Ares Management Corporation (ARES) Earnings Call Transcript & Summary

All right. For important disclosures, please see the Morgan Stanley Research [disclosure] website at morganstanley.com/researchdisclosures. Taking of photographs and the use of recording devices is not allowed. If you have any questions, please reach out to your Morgan Stanley sales representative. All right. Thank you all for joining us here at our Morgan Stanley Financials Conference. I'm Michael Cyprys, equity analyst covering brokers, asset managers and exchanges for Morgan Stanley Research. And we're excited to have with us here this morning, Jarrod Phillips, the Chief Financial Officer of Ares Management. As many of you know, Ares is a leading alternative investment manager with over $360 billion of assets under management, invested across credit, private equity secondaries and real estate. Jarrod, thanks for joining us.

Thanks for having me. It's great to be here.

So why don't we start big picture on the macro. Clearly, a lot of concerns and debate in the marketplace, whether it's from inflation to credit to the health of the consumer. So just curious, through the lens of your portfolio, what are you seeing at the macro level?

Yes. At the macro level, we're seeing things that are maybe very different than the media is portraying. Yes, I think everybody is really trying to talk themselves into a recession as soon as possible. But from what we're seeing in our portfolio on the credit side of the house, we've seen a 8%-ish increase in EBITDA year-over-year. So we're still seeing that fundamental performance that's there. That's down a little bit. We were at [12/31], we were about 10% year-over-year in terms of EBITDA growth. So we've seen a slight compression, but still growing. In terms of the rest of the credit book, we have LTVs that are in the mid-40s. And interest coverage continues to be at historical levels, and we continue to be below our historical levels in nonperforming. So the credit book is performing very, very well in the current environment, and it's not throwing up any red flags in terms of imminent recession. And in our private equity book, we've seen a 10% year-over-year increase in our EBITDA, and that's proactively consistent with what we [all] saw at [12/31]. So that continues to show good performance as well, the ability to pass on some of those inflationary costs to the end customer and maintain the margins that they have there. And in our real estate book, I'll remind you, our main areas of investing our industrial platform and our multifamily. And in both of those, what we're seeing is all-time low vacancies. And for example, in Industrial, we saw the new leases be approximately 70% higher in the first quarter than the previous leases. So seeing good fundamental activity may be offsetting some of the technical pressures that you're seeing there. So overall, very happy with our performance and not really seeing things that are screaming to us, things are going to come to a screeching halt in a massive recession.

Any signs of softness anywhere? And when you look at the portfolio and you try and think about any sort of risk, what are the KPIs you are focused on in assessing [that]?

Yes. It's a lot of the things that we just went over, whether in real estate, what I covered there. In terms of credit, you're looking at margins. I'd say that the -- probably the biggest area of softness is your labor price, and the ability to pass through your labor pricing. Across the portfolio, that's your most difficult place. And I'd say that if you think about how that worked last year was a very employee-friendly market, where there was a lot of raises that were passed through, you really only see about a half of your convention of those, right? So this is the year where you're seeing a lot of the full pressure of those increases in costs from your labor market. At the same time, we're seeing it's pivoted to a much more employer-friendly labor market in the recent past year in the last couple of months. So it will be interesting to see how that ultimately fleshes out.

All right. Why don't we dive into private credit. There's been clearly some challenges with the financing markets with banks pulling back and retrenching. But it seems like a little bit of a double-edged sword, right? Because on one side, it hurts the PE side, it impacts maybe ability to access leverage in some of your funds, but then it creates opportunities from a void in the marketplace in terms of the opportunity for your credit funds to step in. So just how do you see this all shaking out?

Sure. And what I'd say for us and our larger peers that the big banks are still largely open, right? Whereas I'd like to say that maybe a year ago, I could have just picked up the phone and said, "I need $1 billion tomorrow and have $1 billion tomorrow now. It's more we want to plan and work together and make sure we have that capital plan worked out. But the banks still are able to provide financing for the places that we needed. It's the smaller firms I think they're having a lot of pressure there and one of the reasons we know that is NAV financing is an important component of the things that we do in alt credit. So really, when you see some of the bank retrenchment, it provides a lot of opportunity for us. And really, the kind of phasing that we're going through now with the regional banks having pressure is the first phase is they're looking to sell their best assets. So they're looking at how they can do portfolio sales, how they can create some liquidity, how they can create some cash. That means that their best assets are going to market. We're taking a look at those understanding what we can do, understanding what we might be capable of. There's not as much leverage directly on the portfolio that you maybe would have done in the past, but there still is some ability to access leverage there. Really, the next phase is then as those banks decide what businesses are core and what businesses are noncore, [I think] that accelerates a bit of the transition from banks to nonbank in some of these products. So think about asset backed, commercial mortgages, credit cards, other consumer loans and that type of portfolio lending, where the bank would still like to hold on to the customer but doesn't necessarily want to hold on to the risk. What does the future of that look like? Are you going to see teams move out of there? Are you going to see a similar transition to what you had in direct lending 20 years ago where that was a primarily banked product through the credit crisis, it largely evolved during the United States to be a nonbanked product. It's very similar to we believe will happen and [alt credit is]. This will be a long-term opportunity and maybe an accelerant to what we thought was already happening, where nonbanks were able to participate in the space a lot. This will give [them] even more opportunity.

Well, that's a good segue to my next question was just around bank retrenchment and the opportunity set, regional bank challenges, new regulation as well potentially coming as well. So what areas do you see the banks pulling back from lending over the next sort of multiyear view as opposed to like 6 months? And what areas are you interested in stepping in? But more importantly, how do you access this in scale, [How] to make it work?

So I think you've seen the continued move in just regular middle market lending away from banks into the nonbank space. And that has room to continue slightly. I think you'll see that continue a little bit. It is -- we are very important partners of the banks. We are very important customers of the banks. They would rather lend $1 billion to us, let us make $10 million -- $100 million loans. -- that gets a better capital charge on their books. It's more efficient. They need to source less customers. So I think you'll still see some of that but alt credit is really where i think the greenfield is. And that's something that we had that hypothesis a few years ago that, that industry was starting to look like the direct lending and that there was this transition, there was this opportunity for the nonbank providers to provide financing there. So we did make hires there. We brought in Joel Holsinger, to lead that group with key [indiscernible]. They came up with what was called the Pathfinder Fund, which was the first vintage of that, it was a $3.5 billion fund. And what we really said is it has a multiple number of strategies that goes into it that. In the past, when you were doing an asset-backed or CMBS or a triple net lease, it was hard to really get to a singular-scaled fund. It was -- you were often dealing with a $300 million fund a $500 million fund, and that was about as big as you could get it. And what we said was, well, let's put it all into one vehicle which would enable us to then pivot to what the most attractive investment opportunity was at that time, and we launched that vehicle. And the reason it's called Pathfinder is that, that team decided that they were going to take 10% of the overall carried interest and give it back to charity. So that was really a game changer and something that goes right along with our ESG values, and that was really -- they were pathfinding a new way. And so it was both in investing and in their corporate culture. They then eventually launched an open-ended fund which is a slightly lower return expectation, but as institutional open-ended it allows for investors to come in. And we've recently closed the -- we recently had the first close of our second vintage, which our first closed and second vintage was $3.5 billion, equivalent to the size of the first vintages entire fund. So it's a product that we're excited about. We believe that we're well on our way to scale in that environment, both having the teams that are focused on those different strategies on ABS, on CMBS, on credit card, on triple net lease that have the ability to pivot within all of those, that goes a long way to build on our scale and having the right product that fits and can deliver both the investment returns to LPs, but the solutions to the marketplace.

Yes, there's some debate out there that private credit hasn't been per se tested through a credit cycle just yet and that we maybe have seen some [lax] underwriting standards over the past couple of years. So just what are your thoughts here? What are the misperceptions versus the actual risk that we should be paying attention to?

We were lending during the credit crisis. So I'd say that that's pretty cycle-tested. And during the credit crisis, we had one of our fastest periods of growth. We had about a 1% average loss rate during the credit crisis. If you take a look at that 3-year period. So we know what it takes to manage through periods of adversity. I'd say that you take a look at the fundamentals that I went over with you and it shows that generally, it's holding up. I'd say that LTVs actually came -- they came down over the recent past. So you were seeing where it was maybe 50 or 60 was the standard LTV that people were going with. People had largely gone to a 50 or 40 and the increase in EBITDA that we saw over the 2019 through 2021 period, really helped to make that LTV even lower. And one of the things that people often don't think about is on the opposite side of each one of these loans is an equity side, right? So if I'm at an LTV of 45, that means there's 55 of equity. And you have to lose every dollar of equity before that credit is tested. So that gives you a lot of cushion to solve for issues that, that company might have. And that also gives you a lot of cushion. If they are to say, well, we don't want to put in more equity or we don't want to maybe make some kind of solution in providing warrants or additional funding or moving to pick, we just want to give you the keys. Well, that gives you a lot of upside to manage back to. So I think that those are features of private credit that maybe aren't always understood. Maybe they're separated a little too much from the equity side of it. But overall, we haven't seen. And frankly, we haven't seen in our portfolio and frankly, if others have it in their portfolio, it provides a lot of opportunity on the special opportunity side of our business and the alt credit side of our business to come in and provide those solutions.

And how do the covenants in private credit compared to what we see, say, in the syndicated loan markets?

Yes. I'd say for us, we've always been focused on covenants, and we're fine to lose out on a deal if it doesn't have the covenants and if it's not risk-weighted the way that we would like it to be. Interestingly, in the syndicated markets, you might actually have things that are a little bit more cov light. But if you go back and look at the historical performance of that, it's actually a little bit better. And that's maybe counterintuitive to what people expect. But the reason is, it's normally a higher credit quality borrower that can demand that. So ultimately, there is some of that. But in Europe, for example, we've never done a cov-light loan. Here in the U.S., it's a fairly rare, but it is when we have that higher credit quality when we're a larger company, higher up more senior in the capital structure with maybe even different EBITDA multiple that we're applying to it in order to make sure that we're appropriately rating that risk and that we're not making those decisions that we would otherwise regret. I'd say you have seen things recently, though, tighten back up, right? So definitions of EBITDA. That's a very common one that would loosen up during some periods that tightens back up in a time like this and say that it is much more lender-friendly right now than it has been over the last couple of years.

Great. Why don't we shift to talk about the deployment backdrop. You guys have about $90 billion of dry powder. It seems like you're well positioned to act on offense here during times to dislocation. First quarter that was a bit slower for you just in terms of your deployment, how would you characterize the deployment activity in the pipeline shaping up here in the second quarter? Where are you leading in? And what are you avoiding?

Sure. I'd say that the first quarter is always slower. And this first quarter was no different. If you look at the overall market, so we look at 2 things, both the overall market and the transactions in the market and then how -- what percentage of that and how are we deploying into that market. And we actually were a slightly higher percentage of the overall market in Q1 than we were in the previous Q1s. So in the last few Q1. So overall, markets down, overall, we're down on deployment. That's always seasonal for the first quarter, but we're a higher percentage of it. So then as we naturally expect, the second quarter has some of that seasonality return. And I'd say it always builds into the fourth quarter. And the prime time for deployment, as you can imagine, as people are trying to hit their year-end targets, year-end goals. September through November is really your prime time for deployment. And what we're starting to see in the marketplace to your question, we're starting to see more deals come. We're starting to see more packets come together and be circulated, starting to see that pipeline build in earnest. There's a lot of private equity firms that need to be providing liquidity to their investors so that they can have cash to invest in the next vintage. There's a lot of activity that's just waiting, that's just been building up. We've seen a couple of big transactions come through, a couple that happened at the end of March that didn't close until this quarter, a couple that have hit the wire this quarter. So we're starting to see a little bit more optimism on activity. I think today, CPI print will certainly help. We'll see what the Fed does. But having more surety, I think, on what rates will be over the nearer and maybe longer term, will allow that bid-ask spread on the equity side to compress, which then I think will start a lot more deployment going forward. At the same time, what we looked at in the first quarter was we were seeing a lot of incumbency advantage in our deployment. And the fact that there are borrowers who were looking to -- they were looking to do tack-ons and little niche acquisitions that would essentially help them and their sponsors buy down the EBITDA multiple in the current environment. We're seeing a lot of that type of activity, which really highlights that incumbency advantage that you have.

So it sounds like shaping up to be better than the first quarter from a deployment standpoint.

Yes. But I always feel safe saying that every second quarter, so.

Fair enough. And maybe if you could speak to what you're seeing just in terms of pricing spreads, how that is sort of evolving the backdrop as well as some of the deal terms and structures, which I think you alluded to earlier, it sounds like it's tightening up a little bit.

It has. I'd say that spreads widen back half of last year, maybe out about 100 basis points have come back in to maybe 50 basis points over 2 years ago. So they've come back down a little bit. Overall, like I said, it is a little bit more borrower-friendly or -- I'm sorry, lender-friendly than borrower friendly, allowing tightened definitions of EBITDA, allowing for certain other things. Maybe there's because of the liquidity constraints at a high rate comes in, there might be a little bit more discussion around [PIC] or warrants or some kind of transfer of equity value to the debt value as people are working through it.

Great. Why don't we turn to fundraising. We've -- in the industry, you've been talking about this denominator effect for 12 to 18 months from now or so. You guys are just embarking on raising your next sort of commingled flagship series that's [underwrite]. Maybe you could just give us an update where that stands? And what are the strategies that maybe could come back to market a little bit faster?

Sure. Yes. We have 7 of our 10 largest fund families in the market fundraising this year. I mentioned earlier, Pathfinder. We also announced the first close of Ace VI, our sixth European direct lending fund. That closed a little bit over $8.5 billion. That is well on its way on its first close. That was its first close well on its way to the prior vintage, which was $11 billion in total. So very excited about the momentum in both of those funds. We have our senior direct lending fund that will have a close sometime here in the second or third quarter, That prior vintage was a little over $15 billion of AUM. So we're very excited about that fund. Our junior debt fund, PCS, that will be in the market a little bit later this year. Our private equity fund is probably the one where we're experiencing that -- more of that denominator effect [in our stand]. That will probably have a little bit more of an extended period of fundraising than the credit funds. We haven't seen as much of that direct denominator impact. I think one as one of the larger direct lending managers out there, we have seen people consolidate their wallet share coming to us. We've seen people increase their allocations to direct lending in the current environment. In fact, we've been seeing some institutions move some of their direct lending allocation from the alt basket into the actual fixed income basket. So that's been nice to see and really a change in how they've been thinking. So I'd categorize credit fundraising as still being very strong, and we're excited about it. And as you mentioned, because of the current market environment, our deployment has been pretty robust in special opportunities, so that could allow us to come back to our third special opportunities vintage, maybe sometime early in 2024. And our fifth infra debt fund had its final close in December, and we talked about it at that time that, that was over 50% deployed. Normally, when you get to 75% deployed, that's when you want to begin raising your next vintage because that's to make sure you continue to have that capital to deploy. That puts us on pace for again, maybe a Q4, Q1, Q2 launch of the sixth IDF fund. And that's a business that we're extremely excited about. As a reminder, that came over from AMP last year in January. It's the largest mezzanine debt provider in the infrastructure market, and there is a tremendous amount of capital on infrastructure equity side that doesn't have offsetting financing. So you talk about [one] bank retrenchment and other opportunities, we believe that there's an excellent opportunity in front of us for that infrastructure debt business to continue to grow. And it is currently the largest in the world, but it's probably a very small percentage of the overall equity dry [powder] that's outstanding in infrastructure. So there is a definite and defined need for debt.

And what are you seeing in terms of client re-up activity? And when they do re-up, how much are they increasing the size of those allocations?

It really depends on the fund and the fund size. So when you're dealing with those funds like I talked about that are in the $10 billion, $15 billion range. A lot of times, they'll re-up with just a small percentage, right? But when you're talking about maybe a fund like Pathfinder, where the first close was the exact same size as the prior vintage, that's when you're really starting to see people give you kind of that 20% to 80% increase in their fund allocation size. You get to a certain number, though, whether it's $500 million, $1 billion, where you're not going to have from that particular investor a huge increase in their re-up allocation. And that's what you start to see on those larger hugely scaled funds. They're growing as much from new participants in that fund. So about 80% of any of our funds -- fundraises are done by existing investors in the prior vintage or existing investors at Ares. So the existing investors in the prior vintage, they're going to have some measure of re-up. But again, that's going to depend on that original size and that 30% that comes in, that's an existing Ares investors where you can get a lot of accelerant towards your increased sizing. And then your 20% new investors, they're coming in at a much lower dollar amount, but a pretty decent number amount. And then that dollar amount is what has the ability to grow over time.

Great. Why don't we pivot and talk about retail. What are you seeing there in terms of customer demand in the retail channel and from your distribution partners? How has that sort of demand evolved over the past year? And what are some of the products where you guys are seeing traction?

Yes. And Morgan put out a great report on the size of that market and the trillions of dollars of potential opportunity there is something that we're still extremely bullish on. However, if you look at what's happened in the marketplace, there's been a lot of news on the REIT side. The REIT side, I think year-to-date, if you look at some of the reporting out there is there's been outflows in the REIT space. For our particular REIT products, we've seen small [net] inflows, actually. So we haven't seen outflows. I attribute that to 2 things. It's the structure of the fund itself and what it's invested in. And the other piece is the 1031 exchange opportunity that you have in your REITs. And for those who don't know, that allows an investor who currently has some form of commercial rental property, it could be a single-family home that they're renting out, it could be a multifamily or some other type of property, they can do a 1031 exchange with that a property and get REIT shares for it. And then they need to be in that REIT share for 2 years before they -- but they can then avoid full taxation on it, and they get to carry their basis over into that REIT gives them something that's much more divisible, much more transactable and much more usable. It also is something that creates a much longer-term shareholder for us in that REIT product, which protects us a little bit more from outflows in that. So we've been very happy with how in relation to the overall REIT market our REITs have performed in terms of fundraising. We also have an interval fund that's at about $4 billion through a joint venture. And then we have our private markets fund, which is on the upswing of its growth. We launched that a little over a year ago. What that private markets fund is, is it's really a private equity secondaries product that allows retail investors to gain exposure to private equity. We think that, that has a great long-term future to it. But it's at that early stages of scale. The wire houses won't really want to put it on [tilts] at about $1 billion. So we're really moving through the RIA channel and the independent brokers to build that and to build that scale. But we've seen it grow nicely, and it's growing quarter-over-quarter. We're seeing more and more inflows. So we're pretty excited about that product and where it's going over the long term. I'd say In terms of things that we want to be doing, we've made very important and impactful hires to lead up the efforts in Europe and to lead up the efforts in Asia. We think that both a real estate and a credit product in both of those geographies make a lot of sense. And that enables us to do it a couple of different ways, right? So one, you're bringing in European or Asian investors into your American products, then you're bringing them into the products that are in their own geographies. It also can allow American investors access into those products from here as well. They take a while to set up. You want to set up the right -- the tax treaties and things of that nature so that you've built a product that is very investor-friendly. But that's probably next on the docket and I'd say, looking out at additional products, another one that I think is fairly interesting is doing something in the climate infraspace. That seems to be a pretty desired product from the retail set and that people are asking us a lot for that. So it's something that we've been working on and thinking about.

Maybe you could touch upon your longer-term vision in the retail channel, how you see that opportunity set? And what else could make sense to bring to the channel? You mentioned climate infrastructure. Anything else that comes to mind?

You don't want to have too many products in that, and you want to have them be able to be scaled. So it's where we have our public BDC ARCC, right, then we have a senior direct lending commingled product. We have a junior debt commingled product. We have a sports and media pop-out fund. That doesn't work quite as well in retail. Having the larger, more scaled products is more what you want to see from the retail investor, and that's what the wire houses [more] want to see. There's probably anywhere from -- you maybe end up in 10, 15 total products. It's not a 40, 50 product set. And I think it largely is going to mirror the product set that we have now with maybe a couple of adds as we hear demand from the retail market. So it really is figuring out, okay, how do you do something in real estate in Europe? How do you do direct lending? Certainly, with our European direct lending franchise being the largest in the space, it does create a nice relationship there. I think the growth of that private markets fund does provide a really nice additional product. But at that point, I think you have -- if you can build what you have in North America across the globe, that ends up somewhere in that 15-ish number of products, I think that works pretty well.

And then on the distribution side with Black Creek, you meaningfully expanded your distribution capabilities. Maybe you could give us a sense of where you're at today in terms of resources, in terms of distribution capabilities, how do you think about building that out further? You mentioned Europe and Asia? Just how are you thinking about that?

So I think if you look at any number of the metrics across there, we're generally somewhere between first and fifth depending on what exactly metric you're looking at, whether it's fundraising, whether it's total AUM, things of that nature in the non-traded side. We have a little over 120 people now that are there. So it's pretty well built out especially on the North American side. We continue to build. You probably don't need quite as large a team in the other spaces because you can leverage some of the things that we already have here in the U.S. But I wouldn't expect to see it go from 120 to 240. I think we're pretty happy with that sizing and that's right in line with a lot of our peers and where our peers are at. And in terms of what we're actually fundraising, like I said, we're generally in the top 3 in any given quarter, month or year. So we're pretty happy with where we're at right now, and we just want to continue to focus on that, consolidate those gains and build from there.

You mentioned the private market fund, you also, I think, have a private BDC as well out in the market. Maybe just give an update on kind of where those stand. I think you mentioned about -- u did mentioned $1 billion, but the [private] target.

The private BDC, we raised $1.5 billion of private funds to really seed that. And the reason was we wanted to make sure that when investors began to come in, that they were coming in to a little bit more seasoned portfolio that was already yielding. So otherwise, the risk is that when those investors come in they'll come in and yield [indiscernible] have to deploy it into essentially a liquid investments which are going to drive down overall returns, which are going to be a negative to the retail investors experience. That just received approvals to begin trading in late April, and it will be added on to a wire house here either at the end of this quarter or very, very early in the beginning of the next and begin to trade with retail investors. We haven't started to bring in retail dollars quite yet, but we will fairly soon. We're very excited about that product. We think it's a great product. It's something that since the moment we acquired Black Creek that people were asking about when we were going to do a non-traded BDC. So we're excited to finally have it out there, but we wanted to do it right. We wanted to be prepared. We've certainly learned lessons from what's happened in the marketplace and how best to do it. And I think you'll see us be very mindful of our fundraising and deployment so that it creates the best opportunities for the highest return for those investors. Sometimes if you just take whatever you can, whenever you can, that can put you in a little bit of a bind in terms of how and when you're deploying.

Great. Why don't we see if there's any questions in the audience here. Maybe secondaries. With the Landmark acquisition that catapulted you into that end of the marketplace, opportunities around GP- and LP-led transactions is something you guys have mentioned in the past. Can you just update us on how you see the Landmark business that you guys acquired in terms of expanding growing, you're out there raising a fund, how that's been progressing? And how do you think about the opportunity set from here?

We're extremely happy with the acquisition. It was exactly what we hoped for in expanding our capability set, expanding our solution for sponsors and really being able to expand what they're doing too. Obviously, that private markets fund that shows a great example of the synergies that we were able to achieve within less than a year of the acquisition of both them and Black Creek, we were able to launch a product off of Black Creek's platform with their investing strategy. And that products continue to grow very nicely. We recently announced a joint venture to begin credit secondaries investing. And then on the back of that, a commingled credit secondaries product. That's another product that people have been -- they've been asking us for. They've been excited about what our potential in the marketplace is for that type of product. And if you look at where we're at in the cycle, this is a pretty exciting time for secondaries as a whole. As a lot of GPs are seeking liquidity to be able to do both the LP option, which is a little bit more commoditized of an option. It's a bit more of an auction process that's pretty mature in terms of what you're able to do, but this is an attractive time as a lot of people are rebalancing their portfolios to be able to get in there and get returns. And on the GP solutions side, that's yet another solution we can provide to sponsors, but it also can provide really attractive differentiated returns in that space. And if you look at the returns that we presented in our earnings presentation for our secondaries business, I'd say the returns have been terrific because this is a really good time to take advantage of kind of a more locked up market on the unique deal side as people are searching for liquidity. Again, much like I talked about with the bank and where we're at in that process, it's the high-quality assets that are sold first. The high-quality assets that people know that they're going to get closest to fair value. That's what they're really looking, whether it's a GP solution so that they can extend their life and hold on to those assets longer an LP solution where they're just looking to rebalance their portfolio. That's really -- that's providing some pretty interesting opportunities there.

Great. Well, I think we're almost out of time. So I guess final question here as we wrap up. You're a leader in private credit. You've diversified and extended the business into other end markets. As you look out over the next 3 to 5 years, which verticals do you expect to see the fastest, more meaningful contributions to growth? And how do you sort of see the evolution of the firm continuing?

Yes. Look, it's -- we get asked that a lot, and I think people are always surprised and we said, we're going to continue to see it in credit. We're going to continue to see it in direct lending. That's a large total addressable market that we're a small percentage of in total. And if you look at what's out there on both the LP demand side and on the market's need for debt, that provides us a lot of opportunity. So I expect that you'll see a large business continue to grow and be larger. Within credit, I think alt credit has an excellent runway and it's shown some great growth over the last couple of years. And obviously, I think going into this current environment, alt credit is an area that we're extremely excited about, and special opportunities is another place where this is -- this has just been a perfect investment period for them. They launched their first vintage, their first fund that [has] final closed right before the pandemic started, and invested throughout that has really excellent returns. Launched in second vintage. It closed last year going into this cycle. So it's very well positioned, and they've shown excellent returns across the board that allows us to continue to grow and build that business. So we're excited about that. We're excited about the investments that we've made in Asia because we really believe it's pretty early [indiscernible] of what's happening there from a bank to nonbank transition, and that's going to provide a lot of opportunities for growth across the continent there. And so when I talk about Asia, I do mean the entire continent, not just one singular country. And so I think there's a tremendous ability to grow there. That looks a lot like were -- what we felt Europe was at 15 years ago when we launched the ACE platform that we do have. So I think that there's a number of different areas where we're going to continue to see growth. I mean retail is going to continue to grow. It had a little blip here, but I think there's going to be that increasing demand from the retail investor for the alternative product. There is a desire and an interest in having that in their portfolios. So I think you'll continue to see that grow, but that's probably not going to grow outside institutional investor demand, which we're seeing both the increase in private credit allocation within the alts basket. And as I mentioned, really moving some of that private credit allocation into their fixed income basket as opposed to being in that alt basket. So there's a lot of opportunities to be excited about.

That's a lot. We'll have to leave it there, I'm afraid. Thank you very much, Jarrod. I appreciate it.

Great. Thank you. Thanks for having me.