Ares Management Corporation (ARES) Earnings Call Transcript & Summary

We're going to get started. I'm Greg Siegenthaler from Bank of America. And it's my pleasure to introduce Michael Arougheti. Michael is Co-Founder, Director President and also CEO of Ares Management. Ares is one of the largest alternative asset managers in the world with around $400 billion of AUM and offices that span the globe. The firm is best known for its industry-leading private credit business. Michael, thank you for joining us.

Thanks for having me.

So let's just start with growth. Ares has been one of the fastest-growing alt managers over the last 5 years. Do you think this fast growth trajectory can continue? And do you think not having a $20 billion-plus buyout fund is an advantage when you think about forward book?

Maybe I'm going to separate the 2, just because I think the PE conversation we should talk about in the -- in terms of growth, but also the trajectory of the P&L and flows and things like that. But I absolutely think that the growth can and will continue. We are out with guidance that we put out at our Investor Day in August of '21 that effectively put a target of $500 billion of AUM by the end of 2025 and growth in our FRE and our dividend of 20% plus. And on our earnings call last week, we clarified that, that FRE guidance is intact, even excluding our performance-related FRP from our nontraded REITs. So obviously, being able to demonstrate that kind of conviction over a 4.5-year period. Hopefully, it tells you, yes, I think we can continue the growth. And the reason why is a combination of industry secular trends and company-specific positioning. Hopefully not lost on folks in this room, alternative assets are generally taking share from traditional assets. That's true globally, and it's true in both the institutional and retail investor segments. We actually see demand for alternatives tends to increase when markets get choppy and volatile and people are looking for places to deploy with maybe a little bit more durable yield or a little less price volatility than they're seeing in the public markets. We're also operating in very large global addressable markets and even in markets where we and others like us have leading market shares, you're talking about 1% to 3% share and penetration in some of these markets. So a huge increase in global appetite from the investment outcomes we generate, real competitive advantages in very large global addressable markets. And then to Ares specifically, which is where the conviction comes to your point. We have one of the most diversified product offerings in terms of the waterfront of capabilities in alts, but 70% plus of what we do is in and around the private credit markets, and that's everything from middle market corporate credit globally, real estate lending, infrastructure lending, all forms of structured credit and alternative credit. And those markets are growing at a pretty healthy clip as investors are increasing allocation into those markets, and they've been enjoying a pretty significant amount of momentum as rates are continuing to go up and people are looking for opportunities to capture incremental yield? And then maybe lastly, I don't know if we'll talk about this is because we're credit-oriented, the bulk of our P&L construction happens when we invest and deploy not when we raise. So back to maybe your question about private equity, private equity effectively turns their fees on when they raise a fund, but then they step down prior period funds. So there's a step function of growth that happens in PE in credit. When you raise capital, you don't get paid to raise the capital, but you also don't step down your prior vintage funds. So as you deploy, it just creates this big compounding income effect. And so we were able to look forward and say, based on the capital that we've raised in these credit vehicles over the last 1, 2, 3 years based on deployment and a high marginal contribution from that incremental fee, really good visibility to earnings growth. We're also about to embark on a pretty significant fundraising push into 2023, which will then set us up for future growth in the '25, '26 time frame.

So Mike, let's take that warranting question and shortened that -- you're in the middle of a big fund raise in super cycle right now. You're raising funds in most of your like flagships currently. So how is that going? And are you seeing any headwinds like from the [indiscernible]

So it's going well. We talked about this on our earnings call. It's still early in the year, but we are in the market or soon to be in the market with 7 of our 10 largest fund families in 2023. And the bulk of those funds are some of our largest, longest tenured best-performing private credit funds. And that gives us a pretty high level of confidence because a lot of our capital, while we're increasing the number of institutional investors on the platform in any given period, the preponderance of capital actually comes from existing investors, which is an interesting growth dynamic in and of itself. So in any given year, roughly 50% of our investors are new to the platform, but 80% to 90% of the capital is coming from existing, which means they're rolling over and re-upping into the next vintage of fund. They're buying other fund product on the platform adjacent to something that they're already in, and they're usually doing it larger dollars. So typically, when you're on a Fund 6 or a Fund 7, you have pretty good line of sight to what your existing are going to do and how quickly or well you're going to raise those funds. I would say, therefore, not a lot of headwinds in private credit lend, at least from our perspective. I think that speaks a little bit to our leadership position in that market, but also to the attractiveness of floating rate, short duration credit in a market like this. Not really seeing a lot of headwinds in real assets, generally speaking, infra in particular, I think that's because most infra assets that we play in are either benefiting from trend towards energy transition or a desire to find inflation hedged exposures. And I think maybe the one place others are seeing it, I can't comment on ours because we're not really private equity heavy is in the traditional private equity space, where the denominator effect is absolutely real. I also think there's a little bit of a numerator effect in the sense that PE portfolios went into 2023 fully allocated with having had great performance in the back half of 2020, 2021 and 2022. So you had phenomenal performance and then all of a sudden, discount rate changed and that market grows up a little bit. So it's going to take some time for, I think, regular way private equity fundraising deployment realizations to fall out. The good news is while we have a very meaningful private equity business, it's an opportunistic credit and distressed business on one side, which is a big growth area for us. And in our core buyout business, we have a distressed for control capability and track record. So we'll see what our experience is with that fund as we get through this year and next. But in terms of the denominator effect, I'd say it's at least up until this point, it's been a PE only issue.

Mike, you obviously have a very diverse business, big in private credit, but pretty scaled across the board. As you take a step back and look at these verticals, which ones do you expect to be the fastest growers across the industry even before you think about the Ares business.

It's hard to pinpoint because most of them are going to be growing on an index basis in that kind of 15% to 20% plus range just because of the dynamics I articulated before. If I think about where some of these markets are in their evolution, I'd probably say alternative credit as a meaningful amount of white space, and that's a combination of supply-demand on both sides of that market. That's been one of the fastest-growing parts of our private credit franchise. I would say infrastructure, particularly around energy transition and infrastructure lending. I think, is a big opportunity. We were talking earlier with some investors about what we perceive is going to be a really interesting opportunistic and distressed opportunity in and around real estate credit in real estate structured equity given some of the dynamics in certain parts of that market. And then I would say, generally speaking, growth in the Asia Pacific markets. and how we play that in different geographies or how the market develops is going to be country and asset class specific, but just there's a big, I think, long-term opportunity to see alts grow as a percentage of the market in APAC.

So Mike, Ares has always had somewhat of an individual investor focus just given [Indiscernible] as large, it's been around for a while, but you've really been building out that distribution over the last kind of 5 years. What does your private client distribution look like to that?

In terms of the servicing organization?

Size, servicing, wirehouse, RIA, IBD.

So today, we have about 115 people in that part of our organization, which is branded Ares Wealth Management Solutions, and that's where we do all things retail. That's everything from our non-traded product through to our high net worth and ultra-high net worth distribution. It touches the large wires, the RIAs and the IBDs, it also bleeds a little bit into some of the larger family office side of our business of the intersection of our institutional distribution. I'm glad you mentioned our long history because we've been in the retail market since 2004 when we IPO-ed ARCC, which was our BDC, and that's now grown to be a $22 billion asset company with, we think, really good cycle-tested performance. So that's true retail, right? That is we're listed, we're traded and we've been able to have other traded product that sits alongside that in the form of acre and ARDC, our closed end credit fund. We've also been a very consistent razor capital in the high net worth channel. So roughly speaking, when we raise an institutional fund it gets offered through 1 to 3 of the large global private banks. And that's been a pretty consistent and consistently growing part of the business. Now we're kind of in this retail 2.0 world of how do we deliver alternative product deeper into the accredited mass affluent part of the market. And appropriately, people are paying attention to it because there is a significant amount of investor demand for the product. And so we've been developing product for that channel. Today, we have 2 nontraded REITs. One is a diversified REIT. The other is in industrial focused REIT. Together, they have about $14 billion of AUM. We have a credit interval fund that has about $3.5 billion of AUM in it. We launched a private equity-focused private markets fund that's scaling nicely. We launched that in the middle of last year. And we are coming into the market, as we've talked about publicly with the nontraded BDC, which we think should be well received given our track record on the traded side. So the business build is a combination of investing in that servicing organization of 115 people as well as product development to make sure that we have a whole suite of products to deliver into the channel.

So you kind of answered my next question with your semi-liquid options. But as your distribution sells to wirehouses, private banks, IBDs, RIAs. What is the full suite of products? I mean they're probably getting a piece of the flagship still? In addition to the semi liquids in the public BDC. So what does that simply look like?

Yes. So I mentioned what's currently there. I think the vision without going into specific plans or specific funds would be to continue to broaden out the distribution globally. So we have announced that we've added a head of European distribution. We've added Head of Asia Pacific distribution. We've been building teams there. So we have to keep globalizing and deepening the penetration of the channel and then we've got to continue to broaden out the products. So we already have a pretty fully developed set, but I would expect that over time, the larger, more sophisticated advisers would want fewer brands on the platform with more investment opportunities that offer them diversified access to the different corners of all. So we'll be building out broad-based product. So for example, our diversified credit fund offers a pretty wide-ranging exposure to all things that Ares does in private credit. There may be demand for geography-specific credit funds or asset class specific funds that will ultimately become part of the suite, I would imagine as well. The one thing, sorry, Craig. I think that what we're particularly excited about is at least today, the bulk of that market is looking for yield, durable yield and total return beyond that. But I think Ares is uniquely positioned given our franchise in private credit and yield product to really service the appetite there. We haven't quite seen full-scale demand turn on for nonincome generating products.

Mike, I wanted to get your perspective on some of the private REITs out there that are limiting redemptions. I think the press has taken a fairly negative view, although this is a mechanism that was built into the model that prevents for selling. And then these are products that do give liquidity almost all the time, just not really in the middle of fair market. So what is your perspective on this?

I think you hit the nail on the head. I think the press -- they don't like writing -- media today doesn't love writing positive articles that doesn't actually sell newspapers quick. So I think is an issue because it's testing the product. But to your point, there are no gates in these products. So that's just issue #1, which is the minute you start seeing redemptions, people are like, "Oh, they're getting gated." The products themselves have structural path to liquidity built into them. Generally speaking, these funds allow for about 5% liquidity per quarter, 20% liquidity per year, and they're designed to your question, Craig, to allow for an orderly liquidation of assets, if needed, if the fund was moving in a different direction. So you don't really gate the product. You're always there to provide 5% liquidity. I think what happened in this particular instance, which is why it's overblown is you had non company-specific factors that basically had a couple of investors in Asia who were levered and were getting unwound on that leverage start redeeming. And as with most products, when people are redeeming, might as well raise their hand and take a look at getting some liquidity. And I think that created that first wave. My own sense is what happened next was if you have 5% limited liquidity and you actually want liquidity, you're probably going to subscribe for 2 to 4x your desired liquidity amount because everyone is competing on a monthly basis for 5% of the fund, right? So when you see a number like 8% of the fund wants liquidity, that's probably overblown, but everyone is just trying to get the most of that 5% best they can. We haven't had that experience, so I can't speak to it specifically. I mean, I think we've been fortunate if you look at our flows in our nontraded REITs and interval funds, they've been net positive -- and while we've seen a slowing inflow, I think as a result of some of the issues you're bringing up in the market, but our outflows are not outpacing our inflows. My sense in looking at the peer set is the worst is probably behind them like that first wave worked its way through a couple of months. And the interesting thing about the liquidity mechanism is you have to ask for it every month. So it's not a compounding queue. If you ask for liquidity in November, you get hit on whatever your pro rata share is you then -- so some of these numbers are, again, the same folks looking for liquidity in a limited liquidity basket. And I think once those people get resolved, I would imagine that the worst is behind them. But I think the good news is, at least in talking to advisers, the product is doing what it's supposed to do, right? Which is kind of protect the investors from themselves looking for liquidity in a market where you probably shouldn't be looking for it. So you're not seeing major foreselling of assets the way that you would in differently structured product, and they are still seeing net inflows. So it's given the performance of those assets, I think that you'll continue to see growth.

Great. So Mike, let's move on to the topic of investment. We've launched over many different down cycles. 2016 coming out of energy, 2011 European debt crisis, the financial crisis. And what we've seen is you guys have invested sometimes more aggressively into down cycles. And you can do that because you have a flexible mandate in some of your equity products and your credit heavy business. So I wanted to see if you could maybe articulate this countercyclical feature where you can invest heavy into down cycles and how that accelerates your growth coming out of a down cycle.

Sure. You just maybe feel really old.

Well, I think you're the youngest CEO of any major alt firms.

Okay. So I got that covered for you, which is good. Let's see, let's talk about the structure of alt's first before we talk about Ares because the structure of alt, almost by definition, managed well set you up to be countercyclical. So alt funds tend to be long dated, not permanent. They tend to be underlevered, not unlevered and where they do take on leverage, that leverage is almost always again, if done the right way, match to whatever your asset profile is. They tend to be draw down structures which means that you can actually express a view on the market by not investing, whereas if you're a traditional manager and someone gives you a dollar in an equity fund or a bond fund, you have to express a view of finding what you like in the market, whereas we can sit on liquidity and it doesn't drag our returns down. And so almost by definition, if you look at the structure of our balance sheet in terms of the capital that we manage, we're typically running 20% to 30% uninvested. That's true in almost in any market. So if you look at where we ended the year, we had about $352 billion of headline AUM, and we had $85 billion of capital uninvested. So this goes back to my earlier comments about the predictability of income generation from deployment. But having that amount of liquidity going into a dislocated market is a huge competitive advantage. Couple that then with the opportunity to raise more capital when people are looking for ways to play distress. Distress for control PE, opportunistic real estate, opportunistic corporate credit, all of the things that we do are places where people want to allocate in these types of markets. So you're right, we tend to see increased fundraising because people view Ares as a good downmarket manager. We also tend to see higher rates of return. And interestingly, that's when you get on this flywheel because if you're raising more capital and investing disproportionately in markets like this when the returns are the highest. When you then go back and look at a track record over a 1, 3, 5 or 15-year period, the returns generally are going to be higher because we're able to capture more of these markets. So there's a lot structurally that sets us up for that success. But I think as a company, because of the things that we do and the DNA of the firm, we are very good distressed and downmarket investors. That's actually the genesis of the firm was in distress. And so knowing how to navigate the cycles, how to leg into them, how to own companies from the credit side, how to buy companies through restructuring. So those are all skill sets that are, we think, pretty unique at our scale that allows us to outperform. And so you're right, when you look at 2008, 2009, we grew faster through the financial crisis and COVID than at any other point in our history, and it's a combination of all of those things. And what you tend to find is, you get into a tough market and kind of separates the wheat from the chaff, if you will, and you have a lot of smaller, less experienced managers that demonstrate poor performance, and you get share consolidation too. So there has been this longer-term consolidation trend in alts. There's a lot of reasons for that. One of them is just, I think, the larger platforms with more experience, more capital, more competitive advantage are outperforming. And so a lot of the smaller folks have gotten left behind.

Our financial survey data is showing that an inflation hedge is becoming a more important quality for products today. So as you look across your product offering, where are you recommending clients to go when they want to protect their assets from rising interest rates and high inflation.

Yes. So most of our investors aren't that tactical, to be honest. I think they're rarely saying I have an inflation factor, and I want to do x, I'd say they're generally inflation aware. So I would say at least our experience from a fundraising standpoint, is people aren't coming to the platform through an inflation lens. That being said, when we're having that conversation with folks as to where to be invested in markets like this, the 2 things that jump out most consistently is floating rate credit. So back to the whole private credit demand. And if you think about what that market offers an investor in this rate environment, generally speaking, across the different asset classes and the base rate environment, you're getting 10% to 13% type rate of return, high up a company's balance sheet, senior secured with continued convexity and short duration. So it's a really good place to hang out for people who aren't even long-term committed to the private credit asset space. So that is somewhat inflation protected as well given the attachment point and the nature of the companies that tend to attract those types of loans and types of assets. Two, maybe not surprisingly, I mention it is infrastructure, debt and equity because a lot of those underlying assets have inflation protections built into them. So those are the 2 places when we're having inflation conversations that we tend to guide people.

So then when you take a step back and you think of what does inflation mean to all industry? If it's been for private credit, it may not be an accurate for private equity just in terms of the cost of borrow.

[Indiscernible]

I don't know. I don't think anyone noticed that.

Well, now they did.

So it raises the cost of the portfolio company's expense base. It raises the cost of debt -- it has some negative factors across the industry, ignoring the fact that it is good for private credit, infrastructure is an inflation hedge. What do you think it means for the private equity industry in terms of how the business is valued and really the private equity asset price.

Yes, I think you can't -- when we're talking about what it means for private equity, just talk about what does it mean at the company level, from goods and services cost standpoint? And then you have to say, what does it mean for rates and what do rates mean for private equity. And they're obviously separate, but related. Stating the obvious, when you have inflation and interest rates moving in the direction for moving, you have a double impact on your private equity portfolio companies in the sense that you're getting margin squeezed. And as your free cash flow is getting reduced, the cost of your debt is going up, and that's not a great not a great place to be. But I would say generally taking rates out of it and just isolating inflation, I think most of the companies that we see across our portfolio, and we see a lot they've dealt with it. They've generally -- they tend to be well managed, professionally managed, professionally owned. They pass through price increases. They've restructured their supply chain to the extent that they need to. They reorder their business. So if we were just talking about have they done well absorbing inflation, I think most buyout portfolios that we're looking at have navigated well. And it's also been a little bit of a story of goods inflation moving to services and wage inflation. So you haven't had this compounding effect for years on specific sectors, and I think that's giving people a little bit of a reprieve. I think the rise in rates is a real, real challenge. For 15 years, the buyout market generally has been enjoying the benefit of low rates and high valuation and ever-increasing valuation multiples. And when you add 500 basis points to your base rate that completely changes the valuation paradigm. So there's going to be I don't want to say some issues, but the duration of a lot of these private equity portfolios has just gotten extended by a pretty significant amount of time because people now need to grow back into valuation that's frankly not achievable in this marketplace.

So I'm starting to hit the same topic multiple times. I think I hit on the earnings call, I guess with Kipp yesterday, but I'm really interested in credit migration, especially just given the slowing economic backdrop. But what do you see inside your portfolios in terms of credit quality migration? And why should we be confident that whatever we see out there, whether it's kind of a soft or hard landing that Ares will be okay?

Sure. Past performance is not a predictor of future success. That's the disclaimer. But we've been doing this a long time, and I think we've demonstrated through our track record that we're good underwriters of credit. You could look, I don't know what Kipp articulated, but if you look at our ARCC track record as a proxy for what we do through cycles, our loss rate in that portfolio is actually positive, meaning that we've generated gains in the portfolio in excess of credit losses, which is pretty unique. The 1 thing I think that people don't fully appreciate about this current environment in leveraged credit is, I think the markets are trying to look at defaults as a predictor of loss. So maybe starting there, if you look at our ARCC again, as a proxy, it's pretty consistent across everything we do. There are nonaccruals, right now are about 1.7%, which is actually well below historical average. And if you look at default rates in the traded markets, they're similarly low and below historic averages. Default doesn't mean bad for private credit. And what's interesting about what's happening now, these companies are going to get pushed into default first because rates are going up. And when rates are going up, the private credit manager owner is actually getting all of that excess return. Typically, when we're talking about defaults and appropriately worrying about default, it's because earnings are going down. and rates are going down. And so you kind of have this 2 edged, you don't have a way to generate excess return. We really haven't seen this in ever, right? So we've been clipping excess base rate for 12 months, soon to be 18, 24 months before we even start talking about average levels of default. But when that happens, it's because they're having challenges with debt service on the interest side, not the earnings side. So my own view is that for a well-underwritten credit book, you're generating a significant amount of excess return to allow you to be flexible in how you want to resolve problems in the credit book, but I actually think it's going to turn out to be that there's -- it's going to be also a possible for losses given default to outpace the amount of excess return that's being generated in the book. The other thing that people don't fully appreciate is most of that risk right now is going to be on the equity, not the debt -- and most of these capital structures have more equity in them than in any other prior cycle. So order of magnitude, if you look at where private credit sits in a company or an asset capital structure, it's top half which means that if you even increase leverage, let's say, 6x, which seems like a lot to some, that means that there is an institutional equity owner that has a cost basis and cash equity in an asset of 6 to 10x below you. And that amount of equity subordination is really, really valuable. If you go back and you look at where the market was pre-GFC, it was probably 30% equity, 70% debt. And so the willingness of asset owners and company owners to walk away from a credit not support it with resources, capital and all those things just fundamentally different now. So Kipp said this on the earnings call, I absolutely expect just given where rates are that we'll see a pickup in amendment activity. Just by definition, people's cost of capital has changed to the point where they need to rethink their capital structure. That could be a very positive driver for us in terms of value creation and total return as opposed to a challenge, and that's kind of what I expect will happen.

So kind of in line with your commentary that loan to values have really improved a lot over the last 15 years. I think the quality of your competition has also improved a lot over the last 15 years. And there are BDCs that were having issues in the middle of the bull markets, like 6, 7 years ago. And so if the quality of competition is better and you guys have fared well in all these other sort of drawdown periods, what is your outlook for kind of losses across your peer group [Indiscernible].

I think you'll have winners and losers, but I think on an index basis, it will be quite strong. Because not only are there better competitors or more experienced competitors, but they own a disproportionate share of the market, right? So the folks that will underperform, either because of lack of experience or candidly lower quality borrowers just because they're smaller, less institutional, fewer levers to pull, maybe less sophisticated management, all of those things, they're just a smaller part of the market now. So I think when you aggregate across the entire waterfront, you're going to still see some pretty good performance.

Great. I want to hit on one important question, but then we'll take question from the audience. You have a number of maturing credit funds. They haven't really generated any performance fees to date. The performance fee is calculated in our European waterfall where it is at the end of the life cycle of the fund, but there's a very significant ramp coming. This may not be fully baked into market expectations at this time -- sorry, these earnings are also pretty sticky and stable. Could you help articulate this for us? And from a modeling perspective, what has this been financial [Indiscernible]

Sure. So it's a fairly complicated concept that we're trying to get better at simplifying and articulating, and I'm looking at our IR team over here. I think we'll continue to refine the way that we're talking about it. But at a high level, and I just realized I never answered your private equity question. So maybe this is a good quick place to put it in. Historical carried interest structures where what we all call American style waterfalls, which means in a private equity portfolio, you have 20% carried interest and you get to realize that carried interest when you sell an asset in the portfolio in excess of the preferred return. So the way that carry comes through in a traditional private equity portfolio is you monetize an asset, you have to sell it to monetize it. And when you do, you get promote. There's also something called a clawback in an American style fund, which is to say, to the extent you took that promote early in a fund's life, but then when everything is balance and you look over the life of the fund, if you didn't actually earn it, you technically have to give it back. You rarely see that, but that is an interesting part about the timing because you pull it forward and there's always risk of clawback. European style waterfalls, are actually structured to pay promote only at the end of fund life once the investor has returned, gotten their capital return and the preferred return. And you typically see European-style waterfalls in credit fund structures versus private equity structures, and some real estate structures. So the reason this is relevant and I'm glad that you brought it up, is going back to my earlier comment about this fundraising stacking effect in our credit business, we don't earn performance revenue on those funds until they get to the end of their life. But when they do, they start paying promote or carried interest consistently because once you're above the hurdle, dollars that come into the portfolio go to pay promote. So it takes a while because if you have an 8-year fund, it takes a while for you to get into the promote. But once you do, it starts paying consistently as the fund matures, and so we're at this really interesting inflection point in the maturity of our large credit fund families in the sense that we have vintages from 2 vintages ago that are now hitting that waterfall moment. And you saw that in Q4, where a significant amount of realized income from our credit waterfall -- European waterfall were starting to come into the P&L. What's also interesting about this now is in a rising rate environment. This carried interest is actually being measured against fixed rate hurdles, somewhere between 5% and 7%. So the value of the embedded European waterfall promote that we have, is actually increasing value. So we're talking about it a little bit differently because I think the market's experience of this promote, given the size and diversity of our credit fund families, will start to pay quarterly and it won't be episodic, and it won't be dependent on monetizations or a healthy transaction market the way that private equity promote, the way the private equity promote is. If you look at our Investor Day, we articulated that we had basically $1.5 billion of that promote already embedded on the platform. We talked about on our earnings call based on new funds maturing. We've added about $1 billion to that number in the last 18 months, and we're beginning, as you know, to start to articulate a little bit better guidance as to what the expectations can be in future quarters and future years for that. But I'm glad you brought it up because it will act much differently than the traditional carried interest that I think the market has been used to seeing from more private equity heavy managers.

It sounds like maybe you should trade at a higher multiples up.

I'll leave that for everybody else to decide. I would. But -- yes.

Yes, let's say. Let me just see if there's a question in the audience, please raise your hand. We can get you a mic.

Can you guys hear me?

Yes.

Jim from Merrill Lynch. Great discussion, guys. Mike, you mentioned a percentage of funds that are uninvested.

Yes.

Is that a set number? Or do you treat that based on where you think we are in the cycle?

Sure. So it's not a set number. There are some structural elements of private funds that keep it in that range, particularly in the commingled drawdown fund structure side of the house. So it's different on the traded and non-traded side, but your typical drawdown fund can't raise its next vintage until you're either 70% or 80% committed. So what winds up happening is if we have a large private equity fund, we won't go into the market with the next one until we're 70% committed, but we'll start to raise it when we're getting close to that. And so generally, there's this rolling 20% to 30% uninvested as you're bringing new funds online, and that's largely what drives it. Then there's an overlay of are we being more cautious on deployment? What are we doing with some of our permanent capital vehicles and scaling those, which is why it's in that range. But it will always generally be range bound because of the structural feature of not actually getting permission from your investors to raise the next fund until you're at a certain amount. But our goal would be within that constraint to run with as much liquidity as possible because, again, unlike a mutual fund or a non-traded vehicle, there's no drag on return because we only call the capital when we need it. So from the investor's perspective, we're not getting penalized for not investing, which is actually a pretty, pretty interesting element about alts generally, as I said earlier.

Great. And we just can have one more question. We have about a minute here.

Can you update us on the Landmark acquisition? And how have you been able to leverage the platform?

Sure. So Landmark just quickly because I know we're short on time. It's an acquisition we made about 2 years ago. It is one of the pioneers in the secondary space. The reason that we acquired it was there's a big secular shift happening in secondaries, away from just secondaries providing liquidity to LPs to now the secondaries market, providing a whole host of structured liquidity solutions to GPs. So our interest was really around that piece of the secondaries market, given that we have, we think, the largest coverage effort globally to GPs whether it's buyout funds, institutional real estate equity owners, institutional infra owners, et cetera. The integration has gone extremely well at the end of last year, we actually rotated the landmark name to now be Ares secondaries. We have launched in earnest a credit secondaries business, which we think, given our private credit expertise is a market that we should have a significant share of. We have launched, as I mentioned earlier, a non-traded private market fund with that team to drive secondaries exposure into the nontraded part of the market? And we are -- we have raised a private equity fund that's now out of the market, and we're raising a real estate and infra fund. We've added a bunch of people. We've reorganized the management team in certain respects to drive more synergy. So it's going well. I think more to come, but the thesis around GP solutions and expansion into credit secondaries. And I should also mention global expansion into Europe and Asia is playing out extremely well here in the early days.

Great. And with that, we are out of time and questions. So Mike, on behalf of all us of Bank of America and Merrill, thank you very much.

Appreciate it. Thank you.