the deployment backdrop to take shape here in 2024 relative to 2023?
Michael Arougheti: Yes, Mike, it’s a good question. And again, I’ll just reiterate what I just said. Every part of the business is turned on right now. We have $110 billion of uninvested capital, which may sound like a lot. But if you look at our 2023 deployment, we deployed close to $70 billion of capital in what most people would argue was a tough deployment year, and that was down from a little over $80 billion in 2022. So I think we now kind of know what the guardrails are given the depth of the platform and capability set that we have. If you look at Q4 specifically, $24 billion against Q4 2022, which was about $22 billion. So we had a strong Q4 as well year prior, and I think that’s a typical seasonal pattern that we see.
But Q1, at least in the early goings, feels like it is going to be higher than it normally would be given seasonality. And that’s causing, I think, us and others to feel optimistic about the activity going into at least the first half of the year. But it’s really across the board because a lot of what we’re doing in each of our businesses across credit, real assets, P/E, secondaries, like I said, is really coming into a market that is starved for capital with a big installed base of institutional equity that needs a solution. And so I wouldn’t really highlight any one as jumping off the page, Mike. It’s really – again, it’s across the board, which is quite unique from a deployment setup standpoint because normally, when we’re talking about cycles or even different outlooks for rates or the economy, one or two businesses will pop out, but that’s not what we’re seeing.
They’ve all been pretty consistent year-on-year and quarter-on-quarter.
Michael Cyprys: Great. Just a follow-up question on asset-based finance. I was hoping you could talk about the opportunity that you see in asset-backed finance, big space. Maybe just talk about more specifically where you’d like to expand, steps you’re taking to add more capabilities, particularly here in 2024? And which parts of the ABF market do you see the biggest opportunity set for Ares?
Michael Arougheti: Yes. I mean I think we have probably one of the largest capabilities across the various asset classes in asset-based finance. And it’s always hard to say, where the opportunity set is going to be. It’s a function of what’s happening in the broader market. But I think we are one of the few platforms that has dedicated in-house origination and portfolio management capability across the broad waterfront. And I think it’s important that when we talk about asset-based finance and structured products that we are differentiating between the investment-grade side of the market and the non-investment-grade side of the market, meaning the bottom half of the balance sheet. And I think that we have by far the largest capital base and team against the – what I would call the non-high grade part of the market.
So some of our peers have appropriately articulated, there will continue to be growth in the high-grade part of the space. We are participating in that as well. And I think there will continue to be growth in the non-investment grade part of the market. And I think we have a real leadership advantage there. Back to the earlier question just about banks and liquidity and risk transfers, we are very active on portfolio acquisitions, partnerships, risk transfers, fund finance. All of the things that are coming out of the transition in the banking market, I’d say, are prominent right now, and I would expect that to continue. So maybe without getting into too much detail, I would say that, that’s probably where we’re seeing the biggest amount of flow as opposed to saying, which corner of the asset-based market we find most attractive because, again, that’s always a function of structure, price and kind of where we are with our counterparties.
Operator: Our next question comes from Brennan Hawken with UBS.
Brennan Hawken: Good morning. Thanks for taking my questions. Hoping to drill in on FRPR. So it sounds like momentum, you guys feel good about the momentum in secondaries and APMF and real estate, clearly got the message that’s on hold. So how should we be thinking about FRPR in credit? It seemed as though spreads tightening in the year-end. So that’s probably not something we should count on. So is it possible to quantify how much of an impact that had? And then how should we be thinking about FRPR and the sensitivity to rate cuts if the forward curve plays out and we see lower policy rates?
Jarrod Phillips: Sure. Thanks for the question and morning. Overall, I think you caught on with the spreads and that, that is a component, and that certainly benefited us at the end of the year here. But it’s not the main component. The main component is the interest rate aspect of it, which does – which has been a pretty big tailwind for this year. Now the advantage that we have there in terms of looking into this year is that we actually benefit on a lag because the average reset on these interest rates happens about every six months. So, we still haven’t even necessarily felt the full impact of interest rate increases across the portfolio. So the same way that you think about that lag on the good, it actually happens as interest rates are declining, there’s a lag till that impact occurs as well.
So an interest rate reset actually doesn’t have a huge impact on the overall balance. We would expect that we could be at or near similar levels if interest rates essentially were not cut significantly and rapidly and if spreads stayed essentially the same and FX rates stayed essentially the same. That would be with the same basic base balance, but we do continue to raise funds as well. And so as we raise funds within those SMAs and these perpetual capital vehicles, that does give us the opportunity to increase the amount that we can earn as well.
Michael Arougheti: Jarrod, I would also add, as we talked about earlier, that as rates come down with that lagged effect that usually means a transaction activity is picking up and structuring and underwriting fee contribution flowing through some of those vehicles that generate FRPR would be an offset to the lagged effect of rates declining.
Brennan Hawken: Excellent. Thank you for that color. I would like to follow up on the point around competition. So Mike, you were pretty clear in addressing why you don’t think the leveraged [ph] loan market is a substantial risk. But we have seen a lot of firms raising money and moving aggressively to grow the private credit offering. So why is it that other private – how do you view the increased capital coming into the space from competitors? And what’s your expectation for spreads and the potential impact on spreads from all that competition piling in?
