Michael Chae: Two parts that question. On the first one, on the sort of trajectory of management fee growth for 2024 and 2025, and the short answer is we feel good about it. We don’t have a crystal ball necessarily in terms of like quarter to quarter. But, structurally, we have that embedded ramp. As I mentioned, it will accelerate throughout the year, given the series of funds that will light and we see good strength in the latter half of the year and also in 2025, as you point out. We’re focused on drawdown funds. That’s an important engine of the business. Obviously, among other key positive factors is insurance where we sort of had a lot of visibility and articulated it since we really started scaling couple of years ago about built in, in many cases, contractual inflows from our four large partners and other insurance clients, which – and we are pursuing the sort of industry overall, I think, with a lot of optimism in the credit insurance area.
So there are, I think, multiple engines, not just the new drawdowns firing there, although, again, I think it’ll accelerate through the course of the year into 2025. On margins. Obviously, we’re in a sort of more challenging macroenvironment. We feel good about our execution on margins in 2023. And what I would say about the outlook is that it’s early in the year. And as always, we’d encourage you to look on a full year basis, not sort of measure it on a quarter to quarter. But with that said, at the outset of the year, again, I would reinforce the message of margin stability as a general guidepost.
Operator: We’ll go next to Brennan Hawken with UBS.
Brennan Hawken: You sort of touched on this a little bit with the margin stability point. But one thing I’m just curious about mechanically. So, full year 2023 FRE revenue down almost 3%, yet comp ratio up over 200 basis points, FRE comp ratio. So how’s it possible to generate positive comp ratio leverage when revenues are down? Does that just suggest that FRE margin might compress when revenues grow? Or just we should think about our FRE margin stable, just maybe help me understand those mechanics?
Michael Chae: Brennan, I would actually just think about it in the real world, our ability sort of collectively to manage our cost structure, which we feel very good about. There is, I think, structurally robust, underlying long term margin position of the firm that we’ve demonstrated, the sort of operating leverage built into our model. At the same time, we believe that we take a disciplined approach to cost management and have a fair degree of control over our cost structure. And as part of that, of course, we do take into account the financial performance of each business in terms of management compensation in a given year. And I think you also saw our non-comp operating costs, operating expenses, and you also saw the rate of growth in 2023 significantly lower from the prior couple years. So that’s really how we think about it. We’re not sort of takers of the environment. We actively manage our business.
Operator: We’ll go next to Ken Worthington with J.P. Morgan.
Ken Worthington: I wanted to dig into the outlook for real estate carry. It was clearly depressed in 2023. And, Jonathan, you mentioned the bottoming of real estate valuations. How long do you expect it could take for real estate carry to get back to more normalized levels? Is this something you see could possibly bounce back later in 2024? Is this sort of more obviously a 2025 sort of event? Or do you expect it could take longer into 2026 or 2027? And then, when real estate carry does bounce back to this sort of normal level, what does the macro picture look like at that point?
Jonathan Gray: It’s always hard to have a crystal ball where things are going to develop. But, clearly, when you’re going through a cycle like this, as we’ve talked about, it takes a bit of time. And even the sales process in real estate, where you don’t have a lot of liquid public securities you take off the shelf and sell, that lends itself to time. So, yes, I wouldn’t expect a big surge in realizations in real estate in the first half of the year. We would expect as we look out over time, it will pick up. It’s possible you could do larger transactions with some public companies to get things done. Certainly, our confidence as you get to the back half of the year and into 2025, you feel better about that. I guess what I would say is, this is a transitional year in terms of realizations in real estate.
I would generally keep expectations on the lower side. I would feel a lot better as I look out over time. And the macroenvironment for that is a lower rate environment where we’re back to modest growth, or we’re at modest growth and we have limited new supply. And people are investing again in this asset class because it’s delivering favorable results. So I do think on real estate realizations, you need a little bit of patience. I say that, of course, and then something will happen, but that would be our base case assumption. The good news is we feel terrific about where we’ve deployed the capital. The huge exposure we have in some of the very best sectors, the majority of our real estate portfolio on the equity side is in logistics, student housing and data centers, all sectors where we’re seeing high single digit rates of growth, even in this environment.
So when the environment gets better, we think we’ll have the kinds of things the market wants. And we’ll do it when we think values are appropriate. We want to maximize returns for our customers because, as you know, performance is the most important thing. And we think as we come out of this cycle, just like we did out of the last real estate cycle, we’re going to emerge stronger. Other competitors, we don’t believe will have the same kind of returns, and will help us even further grow our market share. So we want to do this in the right way. And it may take a bit of time, but we feel very confident about the ultimate outcome.
Operator: We’ll go next to Patrick Davitt with Autonomous Research.
Patrick Davitt: Despite the recovery in markets and confidence, there are still a lot of observers out there, including senior executives at some of your competitors, that seem pretty cautious on the view that this is going to be a much better private equity realizations year. Some even saying the PE mark still need a negative reset. You hinted that in the prepared remarks, but could you expand on where you stand on that debate? And do you have any broader thoughts on why there appears to be such a wide disparity in the PE outlook amongst your peers?
