Ares Management Corporation (ARES) Earnings Call Transcript & Summary

Great. Well, good morning and good afternoon, everyone. Next, I'd like to welcome Mike Arougheti, Co-Founder, President and CEO of Ares. Ares has been one of the fastest-growing alternative asset managers, averaging over 20% fee-related earnings growth over the last few years with significant runway into 2021. I know many of us are looking forward to getting Mike's perspective on current environment and how the business is positioned for future growth. So Mike, welcome, as always.

Alex, thanks.

Yes. Thank you for joining us today.

Thanks for having me.

Awesome. So lots to cover. So why don't we just jump right into it? First, wanted to start off with a question on the macro backdrop. Obviously, the year has been incredibly difficult and incredibly volatile in many ways. The economy does seem like it's getting closer to a recovery. Liquid markets are now roughly flattish, I believe, on the year, give or take. So with all of that, there's still lots of pockets of significant strength. So given that as a backdrop, I'm curious how Ares is viewing macroeconomic outlook into next year. And more importantly, how are you guys addressing the deployment opportunities given how quick that these recovery at least in public markets has been?

Yes. Look, there's a lot to unpack, so I'll do my best. But we agree that the public markets are obviously telling us something slightly different than what we're seeing in our private portfolio. So just to remind everybody, across our $180 billion of AUM globally, we probably touch close to 2,000 middle-market companies, millions of small business and consumer line items, a lot of different realities. But we do have a pretty good sense, I think, for what's happening in the real economy. And there still is a disconnect, although reason for optimism as we head into the beginning of 2021. I don't think any of us, myself included, would have predicted at the beginning of the pandemic and the volatility that we saw in March that we would be sitting here a couple of weeks to move from Christmas with the markets, to your point, at pre-COVID levels given the amount of challenges that's still existing in the economy. I think that's just something that we need to stay attuned to. I think we're fortunate because the bulk of what we do is, as you know, is in the private markets. And so as the public markets have recovered, and that's both equity and credit, we've been able to monetize assets in the portfolio into the public markets for the benefit of our investors. We've been able to borrow actively in the liquid markets to shore up our own balance sheet position ourselves for growth and to go on offense. And that cascades into the portfolio. So it actually benefited us, this bifurcation experience between private and public. Because of our positioning, we've actually been benefiting as a borrower and an issuer in the public markets, and we're able to take that capital into the less-efficient private markets. Private markets are clearly on the mend. But as you pointed out, there's still some structural challenges that we're all going to need to deal with in terms of persistent or permanent unemployment. There's been a massive amount of demand disruption in certain parts of the economy that needs to heal itself. With that demand disruption, there will be pockets of supply/demand imbalance and overcapacity that needs to get reconciled. And so our hope is that's going to be the stressed and distressed opportunity ahead of us into '21 and '22. And as long as those gaps for those imbalances resolve themselves in an orderly way, that's going to be a really attractive deployment opportunity for us, both in terms of the return ahead of us but also the volume of transactions. We've seen improvement in the underlying portfolios. And candidly, I'd say probably better performance than I would have expected in May or June. The companies that were hard hit by the pandemic have largely resolved themselves. Liquidity has come into those companies from us, from our private equity-sponsored partners, our real estate partners. And so if you just look at how credit is migrating through the bulk of our portfolios, we've seen a significant slowdown in loan modification, significant slowdown in nonaccruals. We've seen kind of a reversal of the downtrend in earnings. So still a lot to be cautious about, particularly in the absence of a resolution on the relief and stimulus front, but we're clearly starting to move into the path to recovery, and I think that's [indiscernible] opportunity.

Great. Maybe zoning in on the deployment a little more. It sounds like you still anticipate some degree of distress opportunities because of the supply and demand imbalance, which maybe some will find it surprising, but again, we're largely looking at public markets and looking where high-yield spreads are because it feels like there's any distress. So maybe help us differentiate a little bit about how you envision the deployment activity evolving over the course of '21 and maybe in '22 between some of the distressed opportunities versus more traditional ones, right, where you guys are effectively funding -- the lending is related to more kind of traditional LBO type of activity.

Sure. So we've tried to articulate, you never really get credit for the positioning of the company until you actually go through a cycle. But we've been saying for years just how well positioned we are as an all-weather firm, right? We have strategies, to your point that, participate in the new issue markets, low LBOs, low LBO lending, commercial mortgage, real estate lending, et cetera, et cetera, that are active in all markets. We're probably more active in healthy markets. And on the other side, we have strategies that are designed to really excel in distressed markets. And then we have everything in between. And so when you think about the phases of the development of the cycle, you're going to see different parts of the Ares platform light up depending on where the opportunity is. So in March and April, we were very active in the liquid markets. Obviously, our distressed securities business was very active, and we had a record deployment quarter in the first quarter in that part of our business. We then moved into second quarter and early third quarter, and we started to lean in on the private market opportunity. And as we now head into year-end, what's so exciting about where we are now is we're seeing opportunities to deploy not just in the regular way new issue market, as people get comfortable that there's opportunities in the non-COVID-impacted working market but also in the distressed market. So this idea of the activity being balanced, it's -- we really haven't seen this before. Typically, when we've gone through cycles, it's all distress, all healthy and not a lot in between. But right now, we're seeing a pretty good distribution of deployment opportunity across both sides of the coin. I would expect that to continue into '21 and '22. To help you get your head around it, though, I think it's important. When we talk about stressed and distressed, distressed -- and we've said this in terms of how we positioned our firm. The player for distress is change, right? If you go back a cycle or 2, fairly straightforward given the structure of the markets and the way that information capital flow to go into the market and buy distressed high-yield bonds and loans and then our build and make money. That opportunity is not as easy as it once was. The market is more crowded. Information advantages that we used to have are not as robust. The liquidity in those markets is different. The documentation of those securities is different. And so how you restructure those companies has changed. So we recognize this and years ago, really repositioned our entire distressed business around the corporate securities business away from that buy loans and bonds at a discount and really into leveraging our private markets origination and structuring to say when distress comes, a real competitive advantage and inefficiency will be in the private markets. And so we're seeing that play out throughout 2020 in places like our special opportunity strategy, our alternative credit strategies, our opportunistic real estate strategies. And I think that's been a differentiator for us in terms of our ability to deploy. Those structural elements still exist, and they will in 2021 and 2022. So even as the economy heals, those companies and assets that are going into the recovery over-levered or underequitized are still will need to come to folks like us to restructure those balance sheets and be a liquidity provider where the markets aren't available.

Yes. And look, I mean, clearly, you guys have a significant amount of capital to put to work into opportunities like that. I think as of the last quarter, you had something like $35 billion, $36 billion in kind of AUM that will turn on fees once you deployed. And I don't want to put to words in your mouth, but it sounds like given the wider spectrum of capabilities, you guys feel comfortable to continue to deploy at a pretty steady pace, whatever sort of comes, whatever market environment we're going to be in over the next kind of 12 to 18 months. But how will you maybe contextualize that pace relative to the last 3 years? Like should we still expect a little bit of a faster piece of deployment over the next 1 to 2 to 3 years versus what we've seen in '17 and '18? Or it's generally steady?

Yes. We won't know until we get into the market and see what's available to us. But what we talked about on our most recent earnings call is the setup going into the end of the year is pretty strong for deployment because of this balance, right? So the challenges, when you're in a May-June time frame, you may be generating excess return, but the transaction volumes are just inherently lower as people are reluctant to transact and the valuation environment is uncertain or the liquidity picture is uncertain. Now that we're kind of getting into year-end, capital is coming off the sidelines. So you're giving up a little bit of that excess return in certain pockets of the business, but you're seeing transaction volume really return. And so my expectation is Q4 will be a pretty active deployment quarter across the board, across asset class and geography. And I think that will continue into 2021. Again, I can't predict exactly what the market is going to give us, but it's setting up that way.

Right. Yes.

Hold on, just to highlight. The $36 billion that you referenced, large -- the bulk of that is in our credit businesses. And I hope people appreciate that we've typically said it takes about 18 to 24 months to deploy our dry powder. And if you look historically through market environment, because of the balanced approach, we generally deployed around $20 billion a year, which kind of fits well with that $36 billion 2-year kind of benchmark we've given people. But because it's largely in credit, easier to deploy, I guess, is the point, right? When you're in markets where the valuation environment is maybe a little less secure or the earnings picture is a little less secure, harder to transact down the balance sheet when you're up the balance sheet, we credit you just see more consistent deployment, whereas I think on the equity side of the business, it could be more episodic.

Yes. No, of course, great. And obviously, that translates to [ each of you ] guys, which is what ultimately the investors really care about. So speaking of that, why don't we spend a couple of minutes on fee-related earnings? As I mentioned in my kind of introduction, you guys have been really a standout grower in the space for multiple years. And the path forward still looks quite robust. So let's spend a couple of minutes on that. And the first point that I want to address is really timing and sizing of these kind of commingled funds that you're in the market with right now, right? So we talked about $25 billion or more sort of incremental capital likely coming in through a pretty wide variety of funds that you're in the market with today. Maybe update us kind of how are things going there, potential size of these funds relative to you or to the predecessor funds. Anything like that to kind of help us frame the opportunity a little bit better.

Yes. Look, the good news is, and this is, again, I don't know if we could have predicted it, but a lot of the trends that we identified going into the pandemic and how investors were interacting with us and our peers and consuming alternative assets, that's kind of played out space. So it's shocking to us, I think, or at least surprising. We had our largest fundraising quarter on record in the third quarter in the middle of the pandemic, not having done one in-person investor meeting, right? So if ever there was a question as to the attractiveness and durability of kind of the product offering, then I think there you have it. And so we go into 2021 with a high level of conviction that it may not be as big of a year 2020 just given the fundraising cycle, but it's going to be another significant year because, to your point, we have about a dozen funds that are in the market or coming to market that should drive a pretty meaningful trajectory. To slice that $25 billion that we talked about, roughly half of that is in funds that have yet to be launched. Roughly half of that is in funds that are currently in the market that are in the process of closing out. So part of this FRE picture that you described is we have pretty high conviction visibility, not just into the fundraising queue but how that translates into the AUM development, the deployment and then ultimately, the FRE. One other thing I'd also highlight is if you look historically, when we're in the market with commingled funds, what it does is it improves our connectivity with our investors. It creates awareness for our capabilities and our products. And then that typically sees funds coming on to the platform away from the commingled fundraise. So in any given year, we've typically been $15 billion to $20 billion of capital raising away from our commingled fund business. And that's coming through our permanent capital vehicles or public entities, nonfreighted entities, SMAs, CLO. So we talk a lot about the commingled fundraising cycle and how we continue to develop and diversify that offering. But part of the fundraising momentum is also that as we broaden the product set and increase connectivity with the investors, we see a lot of capital find its way on to the platform away from those commingled.

Right. And away from those commingled funds, to your point, so roughly $20-ish billion in fundraising a year was, again, from those other strategies. Is that a consistent base that you see you guys continuing on? Or there are other things that you're adding into your arsenal that could actually meet that number a little bit higher, just again, going to continue...

It's hard to -- yes, it's hard to say, Alex. It's been -- it show -- it's been a little less than $20 billion, but it's -- like I said, it's been kind of in that $15 billion to $20 billion range. It's been surprisingly consistent. So -- and there's no reason to expect it to change. The big question is, as we continue to build out the family of funds, those funds start to take in more of that capital, and you see less of it coming in the form of SMAs and strategic partnership. To me, it's fungible, right? You'll see the capital come on to the platform. How much of it finds its way to the fund versus outside, I think, is going to be a TBD. But one thing that I've been amazed at is that we continue to open up new markets, bring new teams on to the platform, open up new capabilities. Our ability to attract capital away from the funds because people trust our strategic business building capability and see if we go to them and say, we see an opportunity to do best. A lot of folks want to come along for the ride with us on that. So a lot of that capital is actually coming into new strategies, helping us to build track record, build team, and then it turns into a commingled fund. So it's somewhat circular, but a lot of that SMA and strategic partnership money is actually the early seed capital to help us develop some of these flagship fund then.

Let's talk about some of the newer initiatives for you guys. And I feel like I've been asking about real estate for a couple of conference now, so maybe it's not so new anymore. But in terms of size, arguably, it could get a lot bigger. So maybe we'll start there. Curious to get your thoughts on how you envision your growth within real estate. Obviously, there could be significant amount of dislocations in the space. What is your appetite? And I have a question around M&A probably a little further down. But is this an organic build-out story? Could there be inorganic opportunities within real estate that you could sort of add? And just broader thoughts how are you thinking about scaling that part of the business.

I think it's both of those things, and it's funny because I just have to say, and if people haven't looked at it, I would encourage you to look at the [ earned ] performance from our real estate team. I would put it up against [ exceeding ] the market. And as I think you've heard me say, Alex, the basis for the growth in our business is always great investment performance, and we have a view that assets follow performance. And if you deliver good returns, then you see the growth, and that's been the case. Our real estate performance across U.S. and Europe across value-add and opportunistic and credit has been spectacular. And that set us up for really strong organic growth, and we're seeing it come through in sequential growth in fund size. Candidly, the challenge that we've had there is just that we're building off of a smaller base. So if I have a $500 million fund and I can grow it to $2 billion, that's huge growth, but you're not going to see it move the needle at Ares corporate. And so we have to be mindful. Now when we talk about the investments we're making in real estate, it's because of the strength of our capability and return. But we're trying to get it to a scale where it starts to really impact the broader profit picture at the firm. And that's where the inorganic, I think, is going to come in. We're going to continue to execute on all the strategies that we have, and we've gotten into a good rhythm of fundraising there. And I think you'll see us expand that capability geographically. So things like building our credit business in Europe, bringing our equity and credit businesses into our growing Asia platform. But then there are also places where we can make real investment. And I think you're starting to see this in some of the public announcements that we've made. We've just launched a very exciting ground lease partnership through Haven Capital. We've been working on a take-private of an SFR platform. So there's a lot that's happening in and around our real estate ecosystem, I think is going to position us for some pretty attractive growth. The whole part of the market that I would generally describe as 4-plus is wide open to us. We don't currently do a lot of that. I think our investors expect that to the extent that we did, that it was just an allocation for them. So that's something that you should keep your eye on as well because I think that's going to be a pretty big driver of growth for us.

Yes. Makes sense. Look, you mentioned Asia. I think it's worthwhile spending a couple of minutes in that. That's been a very important part of the story for you guys in the last 12-months or so. One, obviously, with SSG closing and other initiatives you launched there. So maybe let's hit on both. One, talk to us a little bit about SSG and how are you thinking about scaling that product set and that opportunity and that platform really now that it's part of Ares. And then broader, your expectations for distribution capabilities in Asia, given some of the partnership you formed with Sumitomo, et cetera, and how meaningful do you think Asia as a whole is going to be to Ares 3-years from now.

Sure. So I hope it will be very meaningful. But again, it's -- we're growing it off of a smaller base with a core engine that's growing 15%-plus per year. So we're going to -- we've got work to do for it to keep pace, but we have high expectations. I think the good news is, in SSG, and we've talked about this before, I think we have aligned with the preeminent private credit manager in the region, deep expertise, deep institutional investor relationships, cycle-tested track record. And so a lot of the things that we're experiencing in the U.S. and Europe in terms of how investors are interacting with the platform, we're seeing that come through in spades in Asia. So the fundraising momentum is good. The deployment is good. And I think the leadership position that we have there will expand. The key is going to be to continue to invest, to your point, in not just capability on the investment side but distribution. And we have a really strong base to build from. About 15% of our AUM, say, actually comes from the Asian -- Asia Pacific region. So we have deep relationships there. Those relationships have been supported and supplemented with the SSG investor roster, and I think we'll continue to be able to push new ideas and new product into the market. And then we have 2 very meaningful partnerships in Challenger Fidante as well as SMBC, as you pointed out, that help us bring capital, capability and relationships and differentiated distribution in the region. So we have a lot going on in the region. We've got a strong team, deep capability and high conviction in the long-term growth in the region. You made an earlier comment just about commercial real estate and what it's going to look like coming out of the crisis. I do think that in each crisis, you get an opportunity to consolidate share and really scale into some pretty big market opportunities. I look at what we were able to do in our direct lending franchise coming out of the GFC. I see similar opportunity for us as a platform in commercial real estate. I think that's where you're going to see the biggest sustained disruption and opportunity to aggregate scale in Asia. The Asia, while it's recovered quickly, one of the things we like about it is it's an evolving market. It's fragmented. You see a lot of inefficiencies in terms of capital formation. There's obviously regulatory overlays. So I would expect we're going to be really happy with the timing of our scale there on the heels of this crisis given the position platform.

Got you. All right. Let's shift gears a little bit. You can't have a conversation with an alternative asset manager without talking about insurance in a day. So I want to make sure we spend a couple of minutes on that for you guys as well. And look, I mean, following you guys over the years, your approach has really been multifaceted, right? It includes -- and some acquisitions, strategic partnerships with various insurance companies and obviously, distribution of insurance-oriented strategy. So maybe walk us through sort of the key components of the strategy when it comes to that channel and how your platform maybe differs from some of your peers because everyone's obviously been pretty active in this part of the market.

Yes. Look, I think we're all seeing the same thing, which is important. Just to get everybody anchored on why it's happening is we always talk about the challenges of this yield environment for all of our clients as a meaningful driver of our growth. As you highlighted, I think we've benefited disproportionately because of our early positioning in credit and alternative fixed income at a time when people are struggling with a low rate environment and challenge to find excess yield and prominent in the pension sector, right? If you look at the U.S. pension system, you probably have a 26%, 25%, 26% under funding. They're dealing with it. Our insurance clients are all looking at their models and saying, I'm beginning to see an asset liability mismatch. And the only way that I can actually improve that is through alternative asset product. And so what we're all seeing, which is why we -- we're all talking about it so much is if we, in our positioning as unique originators and structurers of risk, particularly around excess yield, we can drive meaningful value on to the balance sheet of an insurance company or meaningful value into the construction of annuity product to sell into the retail market. But it all starts at that fundamental issue, which is in a persistently low rate environment, the model gets strained. So when we think about the insurance opportunity, it's broader than just affiliating with insurance -- an insurance company. It's really thinking holistically about the needs of the insurance market. And that started for us a decade ago when we formed our Insurance Solutions business probably 7 years ago with a view that it was important to aggregate all of our capabilities around insurance to serve that market. And if you look at what we've done there, we've obviously grown our assets under management in the insurance sector dramatically. It's probably been one of our fastest end markets. We've executed on a number of strategic partnerships with our large insurance clients in our credit business, things like our SDLP initiative in the Ares Capital Corporation balance sheet. We have created high net worth insurance products that we sell into the market, Ares IDF structure. So when you think about what's been going on, I hope people appreciate our growth into insurance has been pretty significant. And we've basically done everything but own an insurance company, leading up to it. And we've looked at many. And candidly, the reason that we hadn't executed up until this year is we really were looking for the right combination of asset in terms of size, quality of the book, management team and quality of capability and then price. And I think what's interesting now through the assets that we are under contract to acquire, we can execute on our 3-pronged strategy away from our client business, third-party client business, which is originate and distribute annuity product, build a reinsurance capability and then grow both of those inorganically. And I think we're able to do it off of a base that's meaningful enough but with a lot of capability that we can shape in our own image. We're not saddled with a legacy in-force book in a difficult rate environment. We're not saddled with antiquated technology, right? So in some respect, well, probably a little bit more work. The approach that we're taking is probably a little bit more of an organic build to drive efficiency. And candidly, it's a recognition that whatever we do in our affiliated business, I don't expect it to overwhelm our third-party client business. That's just not the way that we're thinking about it. It's more holistic than that. But I think this conversation about the marriage, if you will, of real high-quality alternative asset management and the needs in the insurance community is going to be something we're talking about for the next decade or 2. I mean this is a secular need in the market that we're all working collaboratively to address.

Right. Right. So maybe segueing a little bit into M&A conversation a little broadly. We've got to hit on that in various parts of the discussion so far today. But look, clearly, Ares has been acquisitive historically and that you've articulated even on the last earnings call, we've talked about it, that you expect to remain fairly active on the M&A front. But look, at the same time, your organic growth has been solid and has been leading. And the bar for M&A feels like is rising for you guys to do something. So maybe help us frame where are the pockets where M&A might be interesting, where does it make sense for Ares still. Obviously, there's been headlines of you guys looking at an asset in Australia. We talked about retail in the past. So anything to help us level set your M&A strategy [ going forward ].

Yes. So we have a strong history of making accretive acquisitions and integrating them. And so I think we know what works, what doesn't work. We know where the pitfalls are and kind of -- not to say that they've all gone perfectly, but they've all gone really well. And I think we've learned that you've got to check 3 simple boxes, and you've heard me say this before, which is it has to be a great cultural fit, first and foremost, because we're in the people business, and the investment cultured Ares is designed around cross-platform collaboration. And that sounds maybe a little mom and apple pie. But if you don't get the right culture, you can't integrate and you can't exploit the synergies that come from the platform. So all of our M&A start with an understanding as to whether or not we think that the acquired company would be a good cultural fit. And I think the good news is we've gotten that right and eat in every instance where we've done something. And then two, obviously, it needs to be financially accretive. And that's probably the easiest box to check. And then three, it's got to be highly strategic, meaning they bring something to us that we can't build ourselves and that we look at them, and we feel that we can really add value in a unique way to their business. And that could mean helping them tap into fundraising and distribution that they otherwise can't get themselves, adding value on the product development and origination side, information and research, all of these things. But you have to go in with a playbook for how you're going to make that company better but also for how they make us better. And to your point as we've gotten larger and we can invest organically in growth, the bar is getting higher because we could go out into the market, attract really high-quality talent, surround them with capital and capability, fully integrate them, and that comes much cheaper than paying a capitalized multiple of somebody else's earnings, right, even if it's accretive. And you've seen us do that well in the European private credit, which is now a franchise of ours. You're watching us do it in our opportunistic credit and private equity business. You're seeing us do it in alternative credit. So we're getting much -- we're getting better at M&A. We're also getting better at organic business build. So now when we think about M&A, it's really we're going to acquire capability that we don't have that we can't foster organically or where do we see a market that we feel is ripe for consolidation and where we could take a leadership position. But the path for an organic business build is too slow. Meaning if we try to build it organically, while it would come cheaper, we might miss the market opportunity and a chance to really establish a leadership position in those markets. So SSG is a great example of that, right? We were on the path of an organic business build, and we came to the conclusion that it was too slow. And then if we really wanted to act the market the way we felt we needed to, we needed to buy that scale and acquire that capability. So the places where we see that now in our business, and there's not that many left, is probably most around our real assets franchises, broadly defined real estate and infra. Just because those are huge addressable markets, very few companies have taken leadership positions in those spaces. There are strong adjacencies to what we currently do, so we understand them, our investors understand them, we can add value to them. But particularly coming out of the crisis, we probably could do some addressing things inorganically. So that's generally where I think the focus has been and will continue to be is scaling our real assets business. And then you mentioned that -- the press release, and I would just remind people, we have a well person corporate strategy team here, which is, I think, a pretty clear signal that we take the strategic business build very seriously. Part of that is we are reactive to what the market shows us. Part of it is that we are proactive business planning new businesses and thinking about where to take the business next. But one thing, hopefully, is not lost on people, which we've tried to clarify is I think people could assume if there's an asset for sale, we're looking at it. And if there's an interesting asset to buy, we're probably trying to figure out a way to take a look at it as well. That's our obligation as managers of the company is to make sure that we're seeing what's available to us. So I -- people couldn't read too much into any single situation because ordinary-course business for us is we're very active on both the organic and inorganic.

Right. Perfect. Well, that's a helpful framework, by the way, if you think about it. So we got less than a minute left, but we started maybe a minute late, so as my camera is going off. But I did want to take one question from the webcast. So I'm just going through a few there. So a couple, actually, on this topic around FRE margins. So maybe we'll hit on that. So on the last quarter's earnings call, you guys obviously guided to 150 to 300 basis points of margin expansion annually with a 3-year margin target, I think, around 40% versus sort of mid-30s currently. The question gets to sort of the normal margin at scale and what could that look like at Ares. Because, clearly, you guys still have meaningful build-out but also a lot of businesses that are scaling. And we have some of your peers that are perhaps a little more mature that are running with a 50-ish-percent kind of FRE margin. And I know it's going to be probably hard to put a time frame on that. But is that what the investors should be thinking about longer term? Or is there something structural around predominantly being a credit business or something like that, that prevents you from being at this kind of margin range?

Yes. So I'll give you 3 ways to think about it. And I've -- you and I have talked about this so many times before. The one -- as large shareholders of the company ourselves and as professional investors, I just want to say it one more time. We are more focused on sustainable growth in FRE and [ already ] sustainable growth in our dividend and the growth in our margin. We recognize that they go hand-in-hand. But I would rather own a stream of earnings growing 15% to 20% per year at a flat margin than have a growing margin but slower growth. That's the way that we're oriented. And so some of what you see in the way that our margin is developing is that we are constantly making investments out of our FRE margin in building teams and opening new offices and scaling businesses to create that sustainable runway for 15%-plus FRE growth. We think that's how we maximize value. And it's important to hear that because we are focused on margin expansion as well, but it's all about long-term sustainable growth and driving value. If you look at our mature businesses, you will see where they run, and they do run at margins in excess of 50%. So part of what's also happening at areas away from the consistent investment of the P&L is we have businesses that are very mature that run at a very high margin, and we have businesses that are less mature back to the real estate conversation that are running at lower margins. So you need to go business segment by business segment and really unpack it to figure out what our potential margin is at maturity for each of the businesses. And I think that's one way to attack it. You'll see that there's growth, obviously, in excess of 40%, if everything scales the way that it should. And then lastly, in terms of the structural, there are a couple of structural differences. One, some of our peers have transaction advisory businesses, for example, that they're kind of away from the core asset management business that skew those margins higher relative to what we do. So you kind of have to -- if you're going to look at us and give us credit for some of the scaling of immature businesses, you also have to kind of peel away some of those fee businesses to get a general sense for how we comp. But if you look at some of our mature businesses, the competitive advantages that we've created, a lot of them, are anchored in bigger-office footprint, more people, more feet on the Street, which drives higher origination. Now what's interesting, we have the highest fee rate in the industry because we've created that kind of differentiated origination and access. Now it comes at a slightly higher cost, but I think it's actually more durable because we're creating unique product because of the investments we've made in that origination footprint. So you also have to look at it from what does it mean in terms of the durability of our revenue stream as much as what it means for the margin. So long-winded answer of saying I think we're trying to give people the right level of comfort and guidance that the scale is there. I think that we've continued to execute well. When we get to 40, then we'll start having the conversation with you guys on how we get to 45.

All right. We'll take that. That's a good note to end it on. So Mike, thank you so much for joining.

Thanks.

This is great, as always. Hope you have a product day. And thanks again.

Thanks for everything. Really appreciate it. Thanks for the time.

Thanks.