Stephen Schwarzman: I would just add, given our model, which is an open architecture, the opportunity to do SMAs with other individual insurance clients, not necessarily these four, large strategics, we think that opportunity is significant. And of course, we’re out there looking for other strategic partners. And our plan, as you know, is to run a capital light insurance business, managing money, and doing it for a wide variety of clients. Given the performance, what we’ve been able to deliver in terms of credit quality and yield premium, we think will attract more insurance companies. So this is an area we believe of real momentum. And we think we have multiple engines of growth, and we’re going to be at it and having these four anchor clients is very helpful.
Operator: We’ll go next to Mike Brown with KBW.
Michael Brown: I wanted to just ask on the fee rates in the real estate and the credit business. We noticed that they declined in the fourth quarter, and understanding that’s an output and can be noisy quarter over quarter. Do you view this as maybe the right jumping off point into 2024? And can you just help us think about maybe the blending of the fee rates on a go forward basis as we think about the push and pull of kind of the lower fee rate insurance AUM contrasted with the higher fee high net worth AUM inflows?
Michael Chae: Look, I think, overall, if you look at our across the firm, sort of the math of our average management fee rate across the whole firm, it’s been, I think, remarkably stable over multiple years. If you look at more recently, in the last quarter, at specific segments, you mentioned, credit insurance, if you just do the math, I think it was down like a basis point. So I think it is quite stable, even though the growth – the trend isn’t attractive, and I think high margin growth in our insurance area, that does come at a lower sort of weighted average management fee. And so, I think to the extent there’s been aggregate dilution at the margin or lowering at the margin over the last few years, it’s been – a lot of that is the insurance flows.
And, obviously, we’ll take that. And if you look sort of excluding the insurance solutions business, the fee rates have been really, really stable. In real estate, I think quarter-over-quarter, there was the effect of the Signature debt portfolio coming in, which is at $17 billion actually fee-earning AUM. That’s obviously an exciting transaction. We do earn different tiers of fees across most of those assets. We earn fees from the BREDS equity we’re putting in. We earn a different fee on our co-invest capital, and then an overall fee on the asset portfolio, which is at a lower rate, which is how that works with these sort of large scale debt/asset portfolios. So that is the largest explainer, I think, of a little bit of lowering of the management fee between quarter-over-quarter.
Operator: We’ll go next to Steven Chubak with Wolfe Research.
Steven Chubak: I wanted to ask a question on election game theory. And I recognize, Jon, that you don’t have a crystal ball. You already covered that. But just given the likelihood of a Trump/Biden rematch, potential changes in protectionist policies, energy transition, infra, what have you, you alluded to accelerating deployment across the platform. But do you see any risk of inactivity air pocket until we get improved election clarity? And how does it inform your own approaches to managing the portfolio and your dry powder across the different strategies?
Jonathan Gray: Well, I think there’ll be obviously intense focus on the election, but I think it will not deter transaction activity, particularly if inflation keeps coming down and the Fed starts cutting interest rates. I think that will be more just positive. There are sectors which may be more or less affected, depending on which party wins here, although it’s very possible that one party wins in terms of the presidency, another party might win in terms of the House and so forth, and so you end up with divided government and policy changes overall are more moderate. I think the most important thing to remember from our firm standpoint is we take a long term approach when we’re investing capital. And we try not to get caught up in just the news of the day.
And if you look at our firm, over the nearly 40 years since Steve founded it here, we’ve been in governments where we’ve had blue, red, purple, and we’ve delivered for our customers in those environments. And since 2007, delivered for our shareholders. We don’t expect that to be any different. But I’d say transaction activity is going to be more tied to the Fed’s activities than the election. And for us, it’s taking this long term approach, but also keeping an eye on are there areas that are more sensitive politically. But, overall, if we think it’s a good time to deploy capital, we’re not going to let the election prospects dissuade us.
Operator: We’ll take our next question from William Katz with TD Cowen.
William Katz: Maybe circling back to the credit platform for a while. So I appreciate that you have a multi vectored opportunity set there, but there’s been some building debate in the market around the outlook for direct lending, in light of the fact that perhaps the issues around the banking system are starting to stabilize as a result of that. So a pickup in the syndicated loan market. How do you think it plays through in terms of direct lending opportunity in terms of both unit growth as well as spreads, appreciate you have a very big fund in the market, but just your broader thought process on how it plays out from a competitive and return perspective.
Stephen Schwarzman: I think on the direct lending front specifically, there is more capital coming into the market today. As you said, the banks are coming back. Although their appetite for bridging things for long periods of time I still think is a little more limited. There are other players coming into the direct lending space. The good news, going back to the earlier conversation is, we’re seeing a pickup in transaction activity. And so, although the supply of capital may be picking up here, I think the demand for that capital will grow. I’d also say for us specifically, with 100 plus billion in the space, our ability to write very large checks is a very significant competitive advantage. So, the fact that we can commit to a multibillion dollar transaction on our own across our various private vehicles, our BDCs, that is really helpful.
And structurally, I think direct lending’s competitive advantage is our ability to give borrower certainly. From the bank’s standpoint, of course, they’ve got to have some flex because they want to distribute that paper. They don’t want to take losses. We because we’re in the storage business can offer that borrower certainty. And so, particularly on new originations, we think that is an area that will continue to be strong for direct lending. We think the pickup in deal activity will be helpful here. And we think our scale will certainly be helpful. So, yes, I think the environment does get a little more competitive. The good news is the credit quality of what’s being originated still feels very good. The average loan to value last year for us in our direct lending was only 40%, a fraction of what it was, let’s say, 15 years ago.
