The opportunities to be in the big credits where you have that durability because they’re strategic assets that someone will buy, even if they stumble, even if they get in trouble. And that, to your point, which we couldn’t agree more, is all about maximizing recoveries. The last part you said was in these growthier businesses, software businesses. Actually, the reason we like those businesses is because the recoveries will actually be the highest in our view. Those businesses, if and when they have a problem, they still have enormous amounts of gross margin, right? These companies, the ones we finance and the ones that are bought have extremely high, let’s set aside even the growth rate, assume that somehow has to get tempered if we’re going to have one of these problems that you’re talking about.
But these are still businesses that have hundreds of millions of dollars of customers that are really for all intents and purposes dependent on the use of a piece of software with 80% to 90% gross margins. Taking that and consolidating it with another strategic owner of a software business is exactly the kind of way out that we’re talking about. Someone wants that business. That is a valuable cash flow stream, unlike a traditional industrial business where let’s suppose you’re out in a deep cycle and nobody wants the capacity. Who wants a factory that doesn’t have any use for its capacity? That’s just not what you have in these software businesses. So, it’s exactly why we like it. It’s why, in point of fact, we have still not ever had a default in a software business, let alone a problem with a recovery.
Steven Chubak: Those are great insights. Thanks so much for taking my questions.
Marc Lipschultz: Thank you.
Operator: Thank you. Our next question comes from Brian McKenna from JMP Securities. Please go ahead with your question.
Brian McKenna: Thanks. Good morning, everyone. So, you’ve been clear about your expectations for growth in 2023 and then you also have the dollar dividend target out there for 2025. So, first, are you still comfortable with the dollar dividend target at this point? And then how should we think about the underlying trajectory of growth in 2024? This year, FRA growth will total in the low-to-mid 20s. So, is that a good starting point for next year?
Alan Kirshenbaum: Thanks, Brian. I’ll take the last part of that question. When you do go out to the dollar-shared dividend based on our Investor Day, you could certainly see both revenue growth and FRA growth for the next two years in the approaching 30% or 30%-plus range. I’ll leave it to Marc to touch on the dollar-shared dividend and how we feel about that goal.
Marc Lipschultz: Look, the dollar-shared dividend remains our north star. That — we’ve just talked about this numerous times. We are about durability, predictability, FRA growth and dividend growth and the dollar remains our target. There’s no doubt, it’d be silly not to observe we’re in a more volatile world. We have been during the course of this year and now in the last few weeks, it’s going to be kind of a wild eye not to say we’re in an ever more volatile world given what’s happening geopolitically. So, does that create incremental risk to that dollar? Sure, it creates some incremental risk, some incremental variability. But remember, because we’re a permanent capital business and because we have very predictable fee rates and because we have all this capital that’s already in the system that’s being deployed, our model is extremely durable.
So, the band around, say, the dollar is a tight band. We don’t have performance fees and things that are going to drive meaningful variation. So, is there a little more risk to it? Sure, there’s a little more risk to it. But that risk is very banded and it continues to be our north star is driving our way to that dollar.
Brian McKenna: Helpful. Thanks. And then, Alan, I believe you noted that Real Estate Fund VI is 20% funded or committed. Clearly, the deployment environment is very constructive right now and you noted a healthy pipeline of potential deals. So how should we think about the quarterly pace of deployment for this fund, kind of moving into next year? And then, can you remind us at what level of funded or committed do you typically start raising for the VI Asset Fund?
Marc Lipschultz: So, on the real estate front, we’re very active. This is a good time for the triple net lease real estate business for a couple of reasons. One is, look, in a world with much less functional capital markets, the use of a real estate asset as part of a financing plan is more interesting to every kind of user. Remember, our partners in that business are people like Amazon and Walgreens and Starbucks. I mean, it’s not as if these are people that have financial challenges, but using real estate versus where the world was a couple of years ago where issuing nearly free IG borrowings, that’s changed, right? So, it creates more interest in these types of novel solutions. We are originating today at incredibly compelling cap rates, close to 8% kinds of cap rates for IG counterparties.
So, we love what we’re getting. The pipeline is very, very active as a result. We’ve already now deployed about 20% of Fund VI. And as I said, we’re doing great on fundraising for Fund VI, perhaps no surprise, given that we’ve been able to continue to generate really outstanding returns in an asset class that many people have found they struggle with now. So, in terms of the exact pace of deployment, again, like anything, it will vary quarter to quarter, but I would call our pipeline in real estate extremely strong. So, we expect that to continue to be a pretty robust deployment arena for us.
Alan Kirshenbaum: And we’ll typically look to the industry level of 75% to start thinking about the next follow-on fund.
Brian McKenna: Great. Thank you, guys.
Marc Lipschultz: Thank you.
Alan Kirshenbaum: Thank you, Brian.
Operator: Thank you. Our next question comes from line of Brennan Hawken from UBS. Please go ahead with your question.
Brennan Hawken: Good morning. Thanks for taking my questions. You guys had an acquisition here this quarter, a small one with Par-Four. Could you let us know what the impact was for revenue from that deal, what we should expect in the fourth quarter? And then, more broadly, this is not the first COO manager you’ve bought. Should we continue to expect you to roll up some more of these COO managers and build out the business and the scale in that business for yourselves?
Marc Lipschultz: So, with regard to Par-Four and then the more general question, I would — per the framework I described, look, we will always look at acquisitions where they are additive or strategic, if you want to use that term. And Par-Four is a really great example of this build versus buy, organic. And I also think maybe it’s sometimes — not lost, but I think it’s worth calling back out in the context of things like growth and fundraising versus AUM. The — at the end of the day, we can launch CLOs and we can, like every other firm, use a bit of capital to do that or maybe even some cases firms a lot of capital to do that and that would lead to raising $1.6 billion and that would show up in our fundraising column.
