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00:00I want to talk about the record flows, because if you believed what was happening in public markets,
00:04what was happening to Aerie stock, the BDCs, it's like private credit is left for dead,
00:08everything is horrible. But here you are attracting a lot of capital. What is the
00:13narrative getting wrong? There's a huge, huge disconnect. And I think that the narrative is
00:17wrong in many respects. It's not to say that people shouldn't be focused on AI, but you have
00:23to be thinking about opportunity and risk. I don't think it's as binary as the way that the market
00:28is interpreting it. If you look at the traded markets, don't know how it looks this morning,
00:33because I've been dealing with earnings, but the public equity indices for software were down 20
00:38to 22% through this period. The broadly syndicated loan index attracts software exposures down 2%.
00:45So at least in the traded markets, they're doing a very good job of differentiating between equity
00:50exposure down the capital structure and credit exposure up the capital structure. A lot of this
00:56private market discussion, I think, is missing the very simple point that these loans are largely
01:02senior secured loans. Now, people have different exposures to different types of companies.
01:06Senior secured loans, 30% loan to value in very mature enterprise software businesses with 75%
01:15or so of the capital structure owned by institutional equity or corporates. So I think the first thing
01:23that people just aren't understanding is how senior and safe a lot of these companies are. The second
01:29thing they're probably missing is, at least in the Aries portfolio, where our exposure is pretty small
01:34relative to our AUM base. It's about 6% of our total AUM. EBITDA margins are in excess of 40%.
01:41Cash flow is growing at double digits. Stream yields on our loans are somewhere between 10% and 12%.
01:48We have a weighted average maturity of three to four years. So even in a world where AI disruption
01:54happens in a portion of the portfolio, these are high free cash flow, high returning. And so I think
02:01what the market is missing is how attractive these loans have been and how difficult it will be to
02:07actually displace. By the way, there must be a lot more attractive things out there now with
02:11assets selling off. Like, could this even be an opportunity?
02:14Yeah. That's why I said it's not binary and it's not as linear as people think. So if you're going to
02:19underwrite a narrative of AI disruption, you also then have to say, well, what does that mean for
02:23the productivity and margin improvement in the rest of your book? So that means that EBITDA is going up,
02:29free cash flow is improving, your general book is deleveraging. For companies like Aries who don't own
02:35these assets directly and just make fees off of these portfolios, if AI implementation accelerates,
02:42that's a huge catalyst for growth in our digital infrastructure business, our renewable energy
02:46practice. So I think what they're missing too is how well hedged a lot of these private markets
02:51companies are to this, you know, AI revolution that we're going through.
02:55I want to step back and, you know, Danny is living this private asset story every day and I've become
03:01like a permanent tourist here. So I'm trying to really get my head around.
03:03To be clear, we're, we're all tourists, like except that's why we have people like you on. So
03:10what I keep hearing is that the spreads between the broadly syndicated, like leveraged loan market
03:14and private credit are getting tighter and tighter. And I'm just trying to understand
03:18if, if leveraged loans are like SOFR plus 400 and you're SOFR plus 600, is that,
03:26is that the right price or is it?
03:28So generally speaking, if you're talking private credit specifically, broadly syndicated loans relative
03:34to private corporate loans over time, typically trade in a range of 150 to 300 basis points of
03:41premium. And it, it contracts and expands depending on base rates, economic environment, so on and so
03:48forth. We are still generating 150 to 200 basis points of excess return in this market. And what I
03:56remind people, it goes back to this kind of narrow lens that people are talking about private
04:00markets. Spreads are tight everywhere. They're tight in the high yield market. They're tight in the loan
04:04market. They're tight in the high grade market. So it's, it's difficult to just look at private
04:09credit and say spreads have tightened in private credit. Therefore it's not attractive. You mentioned
04:15our earnings. When you look at our flows, the sophisticated global institutional investor community
04:21is seeing that. So when you look at the dollars that are flowing into our private credit product,
04:27it tells you something completely different. They're not worried about credit performance.
04:31They're looking at the data broadly and they're saying, I need to capture that excess return right
04:36now because spreads in fact have tightened. By the way, doesn't that make you want to buy
04:39your shares and shares broadly? I'm quite a large shareholder. I mean, the fact that you're seeing,
04:45so the evidence is investors are still saying that's an attractive product. I want access to that.
04:50But the equity market is saying, oh, you know, wringing its hands and selling the stock.
04:56That's why, that's why I work in the private markets. I mean, you, you, the markets trade on
05:02momentum. There's a lot of forces in the public markets are not tethered to fundamentals. So if you
05:09look at, again, the earnings, we're coming off of a record year sequentially. We just declared a 20%
05:14forward increase in our dividend. We have five-year guidance out that says that we're going to grow
05:19earnings, you know, 16 to 20% and our dividend 20% plus. That's not a stock that's supposed to
05:27exhibit that type of volatility, but it does. And that's okay. But it is interesting to hear you say
05:32that because for folks in the private markets, we don't, we don't really understand that. But the,
05:36the, the way that the headlines and the narratives and the momentum whipsaw these markets is just not
05:43something that we experienced. By the way, no one does, right? Academic studies that look at big swings in
05:47stock markets. Are you saying that the market is not efficient? Show that 85% of the time,
05:50there's no reason, right? No, it is true. I have to say one of the other sort of things that's,
05:54that's lobbed at the industry, which maybe has some reason to it is just rates are coming down.
05:58So the ability to outperform is also narrowing and just returns for the entirety of the industry,
06:04kind of what Matt was talking about, start, start to collapse. And then you get this scenario
06:07where a lot of money's coming in because of the push to retail. And so you just have to be like
06:12the biggest platform you can, that fees are really low. And the only way you outperform
06:17and please shareholders are just becoming as large as you can in returns, stop to matter.
06:21That's a lot to unpack. I realize that. I realize that. But like,
06:24is there any merit to this idea? No. Size drives performance in private markets. So
06:29this is another disconnect for people who live in the, in the public markets, because
06:34at a certain size, you see that performance diminishes in, in public markets, in private markets,
06:41value is driven through your ability to source, develop, structure, and manage esoteric investments,
06:49companies, buildings, infrastructure assets. It's very resource intensive to do that. And so the
06:55larger you get, the higher the likelihood that you can actually capture whatever excess return in
07:00alpha is in the market. So not surprisingly, the markets are consolidating because the investor
07:05community is seeing these aggregated benefits of scale. We're not experiencing fee compressions.
07:11If you were to look at our fee rates over time, they've been largely consistent in and around
07:161%. The private markets are expanding now into lower return, lower fee product, like high grade
07:23fixed income. So not surprisingly, you will see that expressed as fee compression. But if you were
07:29to really parse it asset by asset, when you're down the capital structure and you're delivering excess
07:34return to people, the fees have been quite, you know, quite steady.
07:37By the way, on consolidation, just in the past week, it's been almost breathtaking. You have KKR
07:42announcing they're buying Arctos today, CVC buys Marathon, EQT buys Collar. There's a lot.
07:49Yeah.
07:49There's a lot. What is behind that? Is it what you're talking about? Is it stress? Is there
07:55something different?
07:55It's not stress. It's opportunity. The structure of the market is changing. You've seen this broadly in
08:01financial services over time, right? So there's concentration at the top of the commercial banking industry.
08:06There's concentration at the top of the investment banking industry, insurance. And the reason is
08:11there's efficiency in the investment and portfolio management process you get from scale.
08:17The investor community. So if you were to go talk to the large pensions and sovereigns,
08:21they're consolidating their capital with fewer global managers. And there are huge investment
08:26benefits that we get by aggregating all of that knowledge and information that we get around the
08:31world. So if you're a mid-sized or smaller manager like an Arctos or a Marathon, there's going to be
08:37huge value unlock for you as an investor to align to a broader platform. You'll probably have easier
08:44access to capital.
08:46So are people pitching you every day to try to get you to buy them?
08:48Yeah. Look, I think we've been acquisitive. If you look at our historical growth, we've been 25% of
08:53our growth has come from M&A. And we've probably made what we would call a transformational acquisition,
08:58whether it was in secondaries or wealth or Asia credit. That's been, you know, pretty breakout for
09:05us. And I think that's still part of our future.
09:07No one's looking to buy you, I would guess, because you're, well, too big, too successful and too young,
09:11right? A lot of the guys who are selling are a generation older than you.
09:15There's a succession story to some of this M&A, which is, you know, and Aries is similar. You know,
09:20we've been in business for 30 years. We were all a lot younger. And you get to a place where you have to
09:27put your platform in a place where the legacy is intact. There's a sustainable wealth opportunity for the
09:33generation of leaders below you. And that's kind of what drove the IPO wave 10, 15 years ago. And now you've
09:40got founders who are in their 60s and 70s that are looking to, you know, solidify the business. So there is
09:46definitely something to it that's just a timing and succession.
09:49But you and I are quite young. We're the same age.
09:53Weeks like this are making me feel a little bit older, but yes.
09:57How hard is it to keep talent in this market right now? How focused are you on that?
10:03And how is your succession planning looking like? Not that you need to go there now,
10:07right? But how are you doing it, bringing up the younger?
10:10I'd like to think that we're an employer of choice. We've talked a lot about our culture here. And I
10:16believe that our culture is highly differentiated. And it's actually one of the reasons why we've
10:20been able to grow as quickly and consistently as we have. And part of the reason the culture
10:26is so strong is all of my co-founders and partners that I started the business with are still in
10:31management. And we've developed and mentored and grown two or three generations of future leaders
10:40at the firm. So we have very low turnover. I think very high engagement. And we've done succession
10:47well. I've been the CEO for almost 10 years now. And it's hard to believe, but we had a very smooth
10:53transition from Tony Ressler, my predecessor. I just promoted two of my longstanding 30-year
10:59friends and partners to co-presidents. So I think good public companies and good public company boards
11:04are always going to be focused on succession. But I think it's something that despite our youthful age,
11:09we're still focused on it. Mike, we only have a minute. I'm just curious about younger talent
11:14because there does seem to be angst. You're coming from the banks. You're steeped in models. And all
11:18of a sudden, maybe technology can do the work of that. I think it's a big issue. And some of the
11:25disruption that we're feeling this week is you see tools that come out that rather than be perceived
11:32as supplementing the work that you're doing, it feels like it's going to replace. And that can be
11:38very scary. Everything that we're deploying now is being deployed to enhance the work that's already
11:44getting done. So we hope that we're hiring young people that know how to think systemically, know how
11:50to think critically. And then when we give them tools to maybe take some of the more mundane tasks off
11:55their desks that they can actually elevate more quickly. But I do think long term, the type of talent
12:01that we're going to be looking for may change, right? We're going to need to find people who
12:05can really synthesize information quickly and think more broadly versus the typical model of the
12:11first two years. You're in front of your computer for 24 hours and you're grinding out models. That
12:15is definitely going to be a big shift.
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