Ares Management Corporation (NYSE:ARES) Q4 2024 Earnings Call Transcript

Ares Management Corporation (NYSE:ARES) Q4 2024 Earnings Call Transcript February 5, 2025

Ares Management Corporation misses on earnings expectations. Reported EPS is $1.23 EPS, expectations were $1.35.

Operator: Good morning, everyone. Welcome to Ares Management Corporation’s Fourth Quarter and Year End 2024 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Wednesday, February 5, 2025. I will now turn the call over to Mr. Greg Mason, co-head of Public Markets, Investor Relations for Ares Management. Good morning, and thank you for joining us today for our

Greg Mason: fourth quarter and year-end 2024 conference call. I’m joined today by Michael Arougheti, our Chief Executive Officer, and Jarrod 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 can 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 Ares or 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 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-K later this month. This morning, we announced that we declared a higher level of quarterly dividends starting with our first quarter common dividend of $1.12 per share on the company’s Class A and non-voting common stock, representing an increase of 20% over our dividend for the same quarter a year ago.

The dividend will be paid on March 31, 2025, to holders of record on March 17. 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 and our outlook for 2025.

Michael Arougheti: Great. Thank you, Greg, and good morning, everyone. I hope you’re all doing well. I’d like to start off with some really exciting news regarding enhancements to our executive management team. This morning, we announced that Kip DeVeer and Blair Jacobs will be taking on newly created positions as co-presidents effective immediately. In these new roles, Kip and Blair will be responsible for helping drive firm-wide strategic and operational initiatives and support critical investor and counterparty relationships. In addition, a key responsibility in their new role is to help develop the next generation of leaders across the platform. I’ve had the good fortune of being friends with Kip and Blair for over thirty years.

Q&A Session

I’ve had the pleasure of working with them over the past twenty as they’ve helped build and lead a tremendous credit franchise here at Ares, with Kip leading the global credit group, and Blair co-heading the European credit business. Their experience and capabilities will be incredibly valuable as they expand their impact even further across the firm. This will also be a big benefit to me as they’ll take significant operational responsibilities off my plate, which will enable me to spend more time on our most important and impactful strategic priorities. To be clear, this move is about expanding our executive management team to more effectively lead our business, which has grown tremendously over the past several years. I want to congratulate Kip and Blair on their promotions, and I look forward to working with them in their new roles for many years to come.

And now let me begin with some high-level comments on the year. 2024 was a very good year for Ares, both financially and strategically. We celebrated the ten-year anniversary of our IPO and the twenty-year anniversary of the IPO of our publicly traded BDC, Ares Capital, which is the largest of its kind in the industry. We held investor days for both companies where we laid out our vision and strategy for continued success. We also made substantial organic and inorganic investments to bolster our growth outlook for the years ahead. Ares set many new financial records last year, including AUM, fee-paying AUM, annual fundraising and deployment, management fees, FRE, and realized income. On a full-year basis, management fees and FRE increased 15% and 17% respectively, driven by FPAUM growth.

We expect our strong growth to continue. We operate in vast addressable markets, and although we’re one of the largest alternative managers, we believe that we’re still in the early innings of our global expansion. We believe that retail and institutional investors will continue to increase their allocations to the private assets that we source and invest in. We also expect the trend of increasing alternative allocations going to fewer scaled managers will continue to drive further inflows to the largest industry players such as ourselves. To sustain our long-term growth potential, it’s imperative that we continue deepening our ability to source differentiated high-quality assets with attractive return profiles that we believe will enable us to maintain our long-term performance through cycles.

To that end, we continue to invest in origination capabilities around the globe, adding more than one hundred investment professionals last year. We now have one of the largest teams in the industry with over eleven hundred Ares investment professionals sourcing thousands of investments across the risk-return spectrum in our thirty-five plus global offices. Adding new strategies in new markets, as evidenced by the GCP International acquisition, will only further expand and enhance our capabilities. Despite a more subdued transaction environment in 2024, we were very active using our relationships, incumbency advantages, and breadth of strategies to invest a record $106.7 billion, up more than 50% over 2023. Throughout the year, we saw our investing activities increase each quarter, finishing with over $32 billion invested during the fourth quarter.

Our Q4 investment activity represented a 34% increase from the prior year period, driven by meaningful increases in US private credit, real estate debt and equity, and secondary solutions. The current market environment is dynamic. With respect to the year ahead, we’re optimistic that a gradual improvement in the overall transaction environment will translate into growing net investment activity in 2025, subject to normal market seasonality. We believe that there’s a meaningful amount of pent-up demand to transact, driven by the need for PE exits. As an illustration, there’s over $3 trillion of unrealized value across 28,000 unsold companies in global buyout portfolios, and more than 40% of these investments are four years or older. There are also other market forces that we expect should help unlock transaction activity, including increased business confidence, the potential for less regulation, more active financing markets, improving asset values, narrowing bid-ask spreads, the return of strategic buyers, and hopefully a more constructive IPO market.

We believe that our business is well-positioned with market-leading platforms in several of the fastest-growing private market segments. As we demonstrated over the last two years, we can be a supportive provider of liquidity to our many clients even if new transaction volumes don’t accelerate. In addition, once the GCP International acquisition closes, we’ll have enhanced our capabilities to invest in real assets for the new economy, particularly in vertically integrated industrial real estate and digital infrastructure. The growth in the primary markets for these assets is also driving a need for greater secondary solutions. We’re entering 2025 in an even stronger position to take advantage of a more active market with a record $133 billion of dry powder and the strongest array of investment strategies in our firm’s history.

The $81 billion of AUM raised but that is not yet paying fees provides us with approximately 30% embedded gross base management fee growth upon deployment. And when you combine this with our visibility around our European-style performance income, we believe that we have high visibility on our long-term growth. Our ability to generate differentiated performance across an expanding array of investment solutions through various distribution channels continues to drive our fundraising capability. In the fourth quarter, we raised a quarterly record of $28.3 billion in new capital commitments, and we set a full-year fundraising record of $92.7 billion in 2024. This full-year amount exceeded our previous annual fundraising record by more than $15 billion and showcases the depth and diversity of our fundraising platform.

This fundraising momentum helped our assets under management grow by 16% year over year to over $484 billion. Importantly, this greater depth and diversification is raising our fundraising floor. In 2024, nearly 65% of our total fundraising was outside of our campaign funds. And this comprised 20% from wealth, 16% from institutional SMAs, 7% from our insurance affiliate, Aspida, and the remaining 22% from public entities, CLOs, and other vehicles. Now I’d like to provide a few highlights from our strong Q4 fundraising results. During the fourth quarter, A6 accepted LP equity commitments of €2.8 billion, which brought total LP commitments for this fund to €17 billion. We believe that institutional private credit fund ever raised globally based on LP equity commitments.

This represents a more than 50% increase from the predecessor fund, and A6 received broad support from over 250 global investors, including 85 that are new to the Ares platform. Including related vehicles and anticipated leverage, the total available investment capital for the Ares European direct lending strategy is expected to be approximately €30 billion. Combined with SDL3, which had its final close last quarter of approximately $34 billion in total investment capital, including related vehicles and anticipated fund leverage, we’ve generated approximately $65 billion of institutional drawdown capital in our direct lending strategies over the past 24 months. We’re also seeing very strong demand for our open-ended direct lending fund in the wealth channel.

After raising nearly $1.5 billion in equity commitments in 2024 and crossing its one-year anniversary last month, the fund now has AUM exceeding $2.2 billion. Continuing credit, we raised more than $15.7 billion of equity and debt across and we issued a record 12 CLOs totaling nearly $7 billion. Our recently launched third opportunistic credit fund began taking in capital in the fourth quarter, and we expect a significant amount of additional capital to be raised by the end of Q1. We also held a $1 billion first close for our second sports media and entertainment fund, and we expect to raise significant capital in this strategy across multiple vehicles this year. Within our Real Assets Group, the improving real estate market sentiment has already begun to materialize in our fundraising.

During the fourth quarter, we continued to see strong investor demand for our real estate debt strategies, which raised $2.4 billion in the quarter. And we’re in the market with the latest vintages of both our European and US value-add real estate campaign funds. With respect to Ares’ sixth infrastructure debt fund in the market, we expect to reach nearly $1.5 billion in total capital shortly, and we continue to see increasing demand from investors. We also expect a final close in our second climate infrastructure fund in the first half of 2025. For the year, we raised $11.5 billion across our real assets business, and we’re optimistic about the continued recovery in these markets throughout the course of 2025. In secondaries, strong fundraising across private equity, infrastructure, and credit drove the group’s AUM up nearly 18% year over year.

During the fourth quarter, our new private equity structured solutions fund and we raised an additional $630 million in our third infrastructure secondaries fund, including related vehicles. APMF continues to see strong fundraising momentum and exceeded $2 billion in total AUM at the end of the year. Institutional investor equity commitments and related capital totaled over $56 billion in 2024, with strong support across our platform. While we saw another strong year for credit, we were pleased to see year-over-year increases in commitments in both real assets and secondaries. We continue to deepen our relationships with our current investors, who accounted for 85%, and we also welcome more than 300 new institutional investors to the platform in 2024.

Now turning to the wealth channel, we continue to see significant opportunities to expand our business. Last year, demand for our products exceeded our ambitious expectations for the year. For the full year, we raised over $10 billion in equity and over $18 billion of total AUM, including fund leverage. Each quarter brought increased momentum, culminating in our highest quarterly inflows in Q4, raising $3.1 billion in equity and $6.9 billion in total AUM, including leverage. Our inflows approximately tripled year over year, and we estimate our market share increased to nearly 10%, placing us as a top-three manager among our listed peers according to third-party industry data. Our momentum has continued in January with over $1 billion in equity inflows.

Industry-wide, alternative capital raised in the wealth channel doubled last year. Yet we believe that we’re still in the early stages of growth. High net worth individuals’ investable assets experienced strong growth last year, in large part due to overweight public market exposure. However, their average allocation to alternatives remains at just 3% to 4%, and we believe that this allocation will continue to grow through education, product innovation, and expanding distribution segments like model portfolios and 401(k) plans. We also expect the mass affluent market and new geographies such as Japan, Canada, and Latin America to play a key role in growing the addressable universe for wealth. The competitive landscape is intensifying, but we’re confident in our competitive moat, supported by our products, platform, performance track record, distribution scale, and key relationships.

Our near-term priorities in the channel include expanding our existing funds across our current partnerships, establishing new strategic partnerships across the RIA, family office, and IBD channels, and further broadening our distribution footprint internationally. In 2025, our objective is to add each of our wealth products to new key distribution platforms, including wirehouses and global private banks. Notably, in the RIA and single-family office channel, we raised $1.3 billion last year, representing 2.8 times growth from the year prior, and we expect this momentum to continue throughout 2025. Our international business remains a significant and sustainable driver of growth, with 36% of last year’s capital flows coming from Europe and Asia, as compared to just 7% in 2023.

In 2025, we anticipate taking in monthly subscriptions for our newest semi-liquid solution, a core infrastructure vehicle, and a sports media and entertainment vehicle, which would be intended to broaden investor access to this significant and growing market opportunity. We plan to continue delivering a suite of purpose-built solutions that showcase the best of Ares’ private market capabilities. We now have over $39 billion in AUM across eight semi-liquid products, and we are well on our way to the $100 billion target that we outlined at our Investor Day last year. Including our publicly traded and other vehicles in the retail channel, we’re already approaching $100 billion of AUM. We also achieved a significant milestone for our Aspida, recently announced raising over $2.3 billion in equity commitments, with more than 75% coming from third-party investors.

Aspida has over $20 billion in total assets, and we believe that it has the capital required to reach $50 billion in assets by the end of 2028, which is the target that we outlined at our Investor Day. In 2024, Aspida’s primary fixed annuity volumes nearly doubled to more than $3.8 billion, significantly outpacing the 7% growth in fixed annuity sales for the industry. Including reinsurance flows, Aspida originated over $6 billion in new premiums for the year. With strong business momentum, a robust capital base, and reinvested earnings, Aspida is well-positioned to meet the growing demand for retirement products and related reinsurance solutions. Turning to our fundraising goals for the year ahead, we expect another good fundraising year in 2025.

While we will not have our two largest campaign funds in the market, we expect fundraising could be only modestly lower than our record in 2024. We expect to have 19 institutional commingled funds plus another 18 continuously offered institutional and retail products actively raising capital throughout the year, excluding new funds from the GCP International acquisition. Regarding GCP International, we expect that the transaction will close in the current quarter, and we remain on track with our previously communicated financial plans for the transaction. Once we close, we believe that we will be in a favorable fundraising position with several funds in Japan, the US, and Europe coming to market. For example, this year, we expect to launch the fifth vintage of the logistics development fund in Japan, which raised approximately $2.7 billion converted at current exchange rates in the previous vintage, and the second US self-storage fund, which raised $1.5 billion in the previous vintage.

In addition, GCP’s data center business is seeing significant momentum, and we expect the first closings for its first Japanese data center development vehicle and the first European data center development vehicle to occur during the first half of this year, as both are experiencing strong demand. We anticipate the total final equity commitments across these two funds to be approximately $4 billion at current exchange rates. I’m excited about the great people we’re adding to our team and the combined power of our two platforms. And lastly, before I turn the call over to Jarrod, I just wanted to acknowledge the devastating wildfires that impacted the Los Angeles community, including the loss and disruption for many of our employees and families in our LA office.

We’re providing significant support and resources to our Ares team members who’ve been most significantly impacted. We’re supporting local relief efforts through an employee giving campaign with matching contributions, and we’re providing long-term support for the region through the Ares Charitable Foundation. Our thoughts are with our colleagues and the people of LA, and we’ll continue to support those affected as the situation evolves. And now I’m gonna turn the call over to Jarrod for his comments on our financial results and outlook. Jarrod, over to you.

Jarrod Phillips: Thanks, Mike. Good morning, everyone. As Mike stated, 2024 was a very good year for Ares. We generated record levels of gross fundraising and deployment, which led to continued double-digit growth in our key metrics of AUM, dry powder, fee-related earnings, realized income, and many others. We also enhanced our future growth prospects by expanding our investment strategies and capabilities both organically through targeted staffing additions to our origination teams and inorganically, a pending acquisition of GCP International and completed acquisition of Wall Street, Mexico. We enter 2025 with a great deal of optimism about the continued success of our business. We are entering an economic and market environment that we expect will be more active and one that we believe will be more conducive to deployment activity for more of our investment strategies.

Turning to our quarterly results. Our management fees were a record $781 million. Fourth quarter fee-related performance revenues totaled $162 million, in line with our quarterly targeted range. For the full year, FRPR increased 28% versus the prior period, as we saw increased contributions from alternative credit and secondaries products. In 2025, we expect additional growth in AUM from our direct lending, alternative credit, and secondary funds to generate higher overall FRPR. Yet growth could be modest as we factor in a full-year run rate of lower base interest rates in our direct lending FMA. We are currently not estimating any FRPR from our real estate group in 2025. The 2026 could be in play assuming a continued recovery in the real estate market.

Fee-related earnings for the full year increased 17% over the prior period, with record FRE in Q4 at $396 million. For the quarter, both compensation and G&A expenses came in slightly below our initial expectations, resulting in FRE margins of 40.9%, which was ahead of our 40% target from last quarter’s call. Supplemental distribution expenses associated with our wealth management products totaled $13.6 million. Although our full-year FRE margin increased by 60 basis points to 41.5%, the increase in supplemental distribution fees from $16.7 million in 2023 to $51.2 million in 2024 created a drag on our year-over-year margin growth. However, these fees are associated with our significant momentum raising long-dated perpetual capital in the wealth channel that will generate meaningful base management fees and part one fees in years to come.

With $39 billion in AUM across our wealth management products, and increasing fundraising momentum into 2025, we expect total management fees from these funds to increase more than 65% year over year to a range of $500 to $550 million. While we expect distribution expenses to increase this year given our momentum, these expenses are expected to become less impactful to our results against a growing level of management fees from wealth products in 2025 and beyond. Our realization activity increased in the fourth quarter with net realized performance income totaling $89.3 million. For the full year, we realized $148.9 million of net performance income, of which $94.5 million or 63% came from our European-style funds. Even with the realizations recognized during the year, our net accrued performance income on an unconsolidated basis rose by approximately $86 million or 10% to $1 billion at year-end, with approximately $856 million or 85% in European-style funds.

We continue to be very excited about a meaningful ramp in our net realized performance income as our growing amount of European-style funds reach their maturities, as initial vintages of certain US credit campaign funds enter their waterfall payments. As we’ve outlined in the past, we look at our European-style net realized performance income across a two-year window. We have a higher degree of visibility of realized income. The amount that we could receive over both the longer term and the next two years is essentially unchanged from the applicable amounts we outlined in our Investor Day presentation last year. For 2025, we continue to expect our European-style net realized performance income to more than double to a range of $225 million to $275 million, and we expect to considerably grow these amounts again in 2026.

We plan to keep you updated as we progress throughout the year. Realized income for the fourth quarter totaled a record $476 million, and for the full year, it exceeded $1.4 billion, a 16% increase from 2023. For the full year 2024, our effective tax rate on our realized income was 11.7%. Our tax rate was higher in the fourth quarter due to a greater amount of net realized performance income, which generally has fewer deductions associated with it than our FRE. For 2025, we anticipate an effective tax rate on our realized income to be in the range of 11% to 15%. As of year-end, our AUM totaled $484 billion, up over 15% compared to the previous year, and was driven almost entirely by organic growth. Our fee-paying AUM totaled nearly $293 billion at year-end, an increase of nearly 12% from year-end 2023.

As you can see in the presentation that accompanies our earnings release, our portfolios continue to perform very well. For the full year, we experienced double-digit returns in our US and Europe direct lending strategies, as well as in our alternative credit, opportunistic credit, and APAC credit strategies. Credit quality underlying our US and European direct lending portfolios remained strong and stable. In our US direct lending portfolio, our companies generated year-over-year EBITDA growth of 10.6%, and interest coverage continues to improve. ARCC reported non-accruals this morning of 1.7%, which remains well below our long-term average of 2.8% since the GFC. In real estate, the recovery of many asset class values is clearly underway. Our North American real estate equity composite had the fourth consecutive quarter of positive performance and ended the year up nearly 8% on a gross basis.

Our European real estate equity composite posted the second quarter in a row of positive performance. Our infrastructure debt composite returns also continue to perform very well, up 11.7% on a gross basis for the full year. Within private equity, our most recent vintage fund ACOF VI is a top quartile fund in its vintage, and it generated a strong time-weighted gross return of 18.9% in 2024. Our ACOF composite portfolio companies experienced nearly 14% year-over-year organic growth in EBITDA in the fourth quarter. As I outlined at the beginning of my remarks, we’re well-positioned for strong growth in 2025, in line with the financial targets we highlighted at our Investor Day. This does not account for any impact from the GCP International acquisition, which we anticipate will be an exciting addition to the long-term growth of our business.

Finally, at the beginning of each year, we aim to set a fixed quarterly dividend for the coming year. Based on the significant visibility we have towards our FRE growth, we’ve elected to increase our dividend to $1.12, up 20% from last year. High-quality AUM across the business underpins our stable and growing FRE base, which continues to support our dividend. Our confidence in our European-style net realized performance income also enhances our ability to grow our annual dividend 20% plus each year. I’ll now turn the call back over to Mike for his concluding remarks.

Michael Arougheti: Great. Thanks, Jarrod. We’re excited about the opportunities ahead for 2025. We’re entering the year with a record amount of dry powder, an enhanced set of capabilities, and solutions to address the diverse needs of our global client base. We expect transaction activity to expand year over year, and the new administration could provide some tailwinds for deployment, especially if an improved regulatory and antitrust environment enables more business growth and M&A activity in the market. Our growth is underpinned by generating differentiated fund performance for our investors, which is driven by our broad direct origination capability, people, institutional processes, and our strong culture. And to that end, I’m just so proud and grateful for the hard work and dedication of our team. I’m also deeply appreciative of our investors’ continuing support for our company. And with that, operator, I think we can now open up the line for questions.

Operator: Certainly. Thank you, Mr. Arougheti. Ladies and gentlemen, at this time, we will begin the question-and-answer session. We’ll go first this morning to Craig Siegenthaler of Bank of America.

Craig Siegenthaler: Good morning, Mike, Jarrod, and Kip and Blair. If you’re on the call, congrats on the promotions.

Michael Arougheti: They’re here, and thank you.

Craig Siegenthaler: So I have a long-term expense question. G&A expenses rose by more than 20% in 2024, and I know there’s some noise in there like Crescent Point in Q4 2023 that actually helped the comp, but also you had a new New York City lease coming in this year. So we wanted your high-level thoughts on the go-forward core growth rate of G&A. And, also, how are supplemental distribution fees in the wealth channel a factor? And then you’re also closing GCP, I think, this quarter, as you said. So what will be the near-term lift from that? Thank you.

Jarrod Phillips: Sure. Thanks, Craig. I would say that first off, going through the story of G&A this year, supplemental distribution fees are really the major driver of the changes year over year as those increase pretty dramatically up to about $50 million for the full year, about 50 basis points of what we raised during the year of that $10.8 billion that we raised in that channel. Now we do expect to continue to raise more in that channel and for those amounts to increase. So I would expect that those expenses would increase as well. However, the one thing I’d point out is as we open new channels of distribution, we’re less reliant on those channels that charge these upfront or rev share fees. So if you look at that 50 basis points for the full year, it was actually only 43 basis points of the capital raised in the fourth quarter.

So we will still see some growth in that, and that’s growth that’s highly correlated to fundraising. We also have marketing events and other sales events from the institutional channel, which you’ll also see correlated more to our fundraising than you will towards anything else. The remaining part of that is the occupancy expenses that you mentioned, which are probably the largest driver of our G&A expenses. As you noted, we did just bring online a couple of new floors here in New York due to the expansion of our headcount. We also have our new headquarters in Los Angeles, and we’re still carrying some of our old headquarters. So that will eventually roll off towards either the end of next year or early in 2027, meaning that you’ll see LA expenses go down while New York will increase over the next five-year period.

Those expenses, along with expenses like technology and items of that nature, are much more correlated to our headcount. So as you see our headcount grow, you will see that G&A expense grow. Now as we’ve been able to show scale, we would look to revenues growing at a higher percentage than our both headcount and therefore those G&A expenses. And then maybe the last point to bring in is the GCP acquisition, which will bring in some new expenses in G&A. However, we talked about it in our call when we announced the acquisition that their margins were relatively similar to the margins that we see in our current real estate business, excluding the impact of data centers, which right now is we mapped out at about $20 million FRE drag as we wait for funds to launch out of that space, which we expect will be in the near term.

But we’ll carry that essentially expense load until you start to see those data centers launched off the platform.

Craig Siegenthaler: Thank you, Jarrod. Just as my follow-up from Mike. Mike, given your change in responsibilities now with the elevation of Kip and Blair, it sounds like you’re gonna be more focused. So curious, what are the two or three biggest strategic initiatives that you plan to focus on now?

Michael Arougheti: Sure. Thanks, Craig. So let me maybe rephrase your question in two ways. I am not changing my priorities. Kip has been my friend and partner for thirty-five years. Blair, same, almost thirty years. I view this as an expansion of the management capacity and strategic capacity of the enterprise. And I think we’re really blessed and privileged that we have such a deep bench of people that we can do things like this while we’re all still young and energized and focused. So, really, I’ve asked Kip and Blair to work with me on the highest impact growth opportunities, which right now are to get the integration of GCP right and position it for growth. As we’ve talked about, there is a significant opportunity to bring together our infrastructure and real assets platform to capitalize on the opportunity in digital infra and new economy real estate.

We have the opportunity given our leadership position in corporate credit to continue to expand our market share in real estate and infrastructure lending. And obviously, Kip and Blair have a significant amount of experience and credibility in the private credit market to lend their expertise into those market opportunities. As you know, Craig, we have a differentiated approach to insurance, but our insurance capability continues to grow. Our insurance partnerships continue to grow. I think there’s a big opportunity to continue to look at ways to exploit our credit capabilities alongside Aspida. And, you know, as we said in the prepared remarks, we have about 255 partners here at Ares out of, you know, 3,200 employees. This is a very, very deep bench, and one of the things that we’ve always been focused on, and I just think about my own journey here, is we are constantly working on and developing the next generation of leaders, and I can’t think of two better people to help me do that than Blair and Kip.

So I’ve always been focused, Craig, and I’m not changing my priorities, but I think given the amount of opportunity that we have around the globe, it’s now time to fill those seats and just expand our capacity.

Craig Siegenthaler: Thanks, Mike.

Operator: Thank you. We go next now to Kyle Voigt of KBW.

Kyle Voigt: Hi. Good morning. Thanks for taking the question. Do you think just get an update regarding M&A appetite with the GCP deal now set to close in the first quarter. Just wondering if we get an update on how you feel about the state of your pro forma business mix, where you sit strategically from asset class and geographical perspective, and do you still feel like there’s potential gaps to fill in the product offering or internationally?

Michael Arougheti: Yeah. Thanks for the question. As we’ve said in the past, with each successive acquisition that we’ve made, I think the bar for making acquisitions gets higher and higher. And that’s really just a function of broadening out of our capability set and the organizational capacity that we have to launch and support organic growth initiatives. We have laid out as a strategic objective for the company to have full capital structure capabilities, meaning everything from control equity through, you know, traded debt securities in each of corporate real estate and infrastructure and in each of the US, Europe, and Asia. So if you were to kind of fill out that game board, there are very few capabilities of consequence in the global alternative space that we don’t already have here.

So, you know, I don’t want to say that we’re not gonna do M&A because it’s been a really nice driver of growth here. It’s represented probably 20% to 25% of our growth. And as you’ve seen with things like Black Creek and the growth in wealth, or the recent, you know, acceleration of growth in the secondary platform, I think we have a really good playbook for accretive acquisitions and then strategic acceleration of revenue synergies post-acquisition. We’re constantly looking and thinking, and we’re being both opportunistic and reactive to what the market shows us. But we’ve lots of organic growth ahead of us, and I think the near-term focus is gonna be to exploit those opportunities versus M&A.

Kyle Voigt: Appreciate that. And just for my follow-up, just a question on the sequential growth in credit fee-paying AUM. You’ve noted on prior calls that that gross to net deployment ratio and expecting that to improve. I think you noted maybe an expected gradual improvement in the environment. Guess anything that you can tell us in terms of helping us out with the pipeline that you’re seeing, how that’s gonna progress in terms of that gross to net deployment ratio into the first half of the year, and how you expect it to kind of unfold through 2025 versus where you’re at in Q4?

Michael Arougheti: Yeah. It’s still early. Obviously, we had a very strong deployment quarter in Q4. You know, January is seasonally slow. I think we’ve talked about this before. We generally see lower deployment in Q1 and Q3 and stronger deployment in Q2 and Q4 just based on the rhythms of the business. But the private credit portfolios generally across the board, I would say, are increasing in activity. I think that’s just, again, a function of the market backdrop, particularly in the US markets. I think that, you know, there’s a lot of pent-up demand to transact. And even though we believe that rates are gonna be higher for longer, I think we now have stability in rates that’s bringing capital off the sidelines in private credit and real estate in a way that we didn’t see particularly in the first half of last year.

I do want to reiterate what we said in the prepared remarks, which is that we are uniquely positioned. When you look at our deployment relative to the transaction volumes in the market, if you look at our year-over-year deployment, we were up close to $107 billion compared to $68 billion. Global M&A volumes are only up 10%. And so I think it speaks volumes to, A, the diversity of the strategies that we have and the solutions that we can bring into the different markets, but it also speaks to the value of the incumbent relationships that exist within the portfolio. And as we’ve talked about before, depending on the period that we’re looking at in our private credit book, roughly two-thirds of our deployment last year was coming from incumbent sponsor relationships, and roughly half was coming from incumbent portfolio company relationships.

So while we obviously are beneficiaries when the M&A activity picks up, I do want to highlight that deployment to keep pace with our FRE growth is not dependent on M&A, and in some circumstances, slower transaction volumes actually increase the attractiveness of some of the liquidity solutions that we’re able to provide.

Kyle Voigt: Great. Thank you.

Operator: Thank you. We go next now to Steven Chubak of Wolfe Research.

Steven Chubak: Hey, hi. Good morning, and thanks for taking my questions. So maybe just to start off with a question on fundraising, the momentum was quite strong to close out the year. Given the tough fundraising comp in 2024, much lower expected contribution from flagships in 2025, a modest year-on-year decline was admittedly better than we were anticipating. You alluded to, Mike, some of the drivers of their non-flagship fundraising in 2025. And what contribution you’re contemplating from flagship this year that’s supporting that more resilient fundraising outcome?

Michael Arougheti: Yeah. Again, it’s early, but as we said, we have eighteen or so commingled funds that are in the market in 2025 and a similar number in open-ended and perpetual, you know, continuous offer funds. As we tried to articulate in the prepared remarks, what we would call the floor for fundraising continues to elevate. And while the campaign funds are still a meaningful contributor to our fundraising growth, we now have so many other levers to pull that are more consistent in the way that capital flows into the platform. When you look at some of the meaningful, you know, quote-unquote flagship campaign funds, we’re in the market with our opportunistic credit fund, which has very significant momentum. We are in the market with our second sports media and entertainment vehicle, which we talked about.

We are very active on a number of our core real estate equity and debt strategies. And given the, you know, falling out of that market, we’re seeing good momentum there. We’re in the market with our infrastructure debt strategies and so on and so forth. So while we don’t have the magnitude of campaign funds like a European direct lending or US direct lending, we do have a significant number of funds that are represented across the platform. And then as you saw, places like insurance and wealth are continuing to accelerate above, you know, the above the trend growth. And so I would expect those to continue to be meaningful contributors as well. So I can’t say in January exactly where we’ll be, but as we said in the prepared remarks, I think that, you know, we will likely be modestly lower than we were this year just because it was such a significant year, but I still think it’s gonna be an incredibly strong year for us.

Steven Chubak: It’s really helpful color. And for my follow-up, I did want to ask on the Aspida T. Rowe partnership. So T. Rowe, on its recent earnings call, discussed the partnership. They cited opportunities for co-developing investment offerings potentially in both insurance and private assets. Just curious how you think this partnership could evolve over time. This can also serve as a potential stepping stone to eventually break into the 401(k) space.

Michael Arougheti: Sure. So reiterating what Rob said on the call, we could not be more excited about the partnership. I think there’s a long relationship between our two firms. I think there’s a deep need for respect. T. Rowe is just one of the great financial services companies in the market, and we’re thrilled to be their partner. The team at Oak Hill are, you know, longstanding partners and counterparties of ours and close friends, and so we’re thrilled to be deepening that relationship as well. The way that I would describe it, and it’s still early days, is we are obviously in a position to leverage the fixed income capabilities at T. Rowe. The benefit of Aspida. There are things that Oak Hill does within the private market space that complement some of the capabilities that we have here.

Will add value to Aspida as well as some of our third-party insurance clients. I think T. Rowe gets to demonstrate its capability and capacity to, you know, create insurance solutions, which I think is accretive to their business long term. And then as you mentioned, it’s still early days in figuring out exactly how alternatives will find their way into the 401(k) market, but, you know, there are early discussions just around product development and, you know, a path forward to work together on various, you know, retirement products, and obviously, that would be super exciting if it came to fruition.

Steven Chubak: That’s great. And thanks so much for taking my questions.

Operator: We’ll go next now to Alex Blostein of Goldman Sachs.

Alex Blostein: Hey. Good morning. Thank you for the question as well. Mike, I was hoping we could start with a question with a point you made earlier regarding institutional investors continuing to expand their allocations to private credit. Obviously, it’s been an important theme for years. But as you think about the evolution into the investment-grade private credit part of the market, can you talk a little bit about the changes you’re seeing in that LP base? Are you seeing, you know, other types of insurance companies that are looking into space historically have been largely life? So curious if you’ve seen more movement on the P&C side, other types of institutions as well, where those allocations could ultimately go. I mean, right now, they’re still quite low. Then, ultimately, Ares’ origination capabilities to satisfy that need.

Michael Arougheti: Sure. So we do have the capability to manage, you know, high-grade fixed income exposures for our clients that largely takes place within our alternative credit group. We are now finding that as we continue to expand our vertical and integration within our real estate and infrastructure businesses, that we’re able to create high-grade exposures for our clients there as well. To this point, given the risk-return profile of those assets, it is predominantly insurance-focused. We have had some success on bank partnerships within that space, we have seen some, you know, modest demand from some of the large global sovereigns for those exposures. But, you know, those are largely just swapping out of traded, you know, high-grade fixed income into non-traded, high-grade fixed income to try to pick up some excess return.

So while it’s a huge TAM, I view that slightly differently than some of the organic expansion that we’re seeing across the sub-investment-grade portion of the private credit market.

Alex Blostein: I gotcha. Great. And then another one related to GCP, the deal getting closer to completion here, I guess, in the first quarter. Can you guys just level set and remind us what their 2024 full-year management fee base is, how you guys expect that to grow over the next couple of years? And once the deal closes, what kind of products, particularly in the retail side, should we be thinking about you guys expanding into? Thanks.

Jarrod Phillips: Sure. What we had gone over in the call after we made the announcement was we expected that 2025’s full year, the first twelve months after closing, so not the full year of 2025, but the first twelve months after closing would be about $200 million of FRE, not inclusive of synergies and costs. So there’s probably about $10 million of synergies that may take longer than those twelve months to recognize, and there’s probably about $10 million of costs as part of the integration that we may see as one-time costs going into there. And then we modeled out that we thought it would be about $245 million in 2026. The overall AUM is about $44 billion of AUM, and the lion’s share of that is coming out of Japan. It’s almost half of it is in Japan, with the remainder spread across the globe.

The main retail product that they have there is in Japan with the J-REIT product that they have. That does do periodic capital raising depending on the current NAV and traded price. And that did do quite a bit of capital raising from 2013 to 2023, 2024, with the interest rate environment not being as conducive, it didn’t have as many raises. But we would expect that in the future that will continue to raise. But that is a closed-end product, not an open-end like some of our non-traded. Overall, we mapped out that we thought that their growth profile, including the data center opportunity, would match the targets that we laid out at our Investor Day. And overall, it’s not really large enough to shift our targets one way or another that we laid out at Investor Day in terms of our growth.

Michael Arougheti: The thing I would just add on top of that, as we talked about in the prepared remarks, is we will hit the ground running post-closing with a number of capital raises that are already in flight. When you look at the data center pipeline and the funds that we’re raising in Japan and the UK, that’s gonna approach about $4 billion. And then when you look at the self-storage and Japan real estate business, that’s probably likely another $4 billion on top of that, currency adjusted. So I think there’s a high confidence just based on the fundraising pipeline and deployment there that that trajectory from 2025 into 2026 is intact.

Alex Blostein: Great. Alright. That’s very helpful. Thank you for taking the question.

Operator: Thank you. We go next now to Mike Brown with Wells Fargo.

Mike Brown: Great. Good morning. Thanks for taking my questions. So in light of the news with co-presidents of Kip and Blair, I wanted to ask about Blair’s side of the credit business and focus on the Europe direct lending side. I wanted to just hear about how’s the health of the market there. Does the Trump administration impact some of the growth potential for the region? And how does that impact perhaps the deployment opportunities there? And just overall, how is the competitive landscape in Europe currently?

Michael Arougheti: Yeah. Sure. And thanks for the question. A couple of things to unpack there. First, on the macro side, 2024 actually turned out better than we thought. You know, coming into the year, there were concerns around inflation, high rates, potential recession. Obviously, high rates did their job. Inflation came down. Rates came down. The economy’s kept moving forward. And with respect to the portfolio itself, we don’t have many loans to very GDP-sensitive sectors. We tend to favor sectors that are more resilient and have strong organic growth attached. So overall, the portfolio is doing well. Now your second question around politics, that’s obviously quite topical as well. It’s early days with respect to the Trump administration, but from our analysis, again, we don’t have a lot of exposures to sectors that are exposed to significant trade flows.

Therefore, you know, it’s hard to draw a straight line from potential tariffs to our portfolio companies, which again tend to be of a size where they’re more locally focused on individual European markets and countries. I think the other thing that’s been talked about is potential impacts on defense spend, but, again, that’s not a significant end market that we’re focused on. So overall, I think from an economic perspective, the portfolio is doing well, and we are also seeing, and Michael nudges this as well, pickups in investment activity given the European dry powder available, given European private equity assets that need to be realized, and certainly, the cost of capital is slightly lower rates is helping. And that’s again why, you know, deployment picked up throughout last year and looks good coming into 2025.

Mike Brown: Okay. Great. Thank you. And then maybe just wanted to ask on the banks as they become more formidable competitors again. How should we think about that interplay between the broadly syndicated loan market and the private credit market? And, you know, any color on how we should think about some of the competitive landscape for in direct lending, how that came back, spreads, and leverage multiples, deal structures, etcetera. Thank you.

Michael Arougheti: Yeah. Sure. And we’ve always said, and I want to make sure that we’d say maybe louder this time. The banks are more important partners of ours than they are competitors. And I think that the narrative of, you know, fierce competition between direct lending and banks is overblown. You know, if you look at how we fund ourselves and how banks access these markets, there’s a great, you know, symbiotic relationship between their lending operations and their client franchises and our cap base and our origination and portfolio management capabilities. When the banks are risk-on, meaning having a greater willingness to originate and distribute into the capital markets and the CLO machine is turned on, you will see at the upper end of the private credit market large market, predominantly sponsor unit tranches, there is competition between the banks and some of the larger direct lenders.

In that instance, as you saw last year, our CLO machine turns on in earnest for one of the standing, you know, I think best-performing CLO managers in the market. And so last year, as the syndicated loan market was starting to thaw and activity picked up, you saw, you know, record CLO issuance for us. So at least in that part of the market, I feel like we’re hedged. Where we are meaningfully differentiating our private credit platform, and I don’t know that we talk about this enough, is that we cover the entire spectrum of sizes, sponsors, non-sponsors, direct to industry coverage, corporates, real assets, asset-backed, etcetera. And so there are platforms that we compete against that are significantly more exposed to competition at the upper end of the market, as it should be in that part of the market if you’re competing against the liquid loan or high-yield market, you will be more prone to, you know, pricing relative to those markets.

It’s one of the reasons why we had been so focused on building competitive edge, you know, competitive edge in the core middle market part of the business where we cannot only continue to grow and expand those relationships, but we think that there’s, you know, there’s a more consistent excess return and pricing opportunity. The other thing that I think it’s also important to think about is this idea that less bank regulation is forthcoming and that somehow the banks are gonna wake up and become, you know, meaningful competitors. I think there’s a misunderstanding as to why banks aren’t in these businesses. If you look at the creation of the private credit markets, it’s largely been a function of consolidation in the banks over the last thirty years, you know, very well entrenched regulatory capital frameworks within the banking and insurance markets, and a move to scale, just to name a few in the liquid markets.

It’s very, very difficult, you know, for that to unwind and to see, you know, banks being meaningful competitors in the core parts of the market that we play in. You know, as an example, last week, we announced that we purchased a $1.3 billion loan portfolio from ABN AMRO. It was predominantly a, you know, digital assets, digital infrastructure portfolio. And that was, you know, just an example of how we’re working together with them to bring capital to support their business and for them to optimize their balance sheet and grow their customer franchise. So interestingly, post-election, we probably saw more SRT, CRT, and bank portfolio activity in Q4 than we had seen in any quarter prior. And so I would expect that to continue. So I don’t want to give a long answer, but the simple answer is as the banks get more active, that’s usually good for our CLO and liquid franchise.

It means that M&A activity is picking up, and our experience has been, you know, that’s a net benefit to the platform given the way that we’re structured.

Mike Brown: Okay. Great. Yeah. Very comprehensive answer. Thank you, Mike.

Operator: Thank you. We’ll go next now to Bill Katz with TD Cowen.

Bill Katz: K. Thank you very much. Congrats, guys, on the promotions. Just coming back to OHA, I’d like to commit this in a slightly different angle. Does this give you an opportunity to rethink the mass affluent marketplace without compromising fee rates? I know when the KKR and the Capital Group initiative came out, there was a lot of skepticism about what the economics might look like. And I know you fiercely want to protect that base management fee. But does this give you an opportunity to potentially expand the wealth management opportunity without that compromise?

Michael Arougheti: You know, it’s too early to tell, Bill. I would say, I think what I said last quarter, which is our view on any partnership, whether it’s between us and a traditional manager or us and a bank or us and someone in wealth, it has to be customer-led and client-led. We need to convince our putting the fees aside, the first question asked me, does this create an investment outcome or a product for the client that adds value to them? The idea of just taking, you know, alternative assets and traditional assets, mushing them together and offering the package, people can do that today. Right? There’s open architecture in the market. So if somebody wants to access Ares’ private product, they can do it through our traded products, they can do it through non-traded products.

They can do it through investing in the management company and so on and so forth. So in our view, if we are going to introduce a product through partnership, it has to create something in the market that is truly differentiated first and foremost, and then we’ll worry about the economics of the product. And then two, I also want to remind everybody, and we talked about in prepared remarks, that the binding constraint to growth and profitability in our business is to be able to create differentiated assets to then deliver differentiated performance to our clients. And there’s not an infinite amount of differentiated product in the world. And so I think, you know, good business builders will focus on making sure that they’re satisfying client need, but also making sure that their capital base is optimized for the investable opportunity.

And that’s the way that we’ve built Ares, and we’ll continue to focus on it. I do think that there’s a lot of complementarity to their business and our business going back to T. Rowe and OHA. They have distribution capability in parts of the market that we don’t, and we have distribution in certain parts of the market that they don’t. So there’s a real potential synergy there, and I think that as the partnership grows and strengthens, we’ll obviously explore those things. But definitely still too early to tell.

Bill Katz: Okay. Thank you. And then one quick one for Jarrod. Just thinking through the ins and outs for the FRE margin outlook, how should we be thinking about compensation? And the reason I’m asking is, if you have the European waterfall sort of poised to sort of accelerate rather dramatically, is there an opportunity to sort of reroute some of the compensation against that? I know you sort of provided that number relative to the comp you’re paying either on the base business or even against FRPR looking ahead? Thanks.

Jarrod Phillips: Sure. And thanks, Bill. I do think it does give you more flexibility, but the key to it is much like how we’ve used our Part One fees and our more recurring FRPR in the past, you have to wait until it’s established and kind of paying and part of what people expect from their compensation. So it’s not a right on day one as you harvest it, it’s going to create this meaningful change. It does again provide flexibility, and especially as those amounts grow and there’s unallocated amounts that you’re able to then use to supplement, it is helpful. But it’s more something I’d say after year one or two of the full kick-in of the waterfall where it starts to grant you more and more flexibility because of the high level of predictability of those European waterfalls and the growth of those year over year.

Bill Katz: Great. Thank you very much.

Operator: Thank you. We go next now to Ken Worthington of JPMorgan.

Ken Worthington: Hi. Morning. Thanks for the question. Just one for me. In credit, fundraising deployment continues to be quite strong. Fee-paying AUM growth was slow less so. Can you talk about gross deployment versus net deployment and the trends there? Ultimately, what the refinance market looked like in Q4 relative to earlier in the year? How competitive did Ares choose to be in the refinance market versus what you saw in the BSL market again this quarter?

Michael Arougheti: Yeah. So, obviously, it’s been the last couple of years have been, you know, difficult, I would say, from a gross to net standpoint just because I mentioned earlier, the M&A market has been, you know, incredibly slow and global volumes have been down. And I feel really good about our ability to defend positions within the existing portfolios and find ways to bring liquidity into the market in non-control, you know, transactions to maintain, you know, some pretty high levels of quality deployment. But if you look at the, you know, the gross to net in 2024 versus prior periods, it was one of our lower deployment periods in the last four years. I would expect that 2025 will be a meaningful improvement. And that’s gonna be largely a function of the M&A volumes turning back on a more meaningful deployment opportunity within real estate, which was very slow for a number of years.

And then just what I would call the weight of money that is in the ground today in the private equity and institutional real assets market that needs to get resolved. And so there’s a lot of things happening kind of in the market backdrop that we expect will, yep, crank up the transaction volumes this year, and that should begin to see the gross to net return to normal levels.

Ken Worthington: Was Q4 all that different than Q1?

Michael Arougheti: So if you look at Q4 gross to net across the platform, it was 42%. And if you look at Q1, it was 22%. So you did see a, you know, you did see a move. But if you look at it across the entire year, it was 37% versus 46% in 2023. Definitely a four-year low in terms of the gross to net.

Ken Worthington: Perfect. Thank you very much. Improvement.

Michael Arougheti: Sure.

Ken Worthington: Yep. Thank you.

Operator: Thank you. We go next now to Brennan Hawken of UBS.

Brennan Hawken: Hey, good morning. Thanks for taking my question. Most of my questions have been asked and answered, so I’ll just keep it to one. Last quarter, you spoke to an expectation for improving FRE margin in 2025. There a decent you spoke a little earlier on G&A, which is helpful. But how should we think about potential magnitude for that, and what are the primary factors driving it? Thanks.

Jarrod Phillips: Hey, Brennan. Thanks. I’d say that it’s not too different than what we talked about on our Investor Day. We expect that zero to 150 basis points expansion. Of course, in the past, we have gone above that. When we go above that, it generally is a result of a very active macro backdrop, which allows for deployment to go up higher than maybe we would expect. So the pace of deployment really dictates the speed at which margin expands in many cases because our just remind everybody as a credit predominant business, we’re paid on deployment, meaning that we are paying people prior to us earning fees from some of the effort that will be put in. So as dollars are put into the ground and put to work, that enables us to expand our margin at a faster rate.

So really, a lot of it comes from how fast will we be able to have that net deployment number increase, and that’s what drives a lot of that expansion. Further, as we start to see things like A REIT and AI REIT, return to positive fundraising on the common side, they’ve been net flat with the common and the 1031 exchange for the year. So as we see that move back to positive and we’ve seen a lot of positive signs, that will be something that continues to drive positive economics into the real estate business and allow us to expand margins there as well. And overall, we talked a lot this year about our distribution fees. Now that we raised the $10.8 billion in AUM in that retail space that we had that $50 million distribution fees. Now we’ll get a full year revenue off of those as opposed to just that partial year that you get throughout.

So, really, that was a flat to net negative to our margin for the year. Next year, we’ll get the benefit of now having a full year of that in the ground. Of course, there’ll be more that we raised and there’ll be more expense there. But it begins to create long-term tailwinds to that margin expansion. There’s a number of different areas. And like I highlighted earlier, we continue to seek scale and we continue to look to do more with what we have. And as we build out more product, more fundraising capability, and more origination capability, with what we have in the ground today, that enables us to show scale and grow those expenses at a slower rate than we grow our revenues.

Brennan Hawken: Thanks for walking through that, Jarrod.

Operator: We’ll next now to Ben Budish of Barclays.

Ben Budish: Hi. Good morning and thanks for taking my questions. Maybe one last sort of follow-up. The last few questions sort of been around the FRE outlook. Just curious anything you can share with us in terms of we might think about managing fee growth in 2025? You’ve talked about the gross to net dynamics. I’m curious, is there anything to do with the deployment out of perpetual versus drawdown vehicles, that sort of thing? We’ve obviously got your longer-term FRE guide, and clearly, there’s a kind of wide range depending on the pace of deployment. But it just seems like folks are sort of wondering, like, how do we sort of think about the top-line growth, which will clearly be the driver of FRE margin expansion?

Jarrod Phillips: Sure. It’s think of it in a few different ways. The drawdown funds, as you mentioned, that’s really where the deployment is driving your expansion of management fees, and that’s where you look at that gross to net. In terms of what happens in your retail product, well, that’s fundraising-driven because the minute that you raise that dollar, it begins to pay fees. However, you do have to model out the fact that there is an expense with that or in the case of some of our European dollars, there’s been fee waivers in the past. So out of our Europe, you’ll see benefit from that, and then you’ll see the benefit of fundraising dollars come to your top line or your management fees. Then when you look at our equity-style funds, those are also driven more on your fundraising.

However, a large number of those have a benefit where you get paid uncommitted, but your management fee essentially doubles. It might go from 75 basis points to 150 basis points upon deployment. So you get some benefit of deploying what you had raised in prior years, plus you get the benefit of raising new dollars in the current year. So across the board, you do have to factor in both that deployment like you mentioned, but also the fundraising on the equity and the fundraising on the retail side to make sure you’re kind of matching it to that. All of those, we come up with what we believe will think will happen for the year. And, ultimately, if we’re able to beat that or exceed those amounts, then that will drive further management fee growth above what we project.

Ben Budish: Understood. Appreciate all that. Maybe one last sort of, like, nitty-gritty modeling detail. Jarrod, you talked about the sort of range of tax rate outcomes for the year depending on the pace of realizations. I’m just curious as the platform gets bigger, as the European waterfall style realizations start to come in, your after-tax net income is getting bigger and bigger. I’m curious, like, how should we think about the tax rate as you’ll start to be at the some point, you’ll be at the corporate alternative minimum tax rate, I believe. And should we start to expect the overall rate to sort of go up? How do we think about that in the context of the sort of timing of realizations? And I realize this is probably somewhat farther out because I think that applies after, like, several years of over a billion in after-tax income. But just curious about how we might think about those pieces.

Jarrod Phillips: But I think that that is why you saw our range go from 11% to 15% last year coming into the year, we mapped out 12% to 15%. We came in a little bit underneath that amount. Looking at this year, AMT is something that we’re aware of. It would require certain things under GAAP to occur that would be relatively large changes mainly based on your unrealized portfolio. So to your point, you’re probably still a year or two away from reaching that 15% AMT tax. And you are correct that as we see more realization, typically that drives our tax rate higher. However, with the GCP acquisition, as we close that, that will create a lot of taxable goodwill, which that will amortize over fifteen years, and that will essentially drive your tax rate down.

So that’s why that range is 11% to 15%. Fifteen really represents that AMT. But like I said, we thought it would be 12% to this year, came in slightly lower. That should give you an idea of just what a regular year might look like.

Ben Budish: Alright. Very helpful. Thanks so much.

Operator: Thank you. We go next now to Michael Cyprys at Morgan Stanley.

Michael Cyprys: Great. Thanks for taking the question. Just with the GCP transaction, you guys are gonna be in the market with a number of development vehicles for data centers. So just curious how you’re thinking about the investment opportunity with data centers there just given post the deep seek development that suggests that AI models may be a bit less capital energy intensive. Just curious how you’re thinking about that. And how are your views are on evolving around CapEx across the industry.

Michael Arougheti: Yeah. Look. I think the markets are still trying to digest what deep seek actually means, and there’s, you know, maybe conflicting views as to what exactly the cost and investment to train those models actually was. From my perspective at a very high level, the move has always been to lower cost and increased efficiency in the data center business and the cost of compute. And what we have seen with technological advancement and greater efficiency, we will typically see increased demand. And so my long-term view is that the demand for compute will continue, which will not, you know, change the opportunity to build data centers with good counterparties in good locations. And maybe to that point, if you look at the market today, the significant preponderance of data centers are still going to just support cloud computing with the large cloud companies.

And, obviously, the AI transition is important. Most of the sites and plans for development that we have are catered towards data centers and cloud migration with what I would call upside for AI. Meaning that the client can elect to have that optionality in the way that we’ve built the data center for them. I think the good news is, at least in terms of our business, the sites that we are developing with GCP are generally in major metropolitan areas, so London, Tokyo, Osaka, Sao Paulo, where there’s real benefit from the proximity to the end user. Latency considerations are obviously also important. So we’re not speculatively building data centers, and I think most people that are similarly situated will tell you that if you are building high-quality data centers in the right places with the right customers, there’s still a very significant opportunity to generate, you know, meaningful return.

And the pipeline that we have, and we talked about this when we announced the transaction, you know? We have the land. It’s entitled. It’s powered, and we are under LOI for the leasing and the financing. So the near-term pipeline that we’ve underwritten, you know, in our view is not at risk. And then lastly, I would just highlight, you know, the magnitude of the opportunity relative to the amount of capital is so significant that even if you saw a pushing out of that pipeline, it’s still undercapitalized relative to the amount of money that is in the market on the debt and equity side to fund it. Annual opportunity estimates depending on the source would tell you that’s a $4 to $7 trillion opportunity. And so needless to say that if we and other peers want to participate in that growth, we don’t need to see $4 to $7 trillion of capital activity to have it be a meaningful growth lever for us.

So there’s a lot to unpack, obviously, in all of that, but I think at least our core investment thesis remains intact, and we’re still extremely enthusiastic about the opportunity.

Michael Cyprys: Great. Thank you. And then just for a follow-up question on private wealth. There’s something maybe you could just dig in a little bit around the traction you’re seeing overseas. Maybe talk about some of the differences in the approach distribution that’s needed to drive success overseas versus in the US?

Michael Arougheti: Yeah. Look. We were pleased. You know, over 35% of our capital raise was coming from our European and APAC positioning. The general difference is really just in terms of market structure. So if you think about the US market, the wirehouses play a pretty significant part in, you know, the growth opportunity there, at least the scale opportunity. And then the RIAs are, you know, rapidly catching up and probably growing faster right now than the wirehouses all being on a smaller number. When you start to move towards Europe and Asia, the market structure is just fundamentally different. There’s more bank partnerships, more wealth partnerships just because the wires are not as prevalent. So you have to build, you know, you have to build meaningful infrastructure to service the client base differently.

I do think that’s been a big differentiator for us when you look at the percentage of capital that we’re raising. And then also, just to highlight, when you look at our the success that we’ve had with our European direct lending product, I think, you know, it was kind of the perfect marriage of capability on the investing side and capability on the fundraising side, and we cracked a code that I think very few people have been able to crack.

Michael Cyprys: Great. Thanks so much.

Operator: Thank you. And ladies and gentlemen, that is all the time we have for questions today. So that will bring us to the conclusion of today’s call. If you missed any part of today’s call, an archived replay of this conference call will be available through March 5, 2025, to domestic callers by calling 1-800-839-2475 and to international callers by dialing 402-220-7220. An archived replay will also be available on a webcast link located on the homepage of the investor resources section of our website. Again, ladies and gentlemen, thank you for joining us today, and we wish all a great remainder of your day. Goodbye.