Welcome to Ares Management Corporation's Second Quarter Earnings Conference Call. At this time all participants are in listen-only mode. As a reminder, this conference call is being recorded on Thursday, July 29, 2021. I will now turn the call over to Carl Drake, Head of Public Company Investor Relations for Ares Management.

Good afternoon and thank you for joining us today for our second quarter 2021 conference call. I'm joined today by Michael Arougheti, our Chief Executive Officer; and Michael McFerran, our Chief Operating Officer and Chief Financial Officer. We also have a number of executives with us today that will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors and our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results. During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our second quarter earnings presentation available on the Investor Resources section of our website for reconciliations of the measures to the most directly comparable GAAP measures. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Ares fund. This morning, we announced that we declared our third quarter common dividend of $0.47 per share, which is consistent with our prior quarter dividend and represents an increase of 17.5% over our prior year's quarterly dividend. The dividend will be paid on September 30, 2021, to holders of record on September 16. Note that we redeemed our outstanding Series A preferred stock on June 30, 2021, and we also paid our last dividend on the same day. Now I'll turn the call over to Michael Arougheti, who will start with some quarterly financial and business highlights.

Great. Thanks, Carl, and good afternoon, everybody. I hope you are doing well. As our second quarter's results demonstrate, we continue to hit on all cylinders in our core business with a record quarter of fundraising, AUM metrics, management fees, fee-related earnings, FRE margin and realized income. During the second quarter, our top line management fees increased 34%, our FRE increased by 52% and our realized income grew 80%, all on a year-over-year basis. Our fee-related earnings increased sequentially for the 17th consecutive quarter, which we believe speaks to the stability and consistency behind the growth trajectory of our management fee-centric business model. We raised more than $20 billion in new capital across the platform, which puts us at more than $30 billion raised for the first half of the year. This compares to our record full year fundraising of $41 billion last year. Our quarterly fund performance was also the strongest quarter of fund appreciation in our firm's history. The second half of 2021 and beyond looks promising for us as our transaction and fundraising pipelines both remain elevated, and we believe that the market environment remains conducive for additional realization activity. We've also added several new growth engines to the platform, which strengthens our confidence in our ability to drive continued shareholder value and long-term growth of 20% or more in our FRE and dividends in the coming years. During the second quarter, we executed on our strategic vision to scale and expand our product suite, closing our previously announced acquisition of Landmark Partners on June 2 and creating our new secondary solutions group. We believe that the secondaries industry is at an inflection point, and the combination of Landmark's industry leadership and our global sponsor and investor relationships will provide us with meaningful growth opportunities. We're focused on integrating this business and capitalizing on a range of revenue synergies and potential product expansions. Just after quarter end, we meaningfully scaled our Real Estate Group by closing on our acquisition of Black Creek Group, which had approximately $13.7 billion of AUM as of June 30. Black Creek is a vertically integrated real estate manager, predominantly offering core and core-plus strategies with a long and successful track record. Adding a premier core/core-plus manager fills a product gap for us within our real estate product offering, and we can now offer a complete suite across the risk-return spectrum to our real estate investors. The company is also one of the three largest industrial real estate investors in the U.S., which is Ares' highest-conviction global real estate sector and one with favorable long-term demand drivers. Black Creek's 100 investment professionals with locations across the U.S. will also meaningfully enhance our scale and visibility on transactions and market coverage. Importantly, Black Creek also operates one of the top non-traded REIT fundraising platforms in the country, which we believe offers tremendous upside as we use our relationships to expand through global wealth platforms and add new retail-oriented products across all of our business lines. We're very excited about the opportunities for these growth engines as we leverage the power of our platform to enhance investor distribution and eventually expand our products into new business opportunities. With these highly attractive and financially accretive acquisitions in place, we are intensely focused on recognizing the many revenue synergy opportunities in front of us, which we expect will enhance our earnings growth in future years. We also continue to progress with our insurance initiative. With Aspida's recently closed Global Bankers Insurance Group transaction, we added the marketing, technology and infrastructure that will provide the foundation for underwriting new life insurance and annuity products, which we expect to begin next year. We also continue to add new flow reinsurance contracts, and we're seeing a growing number of sub-advisory management services for Aspida's portfolio across the firm. On the investor front, we continue to benefit from the strong secular tailwinds driving the demand for alternative private assets and investor thirst for durable yield. As we scale, more investors are coming on to our platform and then allocating additional funds to us. Investors are finding that we can provide solutions to meet their desire for consistent and attractive risk-adjusted investment returns throughout market cycles. Following our strong first quarter with $10.6 billion raised, we raised more than $20 billion in organic capital during the second quarter, with over 80% of the direct institutional capital coming from existing investors. We saw contributions across all of our investment groups with large closings in U.S. and European direct lending, liquid and alternative credit, real estate, and private equity, including climate infrastructure, secondary solutions, and Asian secured lending. A perfect example of the strong demand that we're seeing is through our first closing of $5.1 billion for our second U.S. senior direct lending fund, which is already in excess of its $4.5 billion target and 70% larger than our predecessor fund size. On this first close, we had very strong participation from existing investors, with 43 out of the total 54 investors as existing Ares clients. Interestingly, our two largest investors in the first close are longtime Ares investors, making their first commitment to U.S. direct lending. We also saw significant support from the predecessor fund investors with over 20 committing and upsizing by 20% on average. Based on anticipated fund leverage, the total fund capital after the first close is expected to be more than $8.5 billion, and we're continuing our fundraising efforts and expect the final size to grow from there. Also, within credit, we followed up with another meaningful close of $1.7 billion for our second U.S. junior capital direct lending fund, bringing total commitments to $3.6 billion, also already ahead of our last fund. We continue to fundraise and expect to exceed our $4 billion target in the near future. During the second quarter, and as we previously announced, we also held our final close for ACE V, which added another €1.5 billion in LP commitments. And by adding in a modest debt facility, ACE V is now over €13 billion or $15.6 billion in size. ACE V is off to an excellent start with more than 20% of the fund already committed with new investments. Our strong and consistent performance within our Real Estate Group and our ability to source and manage off-market assets is translating into significant momentum in our real estate fundraising as well. We held the first close of more than $600 million for our tenth U.S. value-add real estate fund, which is nearly halfway to our target. And we added more than €600 million in our third European value-add fund, including related co-investments. We expect both funds to meet or exceed their targets as well. We also held the final closing of SLO III, Ares SSG's third flagship fund and secure direct lending. SLO III closed on $1.6 billion in commitments, which was approximately double the size of the successor fund, SLO II, and above our target of $1.5 billion. Ares SSG continues to see very strong demand for its products due to its differentiated pan-Asian private markets footprint. We're seeing strong momentum in capital raising through certain perpetual life open-ended vehicles. During the second quarter, Black Creek raised over $600 million of equity and additional $700 million of debt in its non-traded REIT platform. And just after quarter end, we held a $1.6 billion first close on our new open-end core alternative credit fund. This complementary fund, Pathfinder, is also managed by our alternative credit team where they focus on a broad range of core investments backed by assets with contractual cash flows. Looking forward, we continue to focus on launching more perpetual life and open-ended capital vehicles. We have a strong pipeline of funds in the market across all of our businesses, and we expect 2021 will exceed our 2020 record of $41 billion. In terms of larger flagship funds, we expect additional closings in our sixth corporate private equity fund, our second special opportunities fund, our inaugural climate infrastructure fund, our sixth Asian Special Situations Fund, our two aforementioned U.S. flagship direct lending funds, our U.S. and European real estate funds, our 17th private equity fund – secondaries fund, our 9th real estate secondaries fund and our inaugural sports, media and entertainment fund, just to name several. We also have several new strategies that we plan to launch over the next 12 months. Our broader platform has clearly set us up for a deeper and more diverse fundraising pipeline as investor appetite for our private market alternatives is increasing. The investing environment is very attractive, reflecting improving confidence on the part of businesses and investors. In that context, we had a strong deployment quarter with over $10 billion invested, with $8.1 billion in our drawdown funds versus $4.7 billion for the same period last year, an increase of 72%. Our ability to continue to find attractive deployment opportunities across our businesses illustrates the breadth of our extensive sourcing platform, our incumbency advantages across our funds, almost 3,000 portfolio companies and the meaningful competitive advantages that we've created with scale and flexible capital. In addition, we're seeing more companies and sponsors wanting to partner with us after seeing how many traditional sources of capital were less reliable during the pandemic. Many of our investment teams are seeing record levels of activity with strong future pipelines, while at the same time, taking advantage of our significant incumbent relationships to provide capital in situations where many of these transactions never come to the market for competition. And lastly, I'll touch on investment performance. As you can see throughout our earnings presentation, we had another very strong quarter of fund performance across our strategies, including quarterly gross returns in both our corporate private equity and our special opportunity strategies of 15% and U.S. equity real estate returns of more than 14% for the quarter. In our private equity group, corporate private equity and special opportunities achieved gross returns over the last 12 months of 55% and 58%, respectively. Of note, the group's largest fund, ACOF V, fully crossed into the carry during this time, with its since-inception IRR in the mid-teens as of quarter end. We also saw strong direct lending returns, with Ares Capital generating net returns of over 6% for the second quarter and more than 26% over the last 12 months, meaningfully outperforming the high-yield indices. And our liquid credit loan and high-yield composites also continued to outperform the relative benchmarks for the first half of the year. Overall, our strong fund performance more than doubled our accrued net performance income as Mike will touch on in a moment.

Thanks Mike. Hello, everyone. I hope everyone remains safe and well. As Mike mentioned, the second quarter not only represented our 17th consecutive quarter of sequential FRE growth, but our record financial results and capital raising, robust deployment and strong fund performance collectively continue to reflect the continued growth and durability of our uniquely differentiated and diversified business. I’ll start my comments with a review of AUM and fee-paying AUM before turning to our quarterly results as these metrics provide the foundation of our current and future management of performance fees. As of June 30, our AUM totaled $247.9 billion compared to $197 billion at year-end and up more than 56% versus $158.4 billion at the end of the second quarter of 2020. Our AUM growth for the quarter was driven by over $20 billion of capital raised that Mike described and the closing of our acquisition of Landmark Partners in June, which added approximately $19.5 billion of AUM. With over $30 billion of capital raised in the first half of the year, we are well on our way to exceeding the record $41 billion that we raised in 2020. Our fee-paying AUM totaled $153.7 billion at the end of the second quarter, an increase of 46% from prior year, driven by continued strong deployment in our direct lending, alternative credit and special opportunity strategies as well as continued strong fundraising. The closing of Landmark Partners added $16.8 billion of fee-paying AUM during the quarter. Our available capital sits at $76 billion at the end of the second quarter, having a new record high for the firm and up nearly 100% year-over-year. This balance represents a significant competitive advantage for deployment as markets continue to open up further across sectors. Next, I will turn to our earnings for the quarter. For the second quarter, we reported FRE of $146.9 million, an increase of 52% over prior year. Our growth in FRE reflects both continued management fee growth and continued margin expansion. Management and other fees increased to $380.1 million for the second quarter, a 35% increase from prior year. Our second quarter FRE margin of 39% is a new record and is 425 basis points higher than the second quarter of 2020. As you see in our earnings presentation, we ended the second quarter with $42.6 billion of AUM not yet paying fees available for future deployment, a 70% increase from the prior year. The $42.6 billion translates into $400.9 million of incremental annual management fees, which is approximately 30% of our last 12 months’ management fees. These management fees will come online at a higher margin than our currently reported margin as this revenue growth is following expenses that have already been incurred. For example, as we raise a new fund that pays us on invested capital, our cost to raise the capital, the cost for distribution and our IR teams, our investment teams and our business operation teams were already largely reflected in our P&L. This trend is not new and is why you witnessed a continued and more recently accelerating margin expansion. In addition to strong FRE growth, we experienced even higher realized income growth, with realized income for the second quarter totaling $206.9 million, an 80% increase over prior year that was driven through a combination of the over 50% year-over-year FRE growth that I already referenced and an increase of more than 300% in net realized performance income from the prior year period. After-tax realized income per share of Class A common stock, net of preferred stock distributions, was $0.64 per share for the second quarter, up 64% from prior year. We are in a period that provides a strong market backdrop for realizations. And our model is diversified, where we have the opportunity to realize performance income from realizations to the full or partial exit of positions and strategies like private equity and real estate. And our credit business enables us to earn performance income more consistently over the typical life cycle of those funds. The second quarter reflects this as all businesses contributed to our performance income for the quarter, with two-thirds of that income coming from our credit business. We expect this trend to continue, especially as we get into the later part of 2022 and the early 2023 as many of our flagship credit funds are expected to be generating distributions from their European waterfall structures. Sitting here today, we believe the outlook for performance income generation is strong, as demonstrated through our record level of accrued net performance income balance of $615.6 million at quarter-end, an increase of over 110% from a year ago. In addition, incentive-eligible AUM also achieved a new record of $151.3 billion at quarter end, a 65% increase from the prior year. Approximately 58% of our incentive-eligible AUM is currently invested at the quarter end, with 72% of that already incentive generating. I do want to highlight that if you exclude ARCC’s Part II incentive-generating AUM, which we have discussed before, has been episodic and is generating incentives on a recurring basis, approximately 90% of our deployed incentive-eligible AUM is currently incentive-generating. As Mike stated, included in incentive-generating AUM at quarter end was our fifth corporate private equity fund that crossed into carry generation in the second quarter and a strong performance pushed the fund fully through the GPLP catch-up and into full carry mode. We were also very active in the capital markets in the second quarter. In early April, we completed a public equity offering and a concurrent private placement, which raised $828 million. In late June, we took advantage of an attractive rate environment to issue $450 million of 4.18% 30-year fixed rate resettable subordinated notes. And lastly, on June 30, we redeemed our previously outstanding $310 million of Series A 7% preferred stock issuance. Our equity and debt issuances strengthen our liquidity position, which supported the acquisition of Landmark Partners in June and our acquisition of Black Creek just after quarter-end on July 1. Pro forma for these transactions, we remain in a strong liquidity position with low net leverage, and I’m confident that we wouldn’t realistically consider returning to the equity markets for capital in the foreseeable future. Most importantly, we believe that the capital market activities and the acquisitions we made this quarter are meaningfully accretive to our earnings and dividend going forward. As many of you know, in conjunction with the Black Creek announcement, we upped our long-term financial guidance on FRE growth from 15%-plus to 20%-plus, inclusive of these two transactions. And we included a target of 20%-plus growth rate in our dividends per common share. This guidance illustrates the confidence we have both in our core business and the growth opportunity with these two strategic transactions. With that, I’m going to hand this back over to Mike.

Great. Thanks, Mike. As we’ve talked in the past, our industry has been undergoing meaningful transformation and rapid growth, and it’s being driven by secular changes that we believe are accelerating. Institutional investors are increasing portfolio allocations to a broader range of strategies across the risk-return spectrum. We’re seeing increased democratization of alternatives with meaningfully increased retail allocations through multiple channels. And we’re seeing industry consolidation as investors consolidate relationships with larger scale managers, which is driving capital toward platforms like ours, just to name a few. We believe that Ares is at the leading edge of this evolution and that our business has never been better positioned to drive long-term growth and corresponding value for all of our stakeholders. I want to end by expressing my appreciation for all the hard work and dedication of our team. The amazing growth and investment performance that we’ve delivered is a direct result of our employees’ strong commitment to collaborate, work as a team with a shared set of common values. I’m also deeply thankful for our investors’ continued support in our company and confidence in us. And thank you for your time today. And operator, we’d now like to open up the line for questions.

Our first question today comes from Robert Lee with KBW.

Great. Good afternoon. Thanks for taking my question. Maybe Mike and Mike, to start. Just thinking about kind of your initiatives in the high-net-worth market. I mean, you talked about Pathfinder. You’ve got Black Creek now onboard. I’m just trying to get a sense of just kind of the size of distribution resources to more deeply penetrate that market. A combination of maybe what you acquired with Black Creek, plus what you’ve kind of built that organically yourself then maybe to start there.

Sure. Hi, Robert. Why don’t we start with Black Creek and how that changes our resource model and growth opportunity? And then maybe I’ll circle back on other ways that we are delivering product into the retail and high-net-worth channel because I think there’s a lot of attention on non-traded product but maybe not as much attention on some of the in-place initiatives as well in fund structures. Black Creek, obviously, as I mentioned in the prepared remarks, brings a very differentiated industrial, real estate capability to us and core/core-plus product offerings. But one of the biggest drivers of value is going to be pushing more Ares Management product through what we believe is a best-in-class retail platform. As it exists today, largely servicing the U.S. retail investor is an 80-person distribution capability that came with Black Creek. And if you look at the publicly available information, you’ll see that the sales of the Black Creek non-traded REIT product is accelerating. I think it’s a function of good performance but also just a function of increased appetite from the retail investor. So that puts us in a very, very differentiated competitive position in terms of the reach that we have and the number of resources that we have against that market. To remind people, though, we already have a significant amount of product that is touching the retail investor. ARCC, at the top of the list, publicly traded, obviously, has helped build our brand within the retail channel and within the warehouses and RIAs. Hopefully, you saw last night, ARCC continues to grow by accessing the retail market just through regular way equity capital markets activity. Same for our publicly traded mortgage REIT, ACRE, which continues to grow and deliver great performance for their investors as well. So I think it’s important when we’re talking about retail that we do focus on the opportunity in non-traded. That is probably where a disproportionate amount of growth is. But we already have a meaningful leadership position in traditional traded and listed retail product. One other thing I would highlight is at the upper end of the retail spectrum in terms of high net worth and ultra-high net worth, as a regular ordinary course business, we are typically distributing our institutional fund product into that part of the market through our relationships with the private banks as well as direct through our institutional fundraising resources as well. So very bullish Black Creek will transform our capability. We believe we already have a leadership position. We think that this will accelerate it and look forward to keep you guys updated on our progress there.

Great. Thanks, Mike.

Our next question comes from Alex Blostein with Goldman Sachs.

Hi, guys. Great. Good afternoon. I was hoping to start with a question around direct lending market. Mike, thought your comments were interesting with more sponsors looking to partner with Ares, I guess, on the back of some of the challenges they face with syndicated markets amid the pandemic last year. I guess as you think about the market opportunity here, what do you see as direct lending share of sort of sponsor-backed loan market today? What do you think that could go realistically? And kind of how does Ares’ market share within that market is evolving?

Yes. It’s a good question, and I don’t think I can give you a specific answer to the sponsor’s share. And part of that is because the sponsor’s share of the liquid markets moves around. And obviously, the private markets, while they’re getting a little bit more transparent in terms of size and scope, we don’t have perfect information. I’ll let maybe Kipp or someone else correct me if I’m wrong, but I would say if you look at historical averages, sponsor-backed issuance has probably been in the 25% to 30% of that addressable market range. And we are seeing a disproportionate amount of sponsor activity coming out of the liquid markets into the private markets for all the reasons that we talked about around certainty of closing, speed of execution, flexibility of capital and so on and so forth. Obviously, if you look at the current addressable market, we’re probably talking about a $1.5 trillion TAM as we see it today in the U.S. alone, and the European market is very quickly catching up to it. So, one of the reasons you’re seeing such good continued and consistent growth in our direct lending franchise is the market is growing and we’re taking share in that growing market. But our market share, despite all of our growth and size and competitive advantage, is still pretty small. You could cut it in many different ways, but it’s probably somewhere in the 3% to 5% range in our most mature direct lending franchises and in our most mature markets, which we think leaves us a lot of white space for growth in our mature markets but obviously, significant growth in the markets that are still evolving and developing. I would expect the trend to continue. Most sponsors are, I think, now convinced of the value proposition of private market execution. Clearly, there is a size of company or a type of company that will be able to get better price execution in the liquid markets, so it’s not going to be a death knell for the liquid markets. But I think at the lower end of those markets and the upper end of the private markets, you’ll continue to see private markets taking share and the bigger platforms taking a share of that private market share gain.

Great, helpful context. Thanks for that. And then just my follow-up question for the other Mike maybe around a couple of numbers here. So one, could you help us with Black Creek’s revenue and expenses for the third quarter? And I guess, how do you plan to squeeze incentive fees from that business? Is that going to be part of the FRE or not? And then just maybe broadly, given the number of moving pieces, can you help us with a sort of pro forma jumping-off point for FRE and margins into the third quarter? And I know I think you said ultimately, you expect FRE margins to go up from there. So maybe a comment on kind of how you see that margin evolving over the next 12 months. Thanks.

Alex, with respect to Black Creek, we don’t really have much more to say than we’ve already said because we want to go through a full quarter of actually, I mean, part of the firm. So I don’t want to sit here on July 29, give an estimate for a portion of our business for the full quarter. It’s just a little early for that. As we’ve said before, in addition to the strategic accretion and how excited we are about Black Creek that Mike talked about, we do believe Black Creek’s going to be financially accretive. But again, it’s going to be one quarter, so as a percentage for the whole firm, I don’t think it’s overly material for a given quarter. When you think about the margin, you saw us progress to 39% this quarter. I don’t expect, again, Black Creek to materially move up or down. And I think our trajectory is, as we’ve been showing, continued margin expansion. I expect that to continue.

Thanks.

Our next question comes from Gerry O'Hara with Jefferies.

Great. Thanks. With, I guess, the two most recently announced deals kind of coming through and I think some prior commentary this morning about filling some of the product gaps, can you perhaps give us a little sense of where the M&A strategy might kind of progress from here, where there might be additional opportunities to fill any other gaps or just broadly how you’re kind of thinking about that sort of strategy on a go-forward basis? Thank you.

Good morning, Gerry. So, I’ll just quickly reiterate what we’ve said in the past, which is the bar for M&A is getting higher, both because our product set and capability set is getting deeper and more developed. But as we scale, our ability to organically grow businesses is improving dramatically. And so, the buy versus build equation is shifting towards building versus buying. And so, we buy typically when we see a large market opportunity that we believe we want to accelerate into. So, using secondaries as an example, as I mentioned in the prepared remarks, we think that that market is going through transformational change. And in order to really take advantage of that growth opportunity globally, you need to do it with a scaled capital base, a history of information advantages and technology and track record. And so, while we could build a secondaries business organically and have been investing in and around that market, our view was, in order to really have the meaningful position that we wanted to, given our capability set, that we would buy it. So, the filter of financial accretion, strategic accretion and cultural fit is still there, but maybe I would add, we have to have conviction in a growth market where we have a sense of urgency about acquiring capability or a position in that market, Black Creek and Landmark being two great examples of that. And going back over a year, SSG providing us a beachhead into the growing Asia Pacific region would be another. There are very few opportunity sets as I see them globally in alternatives where I have that sense of urgency right now. We have talked about historically the opportunity that we see in global infrastructure and non-energy infrastructure in the U.S. Obviously, there is the potential for increased fiscal spend to support the growth of the U.S. market that’s also informing our view of what the business could be here. We have a meaningful infrastructure equity and credit business and continue to scale that quite nicely organically. But as I've mentioned on prior calls, I think that would be an example of maybe an area where with increased global growth in that market, we may do something inorganic that would complement what our current capability set is. So, the list is getting shorter. We have a lot of opportunity in front of us to continue to drive revenue synergies with the core business and the acquisitions that we've made. I'd make one final comment, which is, I think, just an important reminder. When we are growing businesses, the playbook is the same, right? It's acquire, retain and advance great talent. It's scale our capital. It's broaden out the product set. It's globalize investment origination, all the things you've seen us do. And that playbook is the same whether we're making an acquisition or building something organically. So, I'd encourage you guys to think of the question of buy versus build is really what's my entry point? But from the point that something enters the firm, whether it was acquired or built, we're executing on growth identically. And that's why we've been so confident making these tuck-in acquisitions into these markets just because of the proven ability to build organically as well.

All right, that's helpful. And then maybe just kind of picking up on some comments around the Landmark deal, I think you mentioned a range of synergies and product extensions. I know it's still – it's probably too early, but is there anything you might be able to elaborate on there? Perhaps a teaser as to what some of those product extensions might be? Or just any additional color would be helpful. Thank you.

Yes, sure. Happy to. So Landmark obviously has been in the secondaries business for 30 years. I think it's safe to say that they pioneered the industry. They have an incredible track record. They are currently in the market with their 17th private equity fund, just to give people a sense for the depth of experience there, and they're in the market with their 9th real estate fund, again just to demonstrate the depth of experience there. Recently, they closed on their second infrastructure fund. So, as we talked about when we were making the acquisition, the transformational growth that we're seeing in secondaries is in a couple of areas: one, there's a shift from what I would call LP-led to GP-led, meaning we used to provide secondary solutions to institutional LPs that were looking for liquidity within their alternatives portfolios. Now we're looking at providing liquidity solutions to GPs within their portfolios, either to own a great asset longer, fund strategic initiatives within the holding company and so on and so forth. That shift obviously plays into our strength, given our market-leading GP coverage network through our private credit business and our real estate businesses. It also plays to our strength as a direct investor whereas this market evolves, we'll be making much more single-asset and multi-asset buys versus big portfolio buys. Two, the growth is being driven by a shift away from private equity into places like real estate and infra and now credit. And three, it's being driven by what I would call just generally a globalization of the business, whereas to start, you've seen a lot of volume in the U.S. market and the European market. We're seeing Europe accelerate and Asia accelerate as well. And then fourth, back to the question on Black Creek, I think that as you think about the reutilization of private equity, particularly some of the questions or some of the opportunities that are being talked about to allow for private equity ownership within 401K and defined contribution plans, the best way to access that exposure will be through secondaries portfolios. And so, we think that, that should create an opportunity as well. So long-winded answer, with that as a backdrop, I think the big growth areas are continue to grow the core, which they are doing; add credit because we have a market-leading credit business and should be able to add value there; three, globalize the product offering; and maybe four, leverage our capabilities and our growing retail distribution capability to start to think about how we deliver that product into the retail channel.

Really helpful. Thanks for taking my questions this morning.

Our next question comes from Kenneth Lee with RBC Capital Markets.

Hi. Thanks for taking the question. Just one on the Apsidal business. Wondering if you could just talk about how you currently see the opportunity for potential sizable reinsurance transactions in this environment? Thanks.

Yes. I'm glad you asked. We are thrilled with where we are on the Apsidal business build. As folks have heard us say before, we have chosen to take a modest inorganic start to the business but are really focused on growing that business organically through our distribution of fixed index and fixed annuity products as well as the growth of the reinsurance business. To remind people, the basis or the foundation for that business build is coming through two acquisitions that have closed. One is the acquisition of F&G Re, which has been rebranded Aspida Re. Hopefully, you've seen we've been adding a significant amount of talent into that business, not the least of which is John Steffen, who just joined as the president of Aspida Re, previously with Athene. We continue to add new reinsurance treaties; we're adding new flow agreements. And I'd say both the growth in flow agreements and the pipeline of inorganic opportunity there is probably better than we expected it to be. And I think that's a reflection of the market backdrop but also the quality of the people that we're putting around that business. With regard to the life business, hopefully, folks saw, we finally completed, which better late than never but finally completed the acquisition of Global Bankers or GBIG, as we call it. We're surrounding that servicing and distribution capability with a 48-state life insurance business, and we think that we will be actively writing new business early in 2022. At the end of Q2, we had close to $3 billion, about $2.7 billion of AUM on the platform and growing, and that's obviously before we were tackling the organic build. So really happy with the progress. It's doing everything we hoped it would be. We're attracting top-flight talent. And I think the market backdrop is great, both for the organic and to your question, the reinsurance acquisition pipeline is pretty robust right now, both for small deals and some larger things as well.

Great, that's very helpful. And just one follow-up, if I may, just in terms of the change in FRE growth outlook to that 20%-plus range. Was that mainly due to the benefit from Landmark and Black Creek? Or were there any other factors that we should be cognizant of? Thanks.

No. I mean, look, we obviously did it including Black Creek and Landmark. But as you've seen, we've been running, obviously, well north of 15% growth. So, we thought it was the right inflection point with – announcing the acquisition of Landmark or certainly of Black Creek to update that outlook. But I would – I’d say it’s a combination of adding those businesses, and what you’ve seen is our strong organic growth ex those businesses.

Great. Very helpful. Thanks again.

All right. Thank you.

Our next question comes from Michael Cyprys with Morgan Stanley.

Hi, good afternoon. Thanks for taking the question. You guys mentioned the opportunity set in the private REIT space, but just curious to hear your perspective on potential for a private BDC. You manage the leading listed BDC, but could there be an opportunity on a non-listed BDC or is that a conflict to have both? And if you – and if it’s not and if you were to go down that path, how might that sort of structure differ just in terms of economics and investment strategy if you were to have a private non-listed BDC?

Yes, it’s a good question. I mean, in terms of a BDC structure used to do what we currently do, there’s really no strategic rationale to do that. We’ve got a close to $18 billion publicly traded balance sheet with a high investment grade rating, consistent access to the debt and equity markets, lots of diversification, 17-year track record of outperformance. There’s really no rationale for a private BDC that would mimic things that we’re doing elsewhere today. I’d remind folks that we do already have a growing interval fund product that is a diversified credit product that is investing across the broad spectrum of what we do at Ares in the liquid and illiquid credit markets. And that’s a good example of how we’re using the non-traded markets to diversify and differentiate the capital but not really cannibalize or compete with the core business. I could imagine there may be certain industry-specific strategies or specific corners of the market where a private BDC would be the most efficient place to grow. And so, I wouldn’t rule that out as an avenue for growth, but it would be for a product that is kind of a non-ARCC type product. If we did it, I have high conviction in our ability to access that market, just given the success of our listed BDC as well as the private market and wealth relationships that we have. But I don’t think that we have the same urgency to hit that market the way some of our peers are doing. To your question about economics, it’s hopefully not lost on people, too, that the economics in that market, at least from the management standpoint, you have a lot of people who are discounting fees in an effort to try to raise capital in that market. And while we obviously are always thinking about the balance between our private investors and our public investors, we’re not really in the business of doing that and nor do we think that we have to.

Great. Thanks. And just maybe a follow-up question, if I could. The U.S. direct lending fund, I think you mentioned you’ve already raised over $5 billion. Can you just talk a bit about the outlook for putting that capital to work, the types of transactions you may anticipate playing that into? Is that all sponsor-financed? Is there anything outside of sponsor-financed? And how do you see the opportunity set evolving?

Sure. So there, we specifically referenced two funds and maybe kind of mentioned a third, but let’s hit each of them. So, these are both flagship funds. They’re the second fund in their families. The first one is what we call SDL, Senior Direct Lending. It is a senior secured lending product focused on the U.S. market. It is not exclusively sponsor-financed. But again, back to the earlier commentary, a large percentage of that market is sponsor-driven. Our first fund was about $4.5 billion, maybe $4 billion. We put $4.5 billion target for our second fund. We've already had a first closing well in excess of $5 billion and that fund will take on leverage. So, a lot of demand for the product off of great performance in Fund I and just people wanting to access our U.S. direct lending franchise. Sorry, Fund I was $3 billion. So, we don't know where that will land. We'll have an update for you all next quarter and as we get into the end of the year, but clearly, will be a sizable fund well in excess of the target. Already actively deploying into that market and no real change in strategy there. The second fund is what we call our private capital solutions fund or credit solutions fund. It's a junior capital fund. Our first fund there, again, I think, was about $3.4 billion. We've already raised $3.6 billion into Fund II against the $4 billion target. My expectation is we'll meet or exceed that target as we head into the end of the year as well. So those are two institutional U.S. direct lending funds, one senior secured, one junior, and they obviously complement the BDC and our SMA portfolios as we think about just different investor bases, different types of capital and that flexibility and scale benefit that I talk about so often. The third fund, which is not in that core direct lending but is effectively a direct lending fund, is our sports, media and entertainment fund, which I mentioned, is off to a great start, both in terms of fundraising and capital deployment. I think I mentioned that only because it's a good example of the type of step-out strategies that we can scale organically in industry verticals off of the core franchise.

Great. Thanks so much.

Sure.

At this time, I'm showing no further questions, so I'd like to hand the call back to Michael Arougheti for any closing remarks.

Great. Thank you. And again, I just want to reiterate our gratitude for your continued support of the company and appreciate your time today. I do want to remind folks that we will be hosting our annual Investor Day on August 12. So please save the date, and we will be coming back with more details in the near future on that and so look forward to speaking to many of you on the 12th. Have a great week.

If you missed any part of today's call, an archived replay of this conference call will be available through August 26, 2021, by dialing 877 344-7529 and to international callers by dialing one 412 317-0088. For all replays, please reference conference number 10156452. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website.