Michael Sacks: It is progressing well it and we have continued some fundraising there. We have continued to have strong pipeline there and we continue to try to tailor our investment manufacturing capability to make the most sense for that market and really unlock that market. And so we believe that was a very good investment for us. We’re seeing others target the space and we believe that channel has a lot of promise for us over the next five years as we seek to double our FRE.
Ken Worthington: Okay, great. Thank you.
Operator: [Operator Instructions] We’ll now take a question from Adam Beatty with UBS.
Adam Beatty: Thank you and good morning. Just wanted to touch on the outlook for ARS. Obviously, a bit of a milestone here with net flows turning positive. And it still seems you’re guiding sort of stable fees a little bit cautious, which is fair given 1Q was still down from prior periods. But just want to get a sense of the level of interest, the level of dialogue with clients, and how you’re seeing flows possibly improving either this year or over the long-term in ARS? Thanks very much.
Michael Sacks: Yes. Thank you, Adam. You heard us in our prepared remarks and you’re correct with regard to what you heard. But it’s just like our realistic view. So we are not changing our budgeting convention. If you then extrapolate that based on what happened the first quarter you’d expect some outflows between now and the end of the year. We did say that, not only fee rates are stable, but we think revenues are stable and we think revenues are going to grow going forward through compounding. And that is sort of how we’ve budgeted for the rest of the year. And your question on pipeline is a good one. The pipeline is up, the pipeline in ARS is definitely up, the interest level is up. It is not really a surprise in light of the very good recent performance.
But believe me when we see a real change we’ll call it, we’re not afraid to say we see it we think it’s a little early and so we’re maintaining our convention. But the pipeline’s up and we’re certainly going to try to win every single piece of business that is in that pipeline.
Adam Beatty: Appreciate it. Thanks, Michael. And then maybe for Jon on the pipeline, definitely got our attention with the $4 billion figure out there. Just wanted more qualitatively to drill into kind of how you go about thinking about that? Are the re-up rates and the increased contribution rates similar to historical averages? Maybe a bit less right now given the environment or what have you? And how much of that is based on sort of specific, pre-commitments or other dialogue with certain clients? Thank you.
Jonathan Levin: Yes, so just to be clear on the $4 billion and Michael clarified this but I think it’s an important point. The $4 billion of re-up pipeline we mentioned the prepared remarks is just about our separate account re-ups. So it doesn’t include fundraising activity for ARS. It doesn’t include fundraising activity for new client acquisition. It doesn’t pick up our specialized funds. And so that’s important to understand in terms of how we think about the balance of the year from a fundraising perspective. But it’s also important to understand because it ties in pretty directly to the comments that I was drilling down my section which was the nature of these separate account relationships. And the nature of them is these are predominantly institutional investors that we are talking to every day, every week, every month.
And that means you’re talking to them about how much dry powder is remaining in the program. That means you’re talking to them about their own calendar in terms of when they are scheduled to go through various processes on their end internally. Whether those be investment committees or legal document review whatever it is. And you actually are working as partners to look at what date or weeks within what period of time you’re trying to sign the re-up. So you have very good visibility into that and that’s the nature of those collaborative close relationships that you understand when those re-ups are happening. So it’s kind of just a calendar and it’s a calendar that you have exceptional transparency into. Our re-up rates remain very strong at 90%+ and the fact that oftentimes the re-up are occurring at a higher level than the previous program – we talked about the average of being close to 30% on that front.
And so it’s a part of your pipeline that you feel highly confident in. Now do you have times sometimes where you thought something might happen on one day, but it happens a couple weeks later? Sure. But you feel very confident that that re-up calendar is going to occur and that’s one of the reasons, obviously beyond delivering the strong value proposition to clients, one of the reasons we love that business is because of the predictability and the stability and the transparency and the opportunities for growth that it offers.
Adam Beatty: Super. Thanks again for the extra detail on the slide. Appreciate it.
Operator: We’ll now take our next question from Tyler Mulier with William Blair.
Tyler Mulier: Hi, good morning. It’s Tyler on for Adam and Jeff. And we just covered the net flow outlook pretty well but it was a particularly strong quarter for ARS in terms of performance. Could you provide some key color with some of the key drivers there? Thank you.
Michael Sacks: Yes, I think that in general the environment over the last six quarters or five quarters has been a better environment for absolute return strategies. There has been ample volatility, there’s been more dispersion than we’ve seen in the past, higher rates are constructive. So all of those macro factors are constructive for ARS returns in particular, dispersion among equity returns and the ability to have a better return set from credit investments, better yield on short credit rebate, things like that. So it’s just been a good environment for a hedged approach and for ARS strategies.
Tyler Mulier: Congrats to the team. Thank you.
Operator: We’ll now take a follow-up from Bill Katz with TD Cowen.
Bill Katz: All right, excellent. Thank you. Just a couple clean up ones. In terms of the buyback how much that actually reduces the actual share count versus maybe offsetting stock issuance given the Q1 elevated stock base comp?
Michael Sacks: Most of the buyback, substantially, if not all that was managing the dilution from stock-based comp which as you know, is a goal of ours.
Bill Katz: Okay. And then just another one on comp. So if I did my math right the cash comp component of variable incentive on your share of the incentive fees, I think that ratio this quarter was 60% which is up I think quarter-on-quarter, year-on-year pretty substantially. And I think you talked about this a little bit last quarter, I want to get your updated thoughts. To the extent that the incentive pool rises and you start to monetize more of the incentive revenues and your share of that goes up, is there an opportunity to continue to lift that ratio? And by doing so does that give you a little more control over the FRE comp underneath that? Thank you.
