Ares Management Corporation (ARES) Earnings Call Transcript & Summary

Hi. Good morning, everyone, and welcome to the RBC Capital Markets Global Financial Institutes Conference. My name is Kenneth Lee, and I am the senior equity analyst covering the U.S. asset manager sector. And welcome to our panel, the future of asset management. And here with us to share their view on what's ahead are our 3 panelists. I'm very pleased to have with us Michael McFerran, CFO and COO of Ares Management Corporation. Mr. McFerran also serves on the Ares Executive Management Committee and has been with Ares since 2015. Next, we have Brian Gildea, Head of Investments at Hamilton Lane. Mr. Gildea is responsible for oversight and management of all the firm's investment activities, and he has been with Hamilton Lane since 2009. And last but not least, we have Michael Policarpo, President and CFO of Victory Capital. Mr. Policarpo Capo also supports the firm's inorganic growth, sourcing, evaluation and execution and business platform integration, and he has been with Victory since 2005. Welcome, everyone. Now before we dive in, perhaps each of you could give a brief overview of your company. We'll start with Mr. McFerran, and then move on to Brian and then end it with Michael Policarpo.

Thanks, Ken. Hello, everyone. I'm Michael McFerran with Ares Management. Ares is a global alternative asset manager, operating integrated businesses across credit, real estate, private equity and strategic initiatives. We have over 1,400 employees, including over 500 investment professionals. And we operate in, today, over 25 offices across North America, Europe and the Asia Pacific region.

All right. Hello, everyone. Good to be here, Ken. Thanks for having me. I'm Brian Gildea with Hamilton Lane. Hamilton Lane is a leading global private markets investment firm. We are dedicated exclusively to investing in the private markets and we are approaching our 30th anniversary as a firm. We have over 400 employees in 17 global offices, as well as $76 billion of AUM and about $580 billion of assets under advisement, which makes us one of the largest investors globally in the private markets. We specialize in building flexible investment programs for our clients to access all parts of the private markets. And we provide tailored access to the private markets that can range anywhere from full discretion to back office to portfolio monitoring to data and analytics and really everything in between in the private markets.

Great. Thanks, Brian. Good morning, everyone. I'm Mike Policarpo. I'm President and CFO for Victory Capital. Victory Capital is an integrated multi-boutique asset management business. We have $150 billion in assets under management across 10 distinct investment franchises and a solutions platform. And our model really provides the investment autonomy of a boutique for our investment franchises, independent brands as well as pure investment autonomy and independence with respect to their investment philosophy. And the benefit of a scaled integrated operating platform, administration platform as well as the depth of a centralized distribution network that really allows us to distribute all of the products through 3 distinct investment distribution channels: institutional, intermediary and a direct to investor business as well. Our model allows our investment professionals to focus 100% of their time on managing money and takes the administrative burdens, if you will, off of their plate so they can focus on delivering alpha to our clients. We have a broad set of products that range from equities to fixed income, global non-U.S. [indiscernible] products. And our model really allows us to grow organically and inorganically. Since our MBO in 2013, we've done 5 acquisitions, as well as 2 minority investments to add product distribution capabilities across the business to really garner assets from $20 billion to over $150 billion today. So happy to be here and talk a little bit about the Victory story.

Great. We're going to keep this discussion relatively interactive and for those of you who are participating on our webcast, you may submit questions at any time, and we will try to address them throughout the session. So let's start off broadly. Now that we have vaccines being distributed and seeing the gradual recovery in the economy. Can you talk about any potential structural changes to your respective businesses that you foresee in a post-COVID world. Why don't we start with you, Mike McFerran, and then we can open it up to any of the other panelists for additional comments.

Sure, Ken. Look, I think at Ares, probably it'd be no surprise to anybody. We've -- the silver lining, if there's 1 to be found over the last 12 months of this extraordinary and tragic set of circumstances that we've all lived through is we've had to pivot quickly to work in a different manner, and it was a challenge ourselves to be virtual as we are talking to each other today, there have been some great learnings from this. And above all else, for me, at least, personally, unbelievably surprised and impressed at how well our people responded to it, how productive, how collaborative and I think that's probably not unique to Ares. I think when the whole playing field moves to a different field, which was virtual for most people, adaptability was quite extraordinary. From a structural standpoint, I don't foresee structural changes. I do think this has been a catalyst of how we evolved, how people think about working, where they work flexibility, locationwise et cetera, in embracing technology in various channels, is probably giving you 10 years of progress in 12 months. I think I'll look at Ares and say, pre-COVID, we had access to all types of various tools, things like Zoom, Teams and various video capabilities, but obviously doing business and meeting people in person is, first and foremost, always our objective. And while we had access to all that, we probably didn't fully leverage it to the full extent. With all this, you learn to. So I think the positives are, again, if I was trying to find silver linings here. I think this is going to change not just temporarily, but long term, how people work and where they work, and I think that's a long-term change. And I think it's going to be evolving a lot. I think technologies would be fascinating to watch over the next couple of years as different solutions come forward. But I think it's for employees and for interactions, it's made us far more flexible and more nimble. Selfishly, can -- your conference would have been me flying to -- flying from Los Angeles a year ago -- or at what was actually a year ago, 2 years ago. And traveling to the hotel and doing the meetings one-on-one and then getting on a plane back to Los Angeles. Now I find we're able to actually talk to more stakeholders and investors on a single day than I would have covered in the week before. So I think there's been a lot of benefits. Clearly, at the end of the day, especially when you're forging new relationships, nothing replaces face-to-face interaction. But I think this is an unbelievable complement. I think it's here to stay.

Yes. I would echo some of what Michael just said. I mean, I think, first off, amazing to be able to operate fully remote as quickly as many firms did. We were fortunate. I think having strong infrastructure really makes a difference in a world like this, the firms that have invested in their infrastructure were able to pivot pretty quickly. And for us, the local footprint in the markets we operate in has really mattered with travel off the table. So for example, today, our colleagues in Australia are operating very differently than we are here in the U.S. So I think that's an advantage. The interesting thing from our perspective is that, historically, our asset class had a huge element of face-to-face interaction throughout. So managers would meet with companies to decide which to invest in. We would meet with managers in person. We would go out and meet with clients and prospects for fundraising. And I think when the pandemic started, everyone wondered how that would work and would it work? And I think what we found is that the market adjusted. Everyone gravitated towards known quantities. So I think it is definitely harder to build new relationships, but the market has adjusted, much as Michael said, as we are doing here today. So I'm not sure that our crystal ball is any better than anyone else's on how much of a balancing we have between those 2 things. But I think we've all realized that some things may be done better remotely, and we'll have a bit more flexibility going forward.

Yes. I would echo what Brian and Michael said, I think from Victory's perspective, we, too, were able to operate pretty seamlessly from a remote environment quickly. We actually did see and the benefit in virtual with respect to clients and really took that from our sales professionals and marketing professionals and let them run with that, and they've been able to develop really, a new way to touch new and existing clients. I think someone had mentioned that it's hard to forge new relationships, but it is a great opportunity to continue to leverage technology where we can to continue to get in front of our clients, to get in front of our employees, and we've done that. And I actually think we won't see any structural changes going forward in our business, but I do think a lot of the meetings that we have can be done virtually. We've done finals presentations. We've done client updates, investor meetings such as this virtually. And I think that we'll continue to look to do that going forward. So maybe there is some silver lining in some of this as we go forward. And we'll also become a much more pleasant workplace for our employees.

Got you. Those are great comments. I'm going to address the next topic to Mike Policarpo first. Certainly, there seems to be a lot more optimism across the markets. Can you talk about what you're seeing in terms of institutional investor sentiment more recently?

Sure. Sure, Ken. Yes, I think the current market environment definitely supports active management and active asset allocation. I think we've seen really through the middle part of 2020 through today, a significant uptick in demand and activity and client searches as well as decision-making in some of the asset classes that we have. What we're seeing and what we're hearing with respect to the business that Victory Capital has, we're seeing our outcome-oriented solution products from an investment perspective, institutionally getting some demand and some inquiries. We're also seeing nontraditional fixed income products that we offer. We've got an alternative income product, billing rate product. And we have a depth of and a number of traditional equity products, public equity products that are capacity constrained, both domestic, international and global products that have strong performance and some capacity limitations that we're seeing resonate with institutional buyers. The last element, I think, that we're seeing from our product that is alternatives. We recently made an acquisition in a private equity firm called Alderwood Capital. And that is resonating as well from an institutional perspective, just getting access to nonpublic equities. That's kind of our foray into that. And the last thing I would say is I think ESG products are continuing to gain momentum in the U.S. They're obviously very active from a global perspective, and we're seeing demand through the institutional space for ESG products, and we recently did an acquisition in that space as well with THB Asset Management. And I feel like it's getting back to where it was maybe pre-COVID pandemic with respect to activity, at least with respect to what we're seeing at Victory.

Okay. That's great color there. Good color. For the next one and similar question, and this one, I'll address to you, Mike McFerran first and then to you, Brian. Let's talk about the current environment or fundraising. How has the various travel restrictions impacted fundraising over the past year or so? And how would you characterize the current investor sentiment or alternatives fundraising?

Sure, Ken. This year was extraordinary. And obviously, going into this remote working model. And as Brian and Michael talked about, there's clearly a lot of uncertainty of how people are going to react and how effective ongoing execution of business was going to be. It was amazing, again, going back to, I think, everyone being on the same level playing field, created a lot of ease there. If you were the only organization that were remote, everyone else was still in person, that I think would have been a very different outcome. But from a fundraising standpoint, this was an extraordinary year for us. We ended the year with our AUM increasing 32% year-over-year. We ended with $197 billion. 2020 was our single best fundraising year in our firm's history. We raised about $41 billion. The fourth quarter was our single best quarter in our firm's history of capital raising. And we ended the year with our fastest growth in AUM in over a decade. So it's extraordinary to think all that happened during a remote environment versus being on a planes, trains and automobiles, nonstop. I do think it's reflective of secular changes we've seen in our industry that I think have probably accelerated a bit in the COVID environment. And I'll touch on a couple. One, investor allocations to alternatives continue to grow. There's always treatment study that talked about how over 80% of institutional investors are planning to increase their allocations to alternatives over the next 5 years. I think that same study suggested that. Allocations have increased about 12% annually from $7.2 trillion today to almost $13 trillion by the end of 2025. So that's one second trend we have seen in recent years that is accelerating, is consolidation and consolidation of relationships. More and more, we're seeing institutional investors wanting to do more with fewer GPs. Again, I think the COVID backdrop in the last year definitely accelerated that because what you didn't see was probably -- if you didn't have a lot of relationships and a strong LP base, this probably would have been a challenging year to raise capital in. At the end of the day, you had to kind of look to a lot of relationships that you either initiated prior to this remote model or existing LP relationships. We -- so I think when I looked at our capital rates, while we added a lot of LPs to our platform this year, clearly, one of those were LPs that we would have touched for the most part or have had initial interactions with prior to all this. So I think this resulted again, and when you see LPs are talking about concentrating how many firms they do business with. I think this accelerated that. There's a lot of reasons for that. I think if the larger firms get larger, their capabilities continue to get broader. Us LPs have more things they can do with individual firms. Second, I think, and there's been some pension funds that have been very often talking about this. I think there was a way to call a few years back for a lot of institutions that we're kind of focusing on how much they were spending to manage so many GP relationships. In our industry, you kind of look at fund performance. We think about the gross return of the portfolio, think about the net return after expenses. And I think a lot of LPs become appropriately very focused on what I would call the net-net return, which is what's your investment return back to the institution after taking account of your internal costs of operational due diligence, data management, risk management of all the GPs you have stakes with. And if you're trying to navigate several hundred GP relationships, it's quite costly. Third, not to state the obvious. You do more with fewer. You're probably going to get better economics off it. So this trend of, I think, consolidation, doing more with fewer players seems to be accelerating. I think that, combined with increased allocations alternatives definitely set up a backdrop for a strong year for Ares. But I think these trends are continuing and will probably accelerate.

Yes. I would echo a lot of what Michael has said, which is just that in terms of the private markets overall, the tailwinds that were supporting a lot of the interest prior to the pandemic, really all remained in tax. Investors have liked the performance, both at an absolute level and compared to the public market. They like the investment choice available in the private markets. It's expanding versus the number of public companies historically been shrinking. And investors have liked the lower volatility and the diversification that comes with the private market. So overall, we see strong demand there. And I think in terms of the fundraising elements, as Michael said, none of us knew what to expect last spring and I think we're all surprised by how quickly everything bounced back and went to known and trusted relationships. And similarly, at Hamilton Lane, I'd point to our latest secondary fund as an example of that. We announced that we've raised about $3.9 billion for our most recent secondary vintage. And most of that fundraising was completed during the pandemic in 2000, and that fund was twice the size of our previous fund. So I think there, it points to interest in secondaries, which we'll probably talk about later, but also the fact that investors want access to the private markets, so they want to go to trusted relationships to get that access.

Okay. That was a great overview. That was a great overview. Let's dive into more the credit-oriented strategies. And this is certainly an area where we have seen a lot of demand across the industry. And I'm just curious what specific strategies are you seeing that's getting very strong demand from clients? And which content -- which strategies will have the best growth opportunities in your view? Let's start with you, Brian, and then maybe follow-up with Mike McFerran.

Sure. Well, so if you went back not too long ago in the private markets, people used to think of credit really being a mezzanine investing and distressed debt investing. And I think since the GFC, that has really expanded and exploded as banks stepped back as a traditional source of capital for small and midsized companies and private credit stepped in. So we've seen that investors like the risk and the return in private credit. Investors are having trouble finding yields in other places, given low interest rates. So private credit is a very good place to come for that. And I'd say, in terms of overall strategies, there was a rush of excitement for distressed debt earlier this year, but that opportunity went past pretty quickly just given the recovery in the capital markets. And today, I would say, at Hamilton Lane, we just see regular way private lending strategies as the largest part of the market, given those underlying trends in that attractive risk return dynamic.

So I echo much of what Brian said. I think in the private markets, private debt has been and remains probably the hottest asset class. LP demand remains very, very strong for it, and I think will continue to be for quite some time for some of the reasons Brian touched on. Global thirst for yield is real. I think clearly, what we saw with rates exacerbated that. But I think even before you saw the rate compression happened in the last 12 months, that was the case. When you look at relative risk-adjusted performance, we find the top of the capital structure and senior private debt, it's really attractive to LPs. The income profile dealing. The capital protection position, the capital structure and the opportunity sets remains extraordinary. Brian talked about some of the structural changes that we had seen for a while, but you definitely -- coming out of the financial crisis, you'll hear us say, a lot of it, especially in the U.S. goes back to kind of the consolidation of the banks that happened in the '90s, and really the removal were disappearing, for lack of a better term of what you thought of as super regional banks, that kind of, I think, fundamentally changed the industry, C&I lending. And that in the last 15 years, has been quite pronounced. We've seen that now evolve and more in Asia. It wasn't long ago that we opened our London office in the 2000s, and we didn't have -- we had a strong conviction about us being able to leverage our capabilities as a [indiscernible] lender in the U.S. to Europe. Started that business, we didn't have assets, we didn't have revenue people around us. A lot of the [indiscernible] of both banks and the ground strategy in and across Europe. And 15 years later, this is a very meaningful business for us. $10 billion to $40 billion of AUM. We have the largest platform in Europe. And I think, again, it's a testament to the strong demand, not just in the U.S., but globally, life and death that we see from LPs and a great opportunity on the asset products. And I will say, good example for us has been the fundraising. Our largest fund we've raised today to fund on our firm history is our [indiscernible] money. At year-end, we are still [indiscernible]. We raised, I think, EUR 9.4 billion, against a target of EUR 9 billion, and we were expecting to quickly get more hard capital of [indiscernible]. So I think that illustrates the demand as -- we're also seeing demand for complementary products. Areas we launched our inaugural alternative credit fund in 2020. This is a fund that where we had put a $2 billion target out that more which again is time and [indiscernible] flagship fund. It's kind of a modest ambition, but you don't -- you don't get too foolish when you're pulling out with an inaugural fund. End of the year, talk about earnings call, well north of that should go to target. And my conviction, we were going to hit a similar hard cap together fund or $3.6 billion hard cap. I think interest in credit has never been stronger. Look, it makes sense. Again, I think when people look at the realm to [indiscernible] capital structure along resi really appreciate to understand this. The loss profile in top of the capital structure, very attractive and the returns based on the yield orientation of the strategy. And right now, since today, we've seen volatility in rates, you mind this is a strategy where it's a floating rate business, you have to have very de minimis to no duration [indiscernible]. So I think that's going to persist, and I think continue to grow and continue to see [indiscernible].

Those are great comments. And just perhaps, a quick follow-up for Mike McFerran. And this is going to be somewhat credit-related as well. Wonder if you could just talk a little bit more about your Aspida platform. Certainly, this is an area where you're continuing to build-out. I wonder if you could just talk a little bit more about some of the opportunities you see there over time?

Sure. I'll start by saying, I don't know who in our firm came up with the name, Aspida, I like it. It's Greek for Shield. Ares, Greek naming conventions to lots of things we do and give kudos to whoever in our firm came up with that. It's a great name. Aspida, I think, represents an evolution of our insurance strategy. We -- several years back, we formed what was called Ares Insurance Solutions, which is really a group of people in our firm with deep investment experience, but also great insurance industry insight. We're very focused on ensuring we were optimal in varying what we do for these insurance businesses, and being thoughtful and collaborative with insurance enterprises on their specific needs, but also restrictions, especially regulatory capital. That's culminated in insurance being 1 of the 2 fastest institutional basis in our firm for the last several years are AUM from insurance and average going on over 28% over the last 5 years. So it's been quite meaningful for us. Aspida represents, again, for us, I think the evolution of that strategy, which was to complement what we do with external unit partners by having our own insurance platform. Different firms in our industry have taken different approaches to this. Everyone is well aware, put it [indiscernible] follow. ARS transaction, but Blackstone was down. So I think everyone sees the insurance opportunity for ideas of how to approach it. For Ares, we did see the benefit of having [indiscernible] from a captive insurance platform. We weren't looking to go out and buy a multibillion-dollar business. And we wanted to build a business under Aspida, combination of inorganic acquisition opportunities and our organic growth and be able to support it and grow it for the long term. The first acquisition we did was the [indiscernible] reinsurance platform. This required about $2.3 billion of assets. This happened in late 2020. I think as time passed in the course of '21, we're going to go to complement this organically and possibly to other inorganic transaction. I don't -- I see what we're trying to do with Aspida. That's been something that, again, actually replaced or -- they're already institutional LP based with insurance clients. It's really got to be complementary to it and if anything, they do more at that. We're excited about this. I think this is something that's going to be evolving, interesting, the years ahead, but [indiscernible].

Great. And just sticking on the theme of credit-oriented strategies. And this next one is for Mike Policarpo. The recent acquisition of the USAA Investment Management business that Victory Capital completed has given you a nice lineup of fixed income products. Could you just talk a little bit more about some of the growth opportunities that you see over there?

Sure. Thanks, Ken. Yes. So we did acquire USAA's asset management company in 2019. And one of the key elements of that transaction for us was the USAA investments franchise. So they are a credit heavy oriented fixed income strategy. They have a number of taxable and tax-exempt strategies that really cover all duration from short to long-term as well as some specific credit-only focused product set. We're excited about what they have. When they were part of USAA pre-acquisition, they were really under marketed. A lot of the money that they managed was internal with some of the general account insurance money. So we know that this team has the institutional quality. They've got strong investment performance. They've got a tested process and a very long-tenured team together, probably averaging close to 20 years together. And it brought us really scale in the fixed income space. They manage $35-plus billion today. And they've got a pretty long runway ahead of them. We're excited really for a number of fronts across really all of the distribution that we have. We see tremendous institutional opportunities as credit in the public side of the market continues to see expansion. We see opportunities on the intermediary and retail aspects of our distribution. They have 2 active ETFs, fixed income ETFs that have recently received their 3-year track record, strong performance top quartile across the board as well as a significant 4-star Morningstar ratings. And we see tremendous opportunity playing in the ETF space from a different packaging perspective. And lastly, we have our direct investor business, which, again, folks are looking for income, and we think that they have a great offering across the board that will play, and we've seen success in now putting USA investments through the aspects of our distribution now almost 18 months post the transaction. Our products gain shelf space and assets really across all 3 of those channels. And we're really excited for them as we continue to market them and can demonstrate the kind of playbook that we've had on acquisition and then follow-on of organic growth. So really excited about what they have, and it's a great team down in San Antonio, Texas, and they're very high performance, and we're excited to have them on.

Great. And then if we could just move over to more of the equity side area, and this one I'll direct to Mike McFerran. Wondering if you could just comment on deployment opportunities that you see within the private equity side of the business of Ares? And then perhaps after that, relatedly, Brian, you touched upon this secondary side and also the co-investment areas, what kind of opportunities you see over there?

Kevin, we've seen 2020 was a busy year for our private equity business. We saw a lot of opportunities. We're got a lot of capital to work. We [indiscernible] We're intriguing at the moment. There's a lot of [indiscernible] I think to highlight, our private equity strategy is broad. We actually call our [indiscernible] fund. Historically, this fall investable [indiscernible] traditional LPLs to destruct control transactions. When I look at our historic vintages, I think now case between those 2 [indiscernible]. So what we could do with private revenues and about 50-50. We complement that fund or get opportunities, which is solely focused on the opportunity in this trial to get on a pro and the like. It's interesting, we -- it's easy to look at our screens and see what's happening between a market, will that be a fixed income and [indiscernible]. I think there is some rate between the help [indiscernible] private markets [indiscernible] stress out there, some more than others. A lot of them [indiscernible] don't think how it their balance sheet [indiscernible] more interesting than it probably had been pre-COVID. And I think you guys as an [indiscernible] in '21.

All right. Well, I'll start with secondaries, Ken, because you had asked me about that. So in the private markets, remember that investors are limited partners of a partnership vehicle. And the only way that they can exit for maturity is to sell that investment in a secondary market in a private transaction. There are no large liquid markets for those interests. So the markets are less efficient and that can benefit skilled investors. Now if a private markets overall grow, there are more investors and there's more want and more needs for liquidity. And what that means is that the secondary market grows alongside of it and at the same time, I'd say that perhaps no part of the private markets are evolving as quickly as the secondary markets are in terms of the shape and the size of the opportunity set. So not too long ago, the secondary market would have really just been for distressed sellers that needed liquidity. And today, they allow for active portfolio management, relationship management, as Michael talked about, for noncontinuing relationships. And also they allow opportunities for general partners to come up with solutions for individual assets for all their funds. And so it is a very dynamic segment of the market, and investors are attracted by that today, which I referred earlier to the success we have had in that part of the market. The other question you'd asked about, Ken, was co-investment. And for us, that refers to investing alongside of a manager directly into a company frequently with lower or with no economics to the manager. And so that's a way for sophisticated investors to lower their overall costs, to invest in a more targeted way in strategies or in companies and to back managers that they like. And those are all themes that are playing out pretty heavily now on the current market. At Hamilton Lane, we benefit from having relationships with hundreds of the best managers globally. And we're a large client for many of them. And so that means they come to us with many of their best investment ideas, and we're able to invest alongside them and do those transactions. So while there was a slowdown in deal activity at the onset of the pandemic. It came back at very, very high levels in the back half of the year. And today, that part of the business is as active as we've ever seen.

Great. And this next one is for Mike Policarpo. Wondering if you could just talk more about what you're seeing in terms of client demand, within strategies within specific investment franchises: INCORE, RS Global, Sophus, Trivalent. These particular investment franchises are ones that you've been reporting positive net flows in recently. So I wonder if you can give a little bit more color around that.

Sure. Absolutely. Yes. So really across all 10 franchises in our solutions platform we've seen success. But the 4 you've highlighted, I'll talk a little bit about maybe background of them and why we're seeing success there. So RS Global came to us as part of the RS acquisition in 2016. And that's a global product and an international product as well. That team is based in San Francisco. They have a quantitative process. They recently reached $1 billion in AUM and has fantastic long-term performance. They've really been able to market themselves through our distribution institutionally. They recently won a very sizable mandate on the institutional side of the business, really their first significant institutional mandate really based on the longevity of the process and the numbers, and we're excited about that. As we go forward, they've also seen success in the retail and retirement segment as well within our business. Sophus is an emerging market equity product. They're based in Des Moines, Iowa, and they also have folks in London, Hong Kong and Singapore. So they've got folks on the ground, if you will, from an end market perspective. They, too, came to us as part of the RS acquisition in 2016. And they have seen tremendous -- really tremendous demand in their emerging markets small-cap and their large-cap products institutionally as well as on the retail side of our business. Trivalent is based in Boston, and they came to us as part of the Munder acquisition in 2014. They have been successful since the transaction back in 2014. They have an international small-cap product that is nearing capacity, but has had tremendous growth and tremendous performance. And now we're seeing, if you will, the brand of Trivalent flip into their large-cap product, EIF V product and start to see some growth there as well in our retail and retirement segments. And then lastly, INCORE, it has multiple fixed income offerings. They came to us really as part of the Munder transaction as well. They're based in Birmingham, Michigan, as well as some folks here in Cleveland. And they've seen success recently in 2 specific products. They have an alternative income product that has garnered success based on the environment from a yield perspective and where they've been able to deliver that product in a mutual fund structure as well as institutional has grown significantly, doubled really in the last year. And then we've got a fund for income product, which is a Ginnie Mae seasoned flow that has seen consistent flow really for the last several years. So we're excited about those products. We've got obviously, a number of other franchises and products that are winning business across the different platforms that we offer. But we're excited to see the continued success in these products.

Great. Now let's just switch over to the topic of ESG and socially responsible investing. And I'll start this one with you again, Mike Policarpo. Victory Capital had recently closed on the acquisition of THB Asset Management. Can you just talk a little bit more about the opportunity that you see for socially responsible investing and ESG? And perhaps, afterwards, we could open it up to the rest of the panelists for any of their additional comments about the investments, in general, in that area.

Sure. Thanks, Ken. Yes. We are excited about THP, and really excited from a corporate responsibility and ESG investing overall from Victory's perspective. So THP, as you mentioned, we closed that acquisition on March 1. So they recently become our temp investment franchise, their base fits, and they really are, if you will, pioneers from social responsible investing in ESG. They've been practicing those disciplines in their investment process for close to 3 decades. And so they are really what we would call kind of an impactful acquisition. So low AUM, so they come to us with about $600 million in assets under management, primarily focused on domestic and global small cap, micro-cap and mid-cap strategies, fantastic long-term investment performance. And again, focused with an ESG philosophy across those disciplines. So we're excited to bring them on. I think ESG, from an investment process, an investment philosophy perspective, is foundational. The investments in the holdings that all of our franchises have and the investment processes that they have, ESG companies are high-quality companies. So we think that resonates with THP. And then beyond that, more broadly across our other franchises. In 2020, Victory hired a Director of really corporate responsibility and responsible investing, David Alt. And he's worked with all of our franchises to really hone ESG practices that each of them have. As you know, our investment model is pure investment autonomy. So each of our franchises manages money in the way that they see fit. However, of them had ESG components in their investment process and philosophy. And Dave Alt is working with them really to hone that and to make sure that they have access to the data, the processes that they need to kind of continue to make sure that they're focused on their investment process, but make sure that they tap into the ESG components that they see fit and a number of teams had it prior to Dave Alt coming in and a number of them have had it for a number of years in their process. And we just think it's an important factor going forward. We believe that investors are thinking about making sure that the money that they invest is doing good. And I think it's going to be an increased factor as we go forward in thinking about decision-making across the board. And I think the last thing I'd say is from a firm perspective, we think corporate responsibility is really important. And some of the things that Dave Alt has done with our investment franchises have transcended really corporately as well to our employee base. So we think ESG is here to stay, and we're excited to participate with THB and look forward to kind of plugging that into our distribution and extracting some significant growth going forward and then the application across the rest of our franchises as well.

From an Ares standpoint, I would just highlight, I think about ESG. ESG investing in our mind really starts with us as a firm and Ares having our community ESG principles within our own culture. As Michael mentioned, I think it's something that's important to our employees or to our stakeholders. Our private investors, our funds, our public shareholders, other people we do business with. And important to our leadership. And I think it does -- setting the tone of commitment does start at the top. At Ares, our head of ESG is also actually our head of diversity, equality and inclusion, both report directly to our CEO, Mike Arougheti. We wanted to make sure that structurally, we set it up that way, to illustrate our structural commitment to this, but also ensure that we set up a framework that it takes everybody to be focused on this. We've set up designated ESG champions across our firm. And they're really in place to ensure that ESG principles are being integrated within all of our firm's processes [indiscernible] in our investment process. I think ESG is critical, it's here to stay. I think it's something to feel great about. And it's something that it's a great [indiscernible] for everybody and it's something we can [indiscernible] progress on.

Yes. I would echo a lot of that sentiment. For us at Hamilton Lane, responsible investing is and has long been part of our DNA. It started probably nearly 15 years ago with ESG initiatives across the firm. And very similar concepts where we have a responsible investment committee, we have a head of sustainability in ESG. And we also believe it needs to be incorporated down through all of our investment activities as well as at the corporate level. So it's something that we take very seriously. We also work with our managers on to understand what they're doing. And to really share some of the best practices that we're seeing in this area as well. So it's a huge area of interest for investors in the asset cost, and I agree that, that trend will continue.

Great. And then for the next topic, and this one I'll address to Brian and Mike McFerran. Both of your respective companies have recently announced developments within the SPAC space. Could you talk more about the growth opportunities you see within this fast-growing segment? And as this area could potentially be a new product line? I wonder if you could just talk a little bit more about how large this segment could be over time for your respective firms?

Sure. Yes. As you know, we recently completed our first SPAC race. Our premise was that we could bring something unique to what is admittedly a crowded market. So first, as a public company, we have relationships with a strong group of existing shareholders that are [indiscernible] with us and that we believe like our approach to investing. We have, in terms of investment sourcing opportunities, as I mentioned earlier, we have relationships with hundreds of private equity managers, and we have detailed information about thousands of private companies that are owned by those managers, and we have technology and the skill set to be able to sort through those opportunities and analyze them. And then on top of that, we think we can come up with a deal structure that is more investor-friendly than some of the current vehicles out there. So we think we have something that is unique in the SPAC market. We do believe there's an opportunity for us to [indiscernible] business line. First, we know that we need to do a good job with the first one. And so that is really where we're [ focusing on ].

Similar to Brian's comments, some of that is similar for Ares. We recently completed our first SPAC IPO. And from Ares, we feel like we can read a very differentiated to this. Our firm's culture is not [indiscernible] business is by the time when we operate in an integrated fashion. Our ultrashort in collaboration. I think what's unique to us is everything we do with Ares is tried upon all parts of the firm. And [indiscernible] We have worked together for many years. We think all of that has translated to the strong investment performance and a great business for the last 20 years. We think we can bring that to the SPAC market where our sourcing of expertise, our underwriting capabilities, and fresh idea generation to identify an opportunity. I think to Brian's comments, you have to do a great job with the first one. I think it's been a really fascinating time in resurgence of SPACs, which was something that I remembered in the early 2000s. You didn't hear much about it over the last decade plus. And then here we are. I think it's an exciting opportunity, and I think it's firm do a good job maybe easily exciting. I think that probe [indiscernible] to do more. [indiscernible] is probably, we do a great job in the first one and first of a long line of them. I do think this is complementary to what we do. I think it draws a lot more private equity needs to [indiscernible] lots of capabilities on our firms. I think there's a lot of wealth in the SPAC markets, good for our business, that increase our area of demand portfolio volumes. So I do think this is -- it's all positive, but it is [indiscernible] the deals that are done ahead and [indiscernible] as a cited for it. I don't think this is something I'd call as transformational for Ares. [indiscernible]

Great. Well, we just have time for 1 more question. So let's end it on the topic of M&A. And certainly, this has been very relevant among a lot of investors for this sector. So just wondering if each of you could just share with us what you think about in terms of potential growth opportunities that you see through M&A. And I'll start with you, Mike Policarpo and then Mike McFerran and Brian, if you could just chime in with any additional comments. We'll go with that order.

Yes. Thanks, Ken. I think it's very evident that the industry is and has been and will continue to be in a consolidation mode. As we think about it, the need for scale and scale beyond just size, but scale in -- with respect to distribution channels, operational infrastructure, as well as just kind of financial heft is going to be really important access to broad and differentiated distribution. So folks want to get access to new clients that they haven't had access to before and the cost of entering some of those distribution channels may be significantly prohibitive as a stand-alone. Obviously, there's also product development, vehicle capabilities, and then just reinvestments that are required to stay current and get ahead with respect to data, technology, marketing, I think will continue to force discussions with respect to consolidation. From Victory's perspective, our model and our business is built to do M&A. As I mentioned earlier, since our MBO in 2013, we've done 5 acquisitions as well as a couple minority investments. And we've done that really to make our business better, trying to get access to new clients through new capabilities as well as driving, if you will, overall firm scale. And we think we've got a pretty good blueprint to participate in the consolidation that's happening. We've done smaller impactful strategic transactions like our entrance into the ETF business a few years ago that we started with $200 million, and now we're well over $6 billion. The THB acquisition is small. And then we've also done what I'll call transformational acquisitions, such as the USAA transaction in 2019 where we doubled the size in AUM, and we're able to integrate the business onto our centralized platform that really afforded us incremental financial scale through synergies and cost takeout, which, again, is just something that's a benefit of our business. So we're excited about the opportunity and see tremendous growth going forward. I think it's -- we've done 5 transactions in 8 years since we did the MBO. I would envision that we'll continue to do transactions going forward. That will be both transformational on the high end from a size perspective as well as kind of impactful. And we're excited that we've got a blueprint in a platform that allows investment professionals to continue to practice their craft and probably get out of some of the headaches of operations and administrative that, frankly, are a distraction to them and get access to really 3 distinct distribution channels. So we're excited. We're active, as we've said, on all of our public calls, we're evaluating opportunities. Our balance sheet capacity is, if you will, ready, at about the opportunities that we've been evaluating and hopefully we'll bring those to fruition in the short term.

For Ares, we have a dozen person corporate strategy team. And this team has built out over the last several years, have grown our professionals. There's no rules and responsibility are to explore strategic opportunities. We've dedicated a core group to this, realizing that it's such a key topic and area of on that having people do it as part of their day job is challenging at times. And I think it's reflective of what Michael said on this [indiscernible] has a continue to be [indiscernible] when the consolidation are going to probably continue to accelerate. There's been last several months, several big transactions announced. And I wonder in all roll off that transaction for larger things like what our peers announced yesterday and more transformational will continue. For Ares, we did acquisition for action SSG and our Ares SSG, which in 2020. This addressed, really, a key opportunity for us, and we're supposed to have [indiscernible] so we're excited about that. I touched on about the acquisition of [indiscernible] by SBM. I was aware [indiscernible] is about we're rolling out a possible transaction in [indiscernible]. So I think it's interesting time and shortage of things to do. It does -- again, I think this is an environment where we talk about LPs and talk about consolidation. There's a lot of secular changes that are happening in that sense and trying it in as opportunities or GP consolidation. And some really awesome discounts, have some actuations where we are. I think a lot of these firms were founded in the '90s. You're coming across generational transfer issues, qualification and all of that has kind of set the table for increased opportunities for Ares are as high frame as we we're at a site where I feel like we don't necessarily need to acquire what our new capabilities. We organically build it. We have a team [indiscernible]. So we always think about the different trade-offs there we exported on the M&A elevate in an entry point to create an infraction, complement you do or do something new [indiscernible], there's really a [indiscernible] that financially makes sense. We are free to have the ability to be a of back-end to be strategically accretive. [indiscernible], we want to believe it's complementary the energies on the investment and distribution side that make us better investors or we're able to make them better. And third, and probably most important is cultural. Again, we paid areas. I think our secret costs are more core [indiscernible] collaboration. And as we think about M&A opportunities are grateful in [indiscernible] consistent and additive to that is [indiscernible]. But I think in '21, broadly, in the asset management space, we're going to continue to see that investing in the transaction.

So [indiscernible] a little bit of a different spot, which is we've grown almost entirely organically throughout our history. So we have found that M&A is hard to get right in a people business. And so for us, in our 30-year history, we have done 3 deals. Those are generally places where we're enhancing an existing team we're in offering. We're filling a void in a service offering. So certainly something we spend a lot of time looking at and thinking about but not a place where we've had a tremendous amount of activity in the past nor do we expect that to change too much in the near term.

Got you. Well, we've run out of time for now. It's been a really great discussion. And once again, I'd like to take this opportunity to thank our panelists, Mike McFerran, Brian, and Mike Policarpo, for joining us today. Thank you, everyone.

Thank you.

Thank you, everybody. Take care.

Thank you.