Welcome to Ares Management Corporation's First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Thursday, April 28, 2022. I will now turn the call over to Carl Drake, Head of Public Markets Investor Relations for Ares Management.

Good morning, and thank you for joining us today for our first quarter conference call. I'm joined today by Michael Arougheti, our Chief Executive Officer; and Jarrod Phillips, our Chief Financial Officer. We also have a number of executives with us today who 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 in 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 first 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 second quarter common dividend of $0.61 per share of its Class A and nonvoting common stock. This represents an increase of 30% over a dividend for the same quarter a year ago. The dividend will be paid on June 30, 2022, to holders of record on June 16. Now, I will turn the call over to Michael Arougheti, who will start with some quarterly financial and business highlights.

Thank you, Carl, and good morning. I hope everyone is doing well. During 2021 and especially the fourth quarter, the financing markets were incredibly active, which led to record investment activity for us across most of our strategies. During the first quarter of '22, the Fed stepped up its fight against inflation and we saw a sharp rise in interest rates. The beginning of a protracted war in Ukraine and prolonged lockdowns in China added further uncertainty and volatility to the typically seasonally slow first quarter. As a result, across many markets, general transaction activity slowed, yet some financing activity that would typically have tapped the traded markets shifted to the private markets, where there is more certainty of execution and increasing scale to manage larger transactions. At Ares, it is part of our DNA to navigate volatility and to find opportunities in transitioning markets. To that point, despite the challenging backdrop, we continued our strong growth in the first quarter across all of our key financial metrics. On a year-over-year basis, our management fees and fee-related earnings increased 47% and 59%, respectively, and our realized income increased 62%. Importantly, our fee-related earnings accounted for 93% of our realized income for the first quarter and over 81% for the last 12 months. Our core FRE growth of 59% is especially gratifying in the face of this volatility, and we believe that our prospects remain bright for continued strong growth across all five of our business groups. With a record $92 billion of available capital to invest, a robust fundraising pipeline over the next 18 months, and compelling fund performance, we believe that we have strong visibility for continued growth in earnings over the coming quarters and years. Despite increasing interest rates, the global search for reliable income continues unabated, as investors are continuing to see premium returns over the liquid market equivalent with less volatility. During the first quarter, we raised $13.7 billion of gross capital as new and existing investors allocated funds across our broadening platform. Existing investors accounted for more than 90% of our direct capital raise during the first quarter, and we expect this general trend to continue, as we remain largely underpenetrated with our existing investor base. We believe our continued strong growth reflects our investment performance, the continued scaling of our existing strategies, and our expanding offering of new investment strategies and solutions, designed to serve our clients. We continue to aggressively expand in all three of our distribution channels: institutional, retail, and insurance, to add investors and to capitalize on the long-running growth trends in these markets. Notable highlights for the first quarter included additional closings for several commingled funds in the market, a $1.1 billion first close on our sixth European real estate opportunistic fund, $900 million for our sixth Asian special situations fund, $1.1 billion across our two Landmark secondaries funds, $600 million for our special opportunities fund, and $400 million for our new APAC direct lending fund. Our perpetual capital funds also continue to scale. And in the aggregate, we're 63% higher year-over-year, reaching $83 billion or more than 25% of our AUM. One notable first quarter highlight was the reopening of our core alternative credit open-ended fund, where we raised an additional $1.1 billion. Our forward Black Creek nontraded REITs, now branded as Ares REITs, also continue to scale and benefit from being part of the Ares platform. For the first quarter, our two nontraded REITs saw inflows totaling $900 million, and performance continues to be strong. Our credit interval fund also continues to scale with more than $0.5 billion of new commitments, and collectively, our perpetual capital flows totaled $5.8 billion in the first quarter. Looking out over the next 12 months, we expect to have more than 25 different commingled funds in the market, including several of our largest flagship funds expected to launch toward year-end. We expect 2022 will be a solid year of fundraising, but the timing of these large flagship fundraises will ultimately dictate the final tally for this year versus next year and in relation to last year's record fundraising levels. We ended the first quarter with $325 billion in AUM, up 57% versus the same period a year ago. The vast majority of our AUM growth continues to be organic, but we have made strategic acquisitions in segments that we believe are experiencing significant investor demand and that present attractive growth opportunities. A great example of this is the acquisition of our new infrastructure debt platform, which closed during the first quarter. We believe that infrastructure needs globally will be significant in the coming decade, driven by population and economic growth, increasing privatization of infrastructure assets, the global energy transition, and the shift to sustainable and digital infrastructure. The team is integrating well, we're having positive fundraising discussions, and we expect to have more to report on this next quarter. We believe that our infrastructure debt business is uniquely positioned to meet the need for capital in this space by offering a variety of credit solutions across industries and geographies. We continue to expand our Ares Wealth Management Solutions business, which we believe is the second largest wealth distribution platform owned by any alternative manager. The group now has over 105 professionals, and we are seeking to expand our geographic reach into new overseas markets and to enhance our capabilities. We continue to make progress increasing our distribution with wirehouses and large private banks, and we expect to see this begin to reflect in fundraising later this year. On the new product front, we leveraged our secondary solutions experience to launch a new secondary private markets fund with more than $250 million, including the seed backing of several institutional investors. In addition, we filed for a new nontraded BDC, which is an area where we have significant experience as one of the largest BDC managers in the country. We continued our momentum in the first quarter, raising over $2 billion in the retail channel and our retail AUM now stands at $56 billion as of March 31. We expect retail fundraising will continue gaining momentum in the coming quarters and years. Despite the seasonality and volatility that I discussed earlier, we were still active making investments across our strategies during the first quarter. Certain markets were more impacted temporarily by volatility, and this created trading and special situations opportunities for us, whereas other markets remained active, which is driven by strong secular trends. We demonstrated the flexibility, scale, and breadth of our investment capabilities as we invested more than $16 billion for the first quarter, which compares to just under $13 billion a year ago. In credit, we experienced a 30% year-over-year increase in deployment activity. We continue to focus on high-quality franchise assets that we expect will continue to grow and perform well throughout market cycles. To that point, earlier this week, we entered into an agreement where our credit funds will purchase a $2.4 billion middle market direct lending portfolio from Annaly Capital Management. As a major player in the direct lending sector, we knew this portfolio quite well, and this portfolio acquisition will serve to accelerate our deployment, provide incumbency benefits on new portfolio names, and further solidify our relationships with existing and new sponsors. Deployment across real estate was also strong in the first quarter, up 90% year-over-year, including the additional deployment we're seeing in our recently acquired industrial funds. In terms of fund performance, rising inflation and interest rates had only a modest impact on certain segments of our portfolio for the first quarter. Real estate continued its strong performance as the US real estate equity composite generated gross returns in the first quarter of 10.4% and 68.1% for the last 12-month period, and our European real estate equity composite had gross returns of 5% in the quarter and 32% for the last 12 months. Our US and European real estate portfolios continue to benefit from an overweighting to industrial and multifamily properties with significant underweights in office, retail, and hospitality. In our nontraded REITs, the performance remains excellent with AI-REIT generating a first quarter net return of 17.2% and A-REIT generating a first quarter net return of 7.5%. The performance in our nontraded REITs was driven by the strong trends in industrial and multifamily property types, submarket selection across our portfolios, high rent growth and utilization rates, and higher new rental rates on completion builds above our underwriting base cases. All of these factors led to strong growth in net operating income across our assets. Within credit, our private credit strategy has generated strong returns in the quarter. Our flagship US direct lending fund, Ares Capital Corporation, generated a net return of 2.7% in the first quarter and 19.1% for the last 12 months. Our European direct lending strategy generated steady gross returns of 2.3% for the quarter and 12.7% for the last 12 months. Our performance benefited from our asset selection with a focus on defensive industries, along with a predominantly senior secured floating rate portfolio. In liquid credit, we outperformed our benchmarks in our high-yield and global multi-asset strategies for the first quarter and 12-month periods, with slight underperformance in syndicated loans in the first quarter driven by the inclusion of high-yield baskets in some of these portfolios. And in Asia, our special situations fund composite generated a gross return of 0.6% in the quarter and 18.1% for the last 12 months. Our private equity returns continue to outperform the volatile public equity markets. Our ACOF composite generated gross returns of negative 1% in the first quarter and positive 30% for the 12-month period, while Ares special opportunities generated gross returns of 2.4% in the first quarter and 36% for the last 12 months. Our secondary strategies also continued their strong performance, with private equity generating gross returns of 4.6% for the quarter and 43.5% for the trailing 12-month period, while real estate generated gross returns of 12.2% for the quarter and 54.5% over the trailing 12 months. With that, I will now turn the call over to Jarrod to walk through the first quarter financial results. Jarrod?

Thank you, Mike. Hello everyone, and thank you for joining us. As Mike stated, despite the typical seasonal slowdown, which was compounded by increased market volatility, we achieved strong year-over-year growth in management fees, fee-related earnings, realized income, and RI per share of Class A stock. Our fundraising platform continued to drive strong organic growth of $13.7 billion. When combined with the AMP acquisition, our AUM totaled $325 billion at quarter end, up over 6% in the quarter. Starting with our revenues, our quarterly management fees increased 47% year-over-year, due to strong growth in fee paying AUM. The stability of our management fees was evident, as 94% of our management fees came from either perpetual capital for long-dated funds, which allows us to manage our assets with a long-term perspective. We had a small amount of fee-related performance revenues in the first quarter from our managed accounts and credit, but as we've stated previously, we expect 90% plus of FRPR will come in the fourth quarter, as our retail funds and perpetual managed accounts typically crystallize their fees at year-end. Other fee income increased to approximately $20 million in the quarter, more than triple from the previous year, with the increase driven predominantly by property development-related fees from our non-traded REITs in addition to our typical capital structuring and origination fees in certain of our direct lending perpetual funds. For the first quarter, we generated $205.7 million of FRE, an increase of 59% over the first quarter of 2021, and it accounted for over 90% of our realized income in the quarter. Our FRE margin for the first quarter totaled about 40%, which was up slightly over the fourth quarter and up 150 basis points versus the first quarter of 2021. We believe we continue to be on track for our 20% compound annual growth in FRE and dividends per Class A common stock through 2025 and our 45% plus target run rate FRE margin by the end of 2025. Due to the market volatility in the first quarter, realization activity was more modest, with $15.3 million of realized performance income. However, our accrued net performance income increased 5.3% in the quarter and is up 100% year-over-year to $850.8 million, reflecting the strong performance of the portfolio and the growth in future realization potential. The increase was led by returns on our credit group, which is largely based on cash yields from the portfolio. We expect a limited impact to asset prices from rising rates as 90% of our debt assets in our credit group are in floating rate instruments. We expect to benefit from the floating rate nature of these assets as interest rates increase further. Going forward, we believe the companies in our credit portfolio have built significant cushions to absorb the impact of rising inflation and interest rates. For example, our largest credit fund, Ares Capital, which we believe is generally representative of much of our senior direct lending portfolio reported that its average loan to value in its portfolio was historically low at 44%, net interest coverage stood at 2.9 times which is above the 10-year average of 2.6 times. In addition, the strong performance in our non-traded REITs in the first quarter drove an accrual on the REIT's balance sheet of $95.5 million of gross performance participation for Ares. While this value is not included in our accrued net performance income or our fee-related performance revenues since it remains subject to the fund's future returns, it is a strong start to the year for these two funds. At our Investor Day last year in August, we outlined the potential for $1.5 billion of net realized performance income from European waterfall style funds based on the AUM we had in such vehicles at that time. Since our Investor Day, we've raised an additional $24.5 billion of AUM in European-style waterfall funds that were not included in that forecast. Looking at our current accrued net performance income of $850.8 million, $531 million, or just over 60%, is in European-style waterfall funds. We believe a portion of this amount will be recognizable over the next few years, and our second quarter's realizations in this area are already pacing ahead of our first quarter's levels. Realized income for the first quarter totaled $222 million, up 62% from the first quarter of 2021. After-tax RI per share of Class A common stock was $0.65 for the first quarter, up from $0.46 in the first quarter of 2021. Turning to AUM and related metrics. Our assets under management totaled $325 billion, an increase of more than 6% from the fourth quarter and up 57% from $207 billion in the first quarter of 2021. Our AUM growth in the first quarter included $8.2 billion from the acquisition of AMP's infrastructure debt business. Our fee-paying AUM totaled $199 billion at quarter end, an increase of approximately 6% from the fourth quarter and up over 55% from the first quarter of 2021. Our growth in fee-paying AUM was primarily driven by a meaningful deployment in our direct lending, alternative credit, real estate debt, and special opportunity strategies, which are paid on invested capital, along with $5 billion in fee-paying AUM from the infrastructure debt acquisition. With market volatility likely to be a constant theme through 2022, we're well-prepared to take advantage of opportunities. Our available capital grew to a record $92.4 billion, an increase of over 62% year-over-year. We ended the quarter with $58.2 billion of AUM not yet paying fees that's available for future deployment and if deployed corresponds to potential annual management fees totaling $557 million, which represents over 30% of our last 12 months total management fees. Our incentive-eligible AUM increased by 5% quarter-over-quarter and 54% year-over-year to $191.8 billion. Of this amount, $71.4 billion was uninvested at quarter end, which represents a meaningful amount of potential future value creation opportunities for us. Earlier in the first quarter, we opportunistically accessed the debt markets before the spike in interest rates and successfully issued $500 million of 30-year fixed rate senior notes with a coupon of 3.65%. Following this issuance our rating agencies have affirmed our company's investment-grade rating, and we're well-positioned with ample liquidity and a balance sheet light business model. We believe this business is well-prepared for any market uncertainty ahead of us. The combination of our management fee-centric business model, the perpetual and long-duration nature of our assets and a substantial portion of our AUM in credit-related or inflation-protected assets, we believe will serve to reduce the volatility in our core financial metrics. When coupling our ample liquidity with our substantial amount of available capital of $92 billion, we believe we're well-positioned to be opportunistic in a potentially more attractive investing environment. I'll now turn the call back over to Mike for his thoughts and concluding remarks.

Thanks, Jarrod. Over the past few months, we've received many questions from investors about how the business may be impacted by the uncertainties ahead of us. Ares is purpose-built to not just withstand, but to excel during turbulent markets. We employ a management fee-centric model and an asset-light balance sheet, which helps drive stability. We invest primarily in floating rate credit assets in real assets that have some degree of inflation protection, and we take a growth mindset in our private equity strategies, while using structural protections to protect downside risk. We also have extensive restructuring and distressed investing capabilities embedded in a variety of our strategies. We have a demonstrated track record during volatile markets, and we've generated some of our fastest AUM and management fee growth through periods like the Great Financial Crisis and the recent COVID pandemic. For these reasons, we remain confident in our growth trajectory, including our long-term AUM forecast of $500 billion or more by year-end 2025. I want to end by expressing my appreciation for all of the hard work and dedication of our employees around the globe. I'm also deeply thankful to all of our investors for their continued support of our company. Thanks for your time today. And operator, with that we can open the line for questions.

We’ll now begin the question-and-answer session. And our first question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Good morning, Michael. Hope you and the team are doing well.

Hi, Craig.

So we heard Kipp's commentary on the ARCC call about being more selective and building liquidity, but I wanted to get a sense of the overall credit quality migration of the portfolio. So I was wondering if you could comment on high-level trends like restructuring activity, early-stage delinquencies, non-accrual inflows and not just at ARCC but across the global direct lending business?

Sure. Thanks, Craig. I'm glad you opened with that because I think there's maybe a little bit of a misunderstanding about the durability of the private credit asset class in this type of environment. What makes this so unique is we're going into this rate hike cycle with positioning at or near all-time highs in terms of the credit quality of the book any way you look at it. As Kipp talked about, if you look at the year-over-year EBITDA growth within the ARCC portfolio, which is indicative of what we're seeing across the board, we saw 20% year-over-year cash flow growth. I don't think that we've seen that before. That book is positioned with three times interest coverage against prior cyclical averages in the low 2s. We had almost record low non-accruals at 1.2% at cost. We are entering at very low loans to value. In that portfolio, we were attaching at about 45% loan to value, so a significant amount of credit support below. While I understand that there are folks who are used to expecting credit deterioration in rising rate environments, the reality is there's a long way to go before we would see a rise in rates materialize as increased defaults and even loss given default in the book. More importantly, given the floating rate positioning of all of these private credit assets, we would expect the next 100 or 200 basis points of rate increases to be significantly accretive not just to those portfolios but to the P&L of Ares Management. I think Kipp articulated on the ARCC call, that if you were to look at the existing positioning of that book, the first 100 basis points we absorbed just based on the in-place LIBOR floors. If you were to expect a 200 basis point increase in short-term rates, that would increase their earnings in excess of 25% from where they are today. I think that's a pretty consistent positioning across the board. I would drill down a little bit too; whether we're talking about mortgage loans, infrastructure loans, corporate loans, we are the top of the capital structure in most, if not all, of these situations with control. I would not underestimate the value of that equity subordination that's reflecting those loans to value as we work through the market transition. While there's a lot to be mindful of given everything that's happening in the economy, as well as the rate backdrop, these tend to be pretty attractive markets for us. One last thing, if folks want to look at public information, if you go back and look at the last two periods of rate hikes, what you'll see both across the syndicated loan and high-yield market but also within the BDC space is that default performance through those periods of rate escalation were below historical averages. That's a combination of cash flow growth outpacing the rise in rates, along with the benefit of some of this equity subordination that I talked about. So I think we're in a pretty good spot.

Thank you, Michael. Very helpful. Just had a follow-up on inorganic opportunities just seeing what you guys did with the Annaly exit earlier this week, which provided you an FRE accretive opportunity, and just thinking back to the last big bad bear market when you guys acquired the Allied business. Are you seeing other properties like that, especially in the BDC space, which could be accretive for Ares?

Yes. I would say it's an interesting distinction, Craig, because you look at an Annaly or an Allied, and those are obviously inorganic, but those project much more like portfolio purchases than some of the platform acquisitions that we've made. Both are accretive, both add value in different ways. We are seeing, even in the early days of the market transition, more opportunities and productive dialogue around asset portfolios today. I think Annaly is a great example of that. Some of that is the liquidity position of other players in the market and some of it is, in the case of our friends at Annaly, a repositioning and refocus on core strategies, and I would expect we’ll see more of them.

Thank you, Michael.

Thanks, Craig. Do well.

The next question comes from Robert Lee with KBW. Please go ahead. Robert, if you’re speaking, your line might be muted.

Sorry about that. Yes. Thanks for taking my questions. Appreciate it. Mike and everyone’s doing well. I wanted to talk a little bit about fundraising. Obviously, you talked about your outlook. But can you maybe talk a little bit about what you're seeing from the LP side? I mean, obviously, there's been a lot of discussion about PE cycles maybe getting drawn out, but maybe other asset classes having more continued demand. Could you maybe speak a little bit to what you're seeing? And then also remind us as you get to the end of this year into next year which flagship funds you may be coming back to market with?

Sure. There are probably two or three things to unpack, Rob, so I'll try to hit them in order. But maybe just as a quick reminder because we talk about an overarching secular trend in our market which is just the consolidation of share in the hands of the larger platforms across the alt landscape, and that is continuing. I think that folks like Ares are having a slightly different experience than maybe smaller or single-asset managers. That's being reflected in the fundraising. The good news is if that trend were to affect us, we just brought our second special ops fund out of the market at the hard cap, and the ACOF fund family is not in the market today. That is a fund, to your latter question, Rob, that we would expect will be coming sometime towards the end of the year or early next year depending on deployment. We're not seeing any slowdown in the demand for the real asset side of the business or the credit side of the business. Uniquely, and we talked a lot about just the fundraising backdrop coming into this year, 2021 was a record year. We went in with similar commentary to what we told all of you at the beginning of this year, which is we've got great momentum and great diversity of strategies, and some of this will be timing. I think we had a solid first quarter at $14 billion. But what's unique about the first quarter is, for the first time in a long time, there's no flagship fund in there of scale. You'll see just a broad distribution of capital gathering across a host of strategies, as well as that higher floor that we're now getting from our perpetual capital vehicles, retail vehicles, and CLO franchise. So, you're beginning to see the benefit of that diversification and retail positioning. The delta, as we get into the back half of this year, is to kind of how big of a year it will be relative to last year. A couple of big funds will be our European direct lending fund, obviously one of the larger fund families on the platform. Deployment has been ahead of pace and that is one that I could see coming back to market a little earlier. Similar with some of our flagship US private credit funds, our climate infrastructure fund, I mentioned, ACOF. So there's a not insignificant number of the larger funds that we're probably looking at for 2023 that may get pulled forward based on deployment at that time. We'll see as we get through the year; it's really going to function depending on what the investment environment looks like and how the deployment pace picks up.

Great. That was helpful. Thanks for taking my questions.

The next question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Good morning, Mike. Building on your previous point about capital deployment, could you elaborate on your deployment strategy within credit? Considering that sponsor activity has slowed down, even if it's just temporarily, how do you see the reliance on the sponsor community affecting Ares' ability to deploy capital in credit? Additionally, how does that relate to potentially writing larger checks? We've observed several sizable unit tranche deals that you and others have participated in, alongside some opportunistic deployments that may arise from distressed opportunities. Can you provide more context on this? Thank you.

Sure. I'm just going to start with where you ended, because we hinted at this in the prepared remarks. Because of the diversity of our strategies, we're deploying pretty consistently quarter-to-quarter. Where that deployment comes from is a function of what the market environment is. If we're in an environment where new M&A transaction volume is lower, particularly within the private equity space, that probably means that we're more actively deploying in our special sits, opportunistic credit, and alternative credit portfolios. What's happening is we're broadening out the scale and flexibility of the strategies. You're seeing more consistent deployment quarter-over-quarter. You look at what we did in Q1 across the entire platform, both drawdown and non-drawdown funds, we deployed about $16.2 billion, which is 25% plus higher than the first quarter of 2021. We will only know more as we get into the year because Q1 is seasonally slow. If you look at the ramp in transaction volume last year, a lot of that volume showed up in Q3, and particularly in Q4, so we're actually quite optimistic, given the year-over-year trend that the deployment pace will continue. We're not quite sure exactly where it's going to show up. Kipp, I think did a good job articulating some of the benefits of our market position in terms of deployment. We've articulated every quarter, the value of these incumbent relationships we have both within the existing portfolio and within the existing equity community. Q1 is a good example; two-thirds of the deployment of the BDC came from within the portfolio, and that opportunity to continue to deliver capital into the names that we know as they either delever or scale reduces reliance on the new issue and M&A market for deployment, and that's a pretty meaningful differentiator for us given the way that our business is positioned versus someone who's more focused on new volumes. In other parts of our business, we're just actually seeing share gains and share growth. In Europe, we have a different market share position there. The Asian markets are showing us slightly different opportunities. Everyone is deploying pretty well right now. And I want to deemphasize a 'reliance on sponsor activity' because I think the business has outgrown that. That said, and Kipp could chime in here for things if he disagrees, the pipeline is actually starting to build on the PE side. We talked about this on the Q4 earnings call. I think Kipp appropriately articulated caution in terms of Q1 deployment relative to Q4, but we did say the mitigant to that is once you get through a repricing or rerating of the market given the amount of dry powder on the sidelines, we would expect transaction activity to pick up. At least as I'm sitting here today and looking at the shadow pipeline of deals building, the private equity community is actually starting to pick up activity now that we're getting a better look at what the new valuation environment is.

Great. Super helpful. Thanks.

The next question comes from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hi. Thanks for taking my question. Wondering if you could just share with us some thoughts around the implications of higher interest rates across the rest of your businesses? You talked about credit, but wondering if you could talk about private equity, real estate, and some of the other businesses?

Yes. We cover direct lending, so I won't beat that dead horse. But I do think it's an important takeaway for folks. When you look at the amount of our exposures across the private credit landscape, they are all for the most part short-duration, floating-rate assets that are through their floors. That is going to be a pretty meaningful tailwind for us. If you look then at the real assets book, there are inherent inflation hedges in that portfolio. On the credit side, they are similarly positioned on short-duration, floating-rate assets. On the equity side, there's always a debate about the relationship between cap rates and interest rates. But I will tell you based on everything that we're seeing in the portfolios, and I think this has to do a little bit with our emphasis on industrial and multifamily property types and being in the right submarkets, even against the backdrop of rising rates, we're seeing utilization and rent increases reflected in NOI increases all up and to the right. We have not seen any kind of color to give back on the value side. Generally, what the experience has been historically in these asset classes tends to be mostly positive. We think we're now uniquely positioned to benefit even more than we have in the past given the industrial exposures there. It really comes down to PE. As I said in the prepared remarks, we do have an orientation towards growth, but I would say it's more growth at a reasonable price. In theory, as the discount rate resets, one would expect to see some valuation implications in the portfolio. You saw that a little bit in our public exposures this quarter, but our experience has been historically, given that we tend to be a little bit less levered than the peer set, and given the rate of growth in those portfolios, that the growth outpaces the value you give back. That's been our experience so far. Given the deployment percentage there, to the extent that there's a reset, we'll have ample opportunity to put capital work into that market. I would clarify that that's really just the corporate opportunities fund because our special opportunities funds are more credit-oriented, and they're similarly benefiting from the floating rate positioning of those assets. So, very few places in the existing exposures where interest rates in and of themselves are going to have a meaningful impact on the portfolio to the negative.

Got you. Very helpful. And just one follow-up if I may. In terms of your wealth management solutions, the distribution channel, you talked about potentially seeing some impact on fundraising later this year. Just wondering if you could just expand upon that and just give a little bit more color around that? Thanks.

Sure. As we've talked about in terms of how we are building out that business, we are expanding the distribution of our existing product in the channel. I'm going to talk just about the non-traded, putting aside the opportunity to grow the listed vehicles, but three existing funds being our two non-traded REITs and our credit interval fund, they're showing nice sequential month-over-month, quarter-over-quarter, and year-over-year growth. That's by getting deeper into the platforms that we're already on, and it also comes with adding new platforms. Depending on which fund we're talking about, we're either going deeper or we're going broader. Part of the industrial logic to the Black Creek acquisition was the ability to leverage the relationships that we have at Ares with the larger platforms to broaden out the distribution of the non-traded REITs. That's what I'm really referring to specifically when we look at it showing up in the back half of the year. It's really getting those REITs onto a number of new platforms. Then there's a secondary growth engine, which is the launch of new products. As I mentioned in this quarter, we've launched a new private markets fund around our private equity and secondary capability, which we hope will scale. We've filed but not yet launched our non-traded BDC. We have pretty high hopes just given our brand and position in the private credit space that it will show some meaningful momentum in the back half of the year. The third thing we're working on is the globalization of the wealth management franchise. Up until today, it's been largely focused on North American distribution. We've been building out our teams and capabilities across the Eurozone and APAC region to start globalizing the distribution as well.

Great. Very helpful. Thanks again.

Thank you.

The next question comes from Finian O'Shea with Wells Fargo Securities. Please go ahead.

Hi, everyone. Good morning. A question on direct lending, where asset managers, peers are increasingly providing these rated note structures to insurers. Is the underlying originated paper overlapping with typical direct lending now and thereby, becoming a major competitor?

The answer is it does, but I wouldn't say that's becoming a major competitor. I think you just have to think about people access direct lending assets through different mechanisms. You can access it through traded BDCs, you can access it through nontraded BDCs, you can access it through commingled fund structures. If you're an insurance company, you can access it efficiently through rated note structures. The structure in and of itself, as we're experiencing it, is not changing the competitive dynamic in the market. It's really just a structural opportunity for folks to access the market in a more effective way for them. But yes, the exposures would be very similar.

Okay. That's helpful. And then a follow-on on ARCC that was a little more active in follow-on equity offerings or at-the-market offerings this quarter. Can you talk about the outlook or if we should think about a certain cadence for growth there in the public BDC?

Yeah, I'm happy to. I hope everyone can hear me. Look, issuing equity at the BDC is something that we believe is good for the long-term health of that company. We continue to believe that emerging from COVID, we've gained a lot of competitive traction and are better positioned. As most would recall, we haven't raised equity in a material call cadence in seven years until we did a couple of follow-on transactions over the last 18 months. But ATM issuance is pretty common, I think, for our company and for most of the other BDCs along with a whole lot of REITs. It allows us to add a little bit of scale as we continue to grow into what has been an amazing growth opportunity for that company. In terms of cadence, there are limitations in terms of what you can do. Obviously, if you followed the BDC, you have a good sense for that – FTC, it's relatively small. It's just a way for us to continue to build capital scale there over time and to do it accretively.

Thank you, Kipp and Mike.

Thanks, Finian.

The next question comes from Adam Beatty with UBS. Please go ahead.

Thank you, and good morning. You mentioned being underpenetrated with your existing client base. I'm interested in maybe a little bit more detail around your thinking there and what you're seeing, particularly in the institutional channel. I sort of assume maybe you'll correct me on this, that the retail and the newer insurance channel are underpenetrated. That makes sense. But in the institutional channel, a lot of investors think of that in terms of being mature, being very penetrated. Just wondering whether in your mind, it's a question of kind of more of an allocation to alternatives or more of that allocation going to Ares, and what might drive the penetration upward toward the potential for Ares? Thank you.

Sure. Adam, it's Jarrod. I just figured I'd take this one. Overall, when we talk about penetration, we're talking about the number of funds that our investors are invested in. Right now, about 60% of the platform is one fund for the investor, and the other 40%, about 35% of that is two through five. We're really seeking to broaden the number of funds that our LPs participate in. We feel like we can really grow that greater than 5% from the sex percentage to a much higher number, which will allow us further penetration across their wallet, gain wallet share, and that's really driven things like the recent acquisitions we've made and the number of platforms that we have, that allow our LPs to come in and have a lot of different choices so that, and to Mike's point earlier, that it's not one commingled fund that we're really dependent on in our fundraising, but a number of different funds and a number of different offerings that we're able to penetrate our investor base into having a number of products with Ares.

Yeah. You would see a similar breakdown if you looked at it kind of by strategy. So we're cross-selling people across fund families and then across different parts of the business. The way you see this playing through in the math, just to understand it, is if you look at the number of investors in any given year, we've been running at roughly 50-50 in our institutional fundraising. So roughly half of the investors that come onto the platform are new. But as I mentioned, maybe 90% of the dollars are from existing. So we're taking greater share. Then as people stay on the platform, they're investing more with us.

Got it. Thank you for the context and planting out those numbers. I appreciate it.

The next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Hey. Good morning. Thanks for taking the question. I was hoping you could talk a little bit about how your underwriting criteria has evolved in the current environment and how that looks today versus, say, a year ago?

It's a general question. Obviously, we do a lot of things here, Mike, but I'll give you a general answer, which is our underwriting is the same through market cycles because if we're doing our jobs well and we're looking at the different scenarios going in, we've accounted for all the things that people are worried about now, whether that's the ability to service debt, the ability to pass-through prices, and cost input increases. The underwriting framework has not changed, nor would I expect it to, and that's what's led us to be so successful over our 25 years investing through these different markets. That being said, obviously, you'll over-index the analysis in an environment like this in terms of what risks you're willing to take and when you're willing to take them. But I'll give you the simple answer that I don't think that good investors change the way that they approach investing. I think they change maybe the way that they're thinking about where they are in the cycle, but that's a slightly different perspective.

I guess maybe to rephrase: are you moving more senior in the cap structure? Are you shifting to more covenants from covenant light? Just curious how you're thinking about kind of the credit book and how...

Yeah, it depends on which part of the business that you're in. But when you get into a market where there is uncertainty, a lot of our strategies will do exactly what you just said, which is de-risk either through moving up the capital structure or putting more structural protections in place. Each of the different strategies is going to express that view differently. But the answer is yes. Some of that is what you're willing to do, and some of that is where you are in the market transition. One of the reasons that transaction activity slows very early in this type of a market shift is folks like us will have a different view on the structural protections that we would require for a certain return. Then we have the price discovery and structure discovery in the market to see where things will clear. Once you then reset, you will begin to see the activity pick back up again. So I would say generally people are cautious in their positioning as is appropriate, but again not really a fundamental shift in underwriting.

Great. If I could just ask a follow-up question on the non-traded BDC and the retail private market secondary fund, those two retail products that you guys are bringing to the marketplace. So I was hoping you could just maybe talk a little bit about how the products are going to be structured, and on the non-traded BDC side, how that sort of investment strategy differs from your existing BDC?

Yeah. So the private markets fund is a RIC structure that will be largely at least in the early scaling of that fund be leveraging our secondaries capability, maybe stating the obvious in order for the retail investor to access PE the way that they want to. Secondaries work just because it avoids the J-curve and the administrative difficulties of capital calls and the like that you would need in a larger institutional wrapper. That will be a nice complement to our flagship fund families, not just in the secondaries business, but also within our PE business as it grows. The non-traded BDC is interesting because, to the earlier question around fundraising, ARCC is a very large pool of capital, roughly $20 billion, but it is not accessing equity the way that the non-traded peer set is. It's actually a pretty interesting phenomenon just thinking about how public-listed BDCs access equity and grow versus public non-listed BDCs. We do think that from a capital formation standpoint, it will be complementary to our private credit fund offerings. In terms of how it will look relative to the public BDC, really, it's too early to tell because we have actually launched the fund. What I will tell you is the required return in the non-traded market is fundamentally different than the required return in the public market. By definition, we would expect the asset mix of the non-traded BDC to look meaningfully different than what would be in the listed vehicle. I think we're in a unique position relative to the peer set to bring something unique into that market. As an example, if you look at our interval fund, which continues to scale nicely, that has very broad-based exposures across the entirety of our liquid and illiquid credit platform all in one line item. So I would expect to see a broader diversification across the platform in the non-traded side of the house versus the listed if I had to guess.

Great. Thank you.

The next question is a follow-up from Robert Lee with KBW. Please go ahead.

Thanks for taking my follow-up. Jarrod, I just had a couple of quick really kind of more modeling questions. But I did notice in the quarter, it seemed like the fee rate kind of came down a little bit. I don't know if there were just some timing issues there or anything we should be thinking about. Also, I know sometimes seasonally 1Q could be a low tax rate around maybe restricted stock grant vesting or whatnot, but tax rate also seemed a little low. Can you maybe just kind of update us on expectations there?

Sure. I'd say on the fee rate, it's really a result of new products coming onto the portfolio like the Aspida management fee at 30 bps, which is lower than our standard 1% fee rate. You also have some of the impact of the Part 1 fees as that fluctuates up and down that really adds a little bit to your fee rate. But in general, when you think about our standard product and our current launches, the fees have been consistent. It's really just a timing quarter-over-quarter. On the tax rate, I think that’s a pretty consistent rate for what I think we guided to, and it's pretty consistent with our total year-to-date rate from the prior year. We expect to be in that let's call it a 10% to 15% range on current taxes. There are things that move quarter-over-quarter that are a little bit harder to predict. But in general, we feel pretty good about that range.

Great. That was it. Thank you.

Thanks, Rob.

We have no further questions. So this concludes our question-and-answer session. And I'll turn the conference back over to Michael Arougheti for any closing remarks.

No. We just as always appreciate everybody's support and taking the time to spend with us today. We look forward to giving people another update next quarter. Thanks for your time.

Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available through May 28, 2022, by dialing 877-344-7529, and to international callers by dialing 1-412-317-0088. For all replays, please reference the conference number 2663600. An archive replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website. Thank you all very much for attending. And you may now disconnect.