Ladies and gentlemen, thank you for standing by, and welcome to The Carlyle Group Second Quarter 2020 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please limit yourself to one question and then return to the queue for any additional follow-ups. With that, let me turn the conference over to your speaker for today, Mr. Daniel Harris. You may begin, sir.

Thank you, Demetrius. Good morning, and welcome to The Carlyle's second quarter 2020 earnings call. With me on the call today is our Co-Chief Executive Officer, Kewsong Lee; and our Chief Financial Officer, Curt Buser. This call is being webcast, and a replay will be available on our website. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliations of these measures to GAAP in our earnings release. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10-K and our other SEC filings that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. Earlier this morning, we issued a press release and detailed earnings presentation, which is also available on our Investor Relations website. For the second quarter, we generated $127 million in fee-related earnings and $198 million in distributable earnings, with distributable earnings per common share of $0.53. We have declared a quarterly dividend of $0.25 per common share. With that, let me turn the call over to our Co-Chief Executive Officer, Kewsong Lee.

Good morning, everyone, and thank you for joining our call today. We hope you're doing well and that you and your families are staying safe and healthy. So before we get started, I want to thank Glenn for his partnership and friendship over the last several years. We accomplished a lot, and I am proud of the work we did together to make Carlyle an even stronger firm. He is a culture carrier and a class act. I wish Glenn all the very best as he goes off into a life of public service. Now on to Carlyle, our priorities and our results. The combined health and economic crisis is a backdrop unlike anything we have lived through. I'm proud of how everyone at Carlyle has come together to do amazing work on behalf of all of our investors. I would like to thank our entire organization for their focus and commitment during these challenging times. Despite the current environment, we're adapting well, and our business continues to perform. This is evidenced by our solid second quarter results, which include strong fund appreciation, a substantial increase in our net accrued carry, and attractive distributable earnings for our shareholders. These results reflect the hard work of all of our people to deliver on our strategic priorities, which remain on track. Specifically, we continue to grow our current fund families and will launch new investment strategies with the potential to scale. We continue to drive growth in our global credit business and build upon strong momentum in our Fortitude Re insurance platform. Additionally, we continue to prudently manage our operations to further enhance margins. Executing these priorities will enable us to grow sustainable fee-related earnings, increase our dividend on a lag basis to fee-related earnings, expand our distributable earnings over the long-term underpinned by investment performance, and invest further in corporate growth and our shareholder-friendly actions with the excess capital that we generate in the future. Looking forward in the near-term, COVID and other economic and geopolitical issues are likely to create headwinds, including a material drop in M&A activity, with global announced transactions down more than 50% in the second quarter from a year ago, and notably, large transactions remaining difficult to complete. Significant disruptions in certain industries, like energy, aviation, travel, and certain consumer segments are evident. Additionally, we are witnessing weakening financial conditions of many municipalities, which could have disruptive effects on the infrastructure sector as development projects slow down, especially for public-private partnerships required, for example, in our terminal rebuilding project at JFK. Our public markets have experienced a strong recovery across all types of assets. We remind ourselves that we remain in the early stages of a global pandemic and are likely facing a multi-year recovery. The potential for an uneven and uncertain recovery leads us to maintain our cautious perspective on the outlook for the real economy, as regions, sectors, and asset classes are all affected differently. But please do not conflate our tonality and caution on the real economy with our ability to remain active to drive performance in the investment world. It is certainly possible to have a cautious and prudent outlook while remaining active and successful in our core business, as demonstrated by our second quarter results. The very uneven nature of the recovery is what provides us the opportunity to be selectively aggressive and appropriately circumspect, depending on region, asset class, and industry sector. Turning to our fund performance, thoughtful construction of our portfolios around the world helped us deliver solid investment performance in the second quarter. Fund appreciation rebounded sharply, with our corporate private equity funds appreciating 13% in the quarter, which was the main driver of our net accrued carry balance increasing by nearly 50% from last quarter. Our portfolio benefited from improved public markets, as well as tighter credit spreads and better liquidity in the capital markets. With respect to investing activities, we have found attractive new investment opportunities, notably in Asia, as well as in global growth areas like technology and healthcare. We deployed just under $6 billion of new capital in the first half of 2020, but we expect full-year deployment to be below that of the past few years. We have $73 billion in dry powder and are well-positioned to deploy capital as opportunities emerge in the years to come. Regarding exit activities, years of hard work led to attractive sales of portfolio companies during the quarter, including, among others, Golden Goose, Eggplant, and Dealogic. In addition, improved pricing and market liquidity allowed us to opportunistically complete several secondary trades across corporate private equity and real estate. We were also able to execute IPOs of several companies in the first half of this year, from our U.S. and Asia private equity business. With respect to fundraising, we have had a good start to the year raising new capital with approximately $12.4 billion raised across the platform, with particular strength in investment solutions and global credit. While we expect to see the firm's fundraising slow down later in the year, the fundraising environment thus far has remained generally resilient since the onset of the pandemic. Now, a quick note on one of our most important strategic initiatives, Fortitude. In June, we completed a process that started nearly two years ago, which has resulted in Carlyle and our partners owning 97% of Fortitude Re. We're now focused on driving attractive returns on capital, maintaining prudent risk, and searching for growth by acquiring additional runoff insurance blocks. Fortitude is performing well, and we expect it will be an important source of growth moving forward. Finally, as I said when I started, I am proud of our people and the work we are doing. Our people and culture are the most important priorities. We are more focused than ever on diversity, equity, and inclusion. We are in the judgment business, and diversity of thought and perspectives is what gives us our investment edge. It is critical that we continue to push forward on cultivating an inclusive culture at Carlyle and incorporating ESG in all that we do. We are committed to driving positive change not only at our firm, but also in the companies that we influence and in the communities where we work. So in summary, putting all this together, Carlyle is in great shape and very well-positioned for the future. While, of course, there will be complications and challenges, I have total confidence in our entire global team, the strength of our platform, and our ability to make businesses better and create impact to drive performance with our investment activities. Let me stop there and hand the call over to our Chief Financial Officer, Curt Buser, then I'll come back and offer some final thoughts.

Thanks, Kew, and good morning, everyone. In my remarks, I will briefly discuss second quarter 2020 results and dig further into some key topics of interest to investors. Let's begin with our results for the quarter. Fee-related earnings were $127 million in the second quarter of 2020, with a 31% margin, slightly lower than the $133 million in the second quarter of 2019. That result included $28 million in catch-up management fees, as compared to less than $2 million in the current quarter. Year-to-date, fee-related earnings were $256 million, which also includes the positive effect of the $30 million expense recovery we discussed last quarter, and is ahead of the $236 million of fee-related earnings we generated in the first half of 2019. Fee revenues were mostly in line with the year ago after adjusting for the decrease in catch-up management fees, and the $10 million in transaction fees this quarter as a result of closing the Fortitude transaction. Our net deferral of CLO subordinated management fees was $4 million in the current quarter, resulting in a cumulative deferral of $8 million as of June 30, up from $4 million at March 31. That said, our CLO performance is thus far stronger than we initially thought at the beginning of the pandemic and is trending favorably. Compensation was $210 million in the second quarter, and first half 2020 cash compensation was approximately 1% higher than the first half of 2019. We continue to closely manage our compensation expense, including equity-based compensation and the $66 million in first half 2020, which is 15% below the first half 2019 level. G&A expense was $58 million in the second quarter, down from $80 million a year ago, reflecting lower travel and conference expenditures, as well as the recovery of certain Fortitude transaction expenses, and continued expenditure management. Net realized performance revenues were positively impacted by several attractive exits during the second quarter, as Kew discussed earlier. We produced $71 million in net realized performance revenues, largely driven by our U.S. real estate and our Europe technology funds. Year-to-date net realized performance revenue of $119 million is well above the $28 million generated in the first half of 2019. That said, we expect the second half of 2020 will likely be well below the first half level. Overall, distributable earnings were $198 million in the second quarter, and first half 2020 distributable earnings of $373 million was nearly $60 million higher than the first half of 2019. Distributable earnings per share were $0.53 in the quarter, $1.01 year-to-date, and we declared our quarterly $0.25 per share dividend. Strong portfolio and fund valuations drove our net accrued performance revenue balance to $1.8 billion, up 49% sequentially. Substantially, all of the increase is attributable to our depreciation in our sixth U.S. Buyout fund. Remaining fair value and public securities across our carry fund portfolio increased to 14% from 8% of total remaining fair value as we conducted IPOs, including ZoomInfo, and our public securities in total appreciated more than 80% in the quarter. However, we acknowledge that volatility in either direction in the public markets could affect our accrual moving forward. Let me now shift to a discussion of the impact of Fortitude on our results and our fee-related earnings guidance. As part of the Fortitude transaction this quarter, we raised $2.1 billion of capital, upon which we will learn management fees. Fortitude is now rotated or committed to rotate nearly $4 billion into specific Carlyle funds, and we expect Fortitude to reach its $6 billion rotation target by next year. Let me now briefly explain the second quarter GAAP loss, which reverses prior GAAP earnings on Fortitude, none of which have been included in fee-related earnings or distributable earnings. For U.S. GAAP, we previously accounted for investment in Fortitude by recording our proportionate share of Fortitude's GAAP earnings inclusive of unrealized gains and losses, resulting from changes in the fair value of embedded derivatives related to certain reinsurance contracts. With the closing of this transaction, we now account for investments at net asset value, which still reflects a 10% appreciation above our entry price. Moving to our fee-related earnings outlook. As I mentioned earlier, we have generated $256 million in year-to-date fee-related earnings, relative to the full year 2020 range we discussed last quarter of $400 million to $450 million. Given the strong first half of the year and incorporated in our expectations for the remainder of the year, we are increasing our target 2020 fee-related earnings range to $440 million to $475 million. We are incrementally more comfortable than last quarter, but still cognizant of the many uncertainties that could impact results in the back half of the year. Finally, let me summarize where we are following our corporate conversion. Following our transition to a Full C-Corporation on January 1, 2020, we have seen many of the expected benefits emerge. Our trading liquidity has nearly tripled, our top shareholders include many new high-quality names, and we've been added to important indexes at Russell, MSCI, and CRSP. Overall, there's been a positive set of developments. Let me now turn the call back over to Kew for some final thoughts.

Thanks, Curt, and again, thank you all for joining us this morning. We are pleased with our firm's strong results for the second quarter, and more broadly, we are confident we are well-positioned to navigate through these uncertain times. We remain focused on delivering attractive returns for our fund investors and growing earnings for our shareholders over the long-term. And we'll do this with one of the best teams in the world. I will say again, I am proud of how our people have adapted and excelled amidst all that is going on. That is what we do best at Carlyle, and all of us are excited for what's ahead. With that, let's turn the call over to the operator and take your questions.

Our first question comes from Glenn Schorr with Evercore. You may proceed.

Hi, thank you. I wonder if I could just get a follow-up on your comments on Fortitude. You and a couple of other players continued to invest in this space. It’s a big space, so I wouldn’t call it crowded, it’s just more people focusing on it. So, you mentioned buying additional runoff portfolios as part of the core growth. I'm curious what you see out there? And more importantly, how do those deals get priced? I'll leave it general, and let you go where you choose to.

Hey, Glenn. It’s Kew, how are you? Thanks for your question on Fortitude. So, look, we're really pleased with how Fortitude is progressing. Just to point out, it's a globally diversified book of liabilities at Fortitude. It's largely B2B, meaning we don't really directly originate anything from the consumer. It's definitely not model line. From a financial perspective, we're really pleased with the fact that its capital ratio is higher than our target and regulatory thresholds. It's generating attractive mid-teens returns on equity. With the recent raising of additional funds from our limited partners and strategic investors, we and they now control approximately 97% of this platform, which is performing well. We're now turning to managing this platform for attractive and prudent growth. By maintaining an emphasis on policyholder surplus and ensuring our risk management policies are appropriate, there are numerous dollars of legacy liabilities out there that need to be moved off the balance sheets of the insurance industry, as it's inefficient for them to be holding onto these types of liabilities. We are very well-positioned with this platform. It's a proven team, it's a diversified book, and now that we've been able to effectively gain control of Fortitude with our partners, we look forward to growing via the acquisition of these types of businesses. In terms of how to price these books, it's done very carefully. These are complicated books of business. I'm grateful that we have an incredibly talented management team at this platform and we're going to be very careful when looking at these books to understand what makes sense to acquire into Fortitude to ensure growth.

I can't spell the jillion, but I appreciate that. Maybe just one quick follow-up. I don't remember what's your lock up on ZoomInfo?

Glenn, it’s Curt. So just, in terms of the public securities in our portfolio, it's not our practice to talk about individual securities. However, as the markets open up and remain liquid and healthy, we obviously look to what's right for our respective funds and stakeholders across and look for attractive opportunities to sell. Remember, we're not forced sellers. We look for the right windows, and when the securities are trading well, and we think it's in the best interest of all stakeholders, we’ll sell blocks. But no comment on any specific position.

Thanks for all that. Thanks.

And our next question comes from Mike Carrier with Bank of America. You may proceed.

Hey, guys. This is Dean Stephan on for Mike Carrier. I have a question around the CLO subordinated fees. Although the deferral of the sub-fees hasn't been too material year-to-date at only $8 million, I'm wondering how we should think about the risk of additional sub-fee deferrals moving forward and the puts and takes around that? And maybe what you guys are forecasting as the potential impact over the next couple of quarters? Thanks.

Hey, Dean, it’s Curt. Thanks for that question, I really appreciate it. Let me start with a little background. We have a large CLO business; we are probably in the top three in market share managing $27 billion of U.S. and European CLO funds. It's an experienced team. They've seen tougher times, including the great financial crisis, and we came through that really well. We had some sub-fees back then that turned off, and we managed to recapture all of those fees before. Our CLOs are performing better quarter-over-quarter, and the performance trajectory is better than we initially thought at the beginning of this pandemic. If I had known what I know now, I probably wouldn't have mentioned the CLOs as much in the first quarter. However, I would say our team is doing an excellent job of handling this situation. There’s been about $3 billion of activity that the team's tracked in this second quarter, really to reposition the portfolio and manage default rates. We expect that either by the end of this year or beginning in 2021, we'll see those fees start to turn back on and possibly recoup all those deferred fees. Our default rates continue to track favorably relative to industry stats, despite the challenging environment.

Very helpful. Thanks.

And our next question comes from Patrick Davitt with Autonomous. You may proceed.

Hey, Patrick, it's Kew. Thanks for the question. It's a great question because what we're noticing is that this recovery is very uneven. Different regions, industries, and sectors are being affected very differently. From a regional perspective, clearly, Asia is out ahead. By our estimates, China probably won't even enter into a recession this year. Much of their recovery has been organic, with very little fiscal stimulus. They have a lot of ammunition left to deploy from a macroeconomic perspective, although consumer behavior is changing with some skittishness. Travel has not yet fully recovered. From an industry perspective, I think it's very clear that some industries have been badly hit by COVID, yet others are moving along and have even accelerated growth because of COVID, especially those that are tech-enabled, e-commerce based, or cloud-based. This is also why having a global platform like ours, and being in all the asset classes with strong investment teams is crucial in this type of an uncertain recovery. It’s why we can be cautious about the real economy but selectively aggressive in the areas we like.

And our next question comes from Michael Cyprys with Morgan Stanley. You may proceed.

So you had some strong performance and appreciation in the funds this quarter. Could you share a little bit more color around the performance in the funds? What are you seeing in terms of EBITDA and revenue trends among the portfolio companies? And what portion of the book would you say is more impacted here from this environment versus what portion of the book would you say is not impacted or perhaps benefits from this backdrop? And how is that evolving relative to your expectations last quarter?

So, Mike, I'll start and then Kew might add on a little bit. Overall, we saw really good appreciation in our corporate private equity funds and strength in global credit. If you think about the numbers we share on appreciation and global credit, it generally relates to the 20%-25% of the book that is in traditional carry funds. It doesn't really tell you about the CLOs, which make up half, and how well they are performing. Good performance continues across the entire book. In corporate private equity, we've had fortune with respect to some of our public companies. A lot of that is in the areas Kew mentioned, such as healthcare and technology. Our U.S. real estate team has diversified our portfolio and we've avoided material exposure to hotel, office buildings, and retail, allowing for excellent performance. Our global credit is starting to take off nicely. While every fund will have one or two deals that aren’t performing, our portfolios have been structured thoughtfully. We’re pleased with two quarters worth of portfolio performance, but I want to emphasize that we are by no means out of the woods.

Curt, that was a great answer. Michael, I'll just add two quick thoughts. First, we're really pleased with our portfolio performance, but I want to ensure that we recognize the work behind constructing these portfolios. If we can stay focused and work with management teams, while staying vigilant, we hope to navigate through this environment effectively. But it’s been a strong quarter; however, we won’t be complacent, and there’s still a lot of work to do moving into the second half of the year.

And our next question comes from Gerald O'Hara with Jefferies. You may proceed.

Good morning. Perhaps picking up on the increased target for the fee-related earnings range. I appreciate the outlook there but perhaps a little bit of color on what gives you comfort with that increased range? And any expectation around fee-related earnings margin?

Gerry, it's Curt. Thanks for your question. To level set, we've seen year-to-date fee-related earnings of $256 million, which has benefitted from some prior expense recoveries. The fee growth and fundraising we've seen in our investment solutions business has been fantastic. Our CLO platform improvements are good, and we recently activated fees on our latest aviation fund, along with expectations for our recent Japan fund. Additionally, the pandemic has helped control some expenses, especially travel costs. If we manage to drive transaction fees, transitioning to the second half may produce results closer to the higher end of our range. But I would recommend we remain focused on long-term growth in fee-related earnings. Regarding our margins, we currently hover around 28% to 32% for this year, achieving a 32% margin year-to-date in the quarter.

And our next question comes from Bill Katz with Citigroup. You may proceed.

Kew, maybe I want to come back to you. You mentioned some caution regarding the infrastructure outlook. I was wondering if you could expand on that a little. Additionally, how should we address flagship fundraising as we look out into '21 and '22, giving that backdrop?

Sure, thanks, Bill. The infrastructure sector has certainly been affected by COVID. The finances of municipalities and the tax base have been hit hard. For instance, general contractors experience difficulty completing projects due to working safety rules. Consequently, certain development projects, particularly regarding public-private partnerships, will have deployment issues moving forward. However, these disruptions present great opportunities over the medium to long-term. Despite the current environment's challenges, there should be positive winds at the back of the infrastructure asset class generally. Regarding your question on fundraising for our flagship funds, deployment and exit pace is interrelated with fundraising pace. If deployment is pushed out, it would similarly affect fundraising timelines. It's too early to precisely determine when we will begin raising money for our next cycle of funds, but it remains key for us to ensure our portfolio is strong.

Bill, I’d add that even with all the challenges in fundraising, we’ve raised $12.5 billion in the first six months. It’s been strong due to credit and solutions even without fundraising in corporate private equity. So there is still significant activity this year.

And our next question comes from Robert Lee with KBW. You may proceed.

Thanks for taking my questions. I want to focus on the investment solutions business, as it doesn't get much attention. Your secondaries business seems poised for healthy growth, as you've doubled fee-related earnings. Could you provide an update on that? It feels like this business has reached an inflection point, and how should we think of it as a source of growth?

On this one, Robert, it’s Kew. I'm very pleased with our investment solutions team. I must be careful as they are currently raising a secondaries fund. However, having a strong team and great track record has aided in a COVID fundraising environment. We're seeing opportunities in secondaries as limited partners look for ways to manage liquidity and allocations across portfolios. We are seeing a good time to consider secondary strategies, positioning our investment solutions segment in a favorable manner.

Our investment solutions business has consistently performed well. Our most recent secondaries fund has an 18% net IRR. Our funds on a net basis have a 12% net IRR. It’s great performance that investors appreciate, allowing us to scale this business. Fee-related earnings rose from $6 million in Q2 last year to $12 million this quarter. While this business may not match corporate private equity returns, it is certainly a more significant contributor and will grow further. Although low net carry numbers are currently evident, with time, our share will increase and enhance future earnings.

And our next question comes from Alex Blostein with Goldman Sachs. You may proceed.

Hi, good morning. This is Daniel Jacoby filling in for Alex. Thanks for taking my questions. Not to beat a dead horse here, but I wanted some clarification on the updated fee-related earnings guidance. Two questions: First, what does this contemplate in terms of CLO subordinated fee deferrals? Is the range of sub-fee deferrals assumed in the $440 million to $475 million range? For context, was the impact of the Fortitude transaction contemplated in the previous guidance, $400 million to $450 million, or is that something that wasn't factored in?

Let me address your questions. Our CLOs generate approximately $120 million a year in management fees, with two-thirds of that being subordinated fees that may shut off. So, certainly, we have concerns about rating downgrades, but they haven't been as significant as we initially thought, which has positively shaped our expectations for the year. The Fortitude transaction's impact has influenced our increased range, considering the current environment; it was previously considered when targeting $400 million to $450 million. All of this contributes to our reasoning for increasing the range to $440 million to $475 million. But it's essential to understand the uncertainties that persist in 2020 as factors continue to shift so dynamically.

Thank you, that's helpful. Can I ask a follow-up?

Sure, Daniel. Go ahead.

You've touched on this, but to consolidate, what should we watch out for in fundraising between now and the super cycle?

So this year, we’ve achieved about $12.5 billion in fundraising. We initially indicated $20 billion, which remains a possibility, but I wouldn’t want to set that as a hard number given some expectations for a smoother second half. It leans more towards high teens to that overall level yearly prior to the super cycle.

And our next question comes from Jeremy Campbell with Barclays. You may proceed.

Sorry, juggling a couple calls this morning. Forgive me if you've already addressed this in your FRE step-up discussion. However, I am looking for context regarding management fee rates. It seems to have stepped up quarter-over-quarter in both investment solutions and credit after adjustment for the CLO fee drag. Is this due to denominator averaging issues? Can you provide an update on management fee rates and any potential impacts from here?

Generally, the funds we have been raising from a fee rate perspective have been either equivalent to or slightly better than their predecessor funds. The movements we have seen quarter to quarter tend to be concerning mix when you have new funds coming in and achieving full committed capital levels, which helps boost management fees. In contrast, our global credit business tends to be more on invested capital than committed capital. While this results in fee rates bumping up and down, over time, we’ve maintained flat to better terms in a like-for-like manner. It's worth noting that the effective rates should not be a key focal point currently, as there is variety in gives and takes.

And our next question comes from Adam Beatty with UBS. You may proceed.

Thanks for taking the question. Just to follow up on CLOs, you’ve flagged it before. I wanted to ask about the environment. Is it your team outperforming in a weak environment, or is the CLO environment generally just better than people would have expected? Thank you.

Thank you. In terms of the macro environment, one critical factor affecting this business is our rating agency downgrades, which occur regularly. While they were prevalent last quarter, they have slowed down. If things remain steady, I believe we'll be in good shape. However, if the economy takes a downturn, downgrades could accelerate and pose headwinds for CLO operations. Notably, we’ve recently participated in two CLO issuances, one in Europe and one in the U.S. While I won’t claim they indicate a trend yet, it’s certainly encouraging. Execution in this business depends on our team's abilities to trade and manage CLO portfolios. I think our team's done a tremendous job guiding portfolios in and retraining into higher-yielding facilities during dislocations. While we have a solid business with a commendable team, the climate can shift rapidly.

That's a really valuable context. Thank you. Just a quick follow-up if I may on flows in fee AUM. It seems a bit lumpy in corporate private equity and investment solutions regarding outflows. I presume much of this results from funds exiting the investment period; is that correct? Any other color would be great.

As you might know, we aim higher with closed-end fund structures, initiating investments and selling off at competitive multiples to provide substantial returns for our investors. Expectedly, our business will experience outflows due to this. The outflows aren't from redemptions; 98% of our fee-earning AUM are exempt from this, but rather from realizations. Good realizations have occurred this year, which has caused the outflows, along with some standard adjustments when shifting from committed to post-investment, reflecting lower fee-earning AUM. But we also see inflows when raising additional capital and activating funds. As we invest capital, fee-earning AUM will rise as well, which contributes to the fluctuations.

And our next question comes from Ken Worthington with JPMorgan. You may proceed.

This is Bill Cuddy filling in for Ken. So, focusing on your energy business, NGP XII is about half invested. Regarding your earlier funds, NGP X and XI returned negative after fees. What do you foresee for raising energy assets in the future? Do you think dedicated energy funds will remain?

Hey, Bill, it's Kew. Your question relates to the transition within the energy sector and alternative energy sources. The short-term markets have sustained downturns due to demand destruction and geopolitical factors. While this transition will take time, traditional energy sources will remain as viable options during this period. Regarding investment strategy, we are focused on valuations and forming partnerships with capable management teams capable of operational improvements, regardless of commodity prices. For the short-term, we’ll maintain a cautious stance while being optimistic for renewed investment opportunities in renewables and alternatives.

Okay, great. Thanks for answering the question.

And we have a follow-up question from Michael Cyprys with Morgan Stanley. You may proceed.

Thanks for taking the follow-up question. Regarding fee-related earnings, about two-thirds of your distributable earnings this quarter; where do you see that in the medium term? There are moving parts, such as normalizing performance fees; I would expect that would drive the FRE contribution, but can you provide insight on where you'd like the FRE mix to be long-term?

You're asking about performance fees and their contribution going forward. We aim to grow fee-related earnings and margins. For this year, our outlook is positioned at $440 million to $475 million. Long-term, I expect a slight increase around the geography of fee-related earnings. The near-term scenario in '21 will likely be flat or slightly positive, depending on these varied factors affecting the environmental conditions. In the following years, I see a potential recovery to our previous averages of $500 million to $600 million, but predicting exact timelines is tough. Thus, patience is crucial, especially given the current state of large transactions.

And our last question comes from Robert Lee with KBW. You may proceed.

Thank you for taking my questions. While he's not on the call, I’m sure he’s listening, so Glenn, best of luck in your new endeavors and congratulations. I wanted to focus on investment solutions. Your secondary business appears to be strategically positioned for growth, having doubled its fee-related earnings. Can you update us? It seems this business has finally entered an inflection point. How should we consider it in terms of opportunities for growth?

On this one, Robert, it’s Kew. I'm very pleased with our investment solutions team. I must be careful as they currently raise a secondaries fund. But with a strong background, even in a challenging fundraising environment, their track record is advantageous. We're seeing opportunities in secondaries, particularly as LPs manage their investments. This positions our solutions segment well during this time of need. It's a great moment for considering secondary strategies, and I believe it could drive substantial growth.

Our investment solutions business has proved its resilience, seeing fee-related earnings rise from $6 million in Q2 last year to $12 million this quarter. Although this sector may not achieve corporate private equity's typical returns, it genuinely contributes positively and has the potential for increased growth moving forward.

And this now concludes our Q&A portion for today's conference. I would now like to turn the call back over to Daniel Harris for any closing remarks.

Thank you all for listening and for your time and attention this morning. If you have any follow-up questions, please follow up with Investor Relations at any point. Otherwise, we'll look forward to speaking with you again next quarter. Have a nice day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.