Thank you for standing by and welcome to The Carlyle Group's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's program is being recorded. Now, I'd like to introduce your host for today's program, Daniel Harris, Head of Investor Relations. Please go ahead, sir.

Thank you, Jonathan. Good morning and welcome to Carlyle's third quarter 2024 earnings call. With me on the call this morning is our Chief Executive Officer, Harvey Schwartz; and our Chief Financial Officer and Head of Corporate Strategy, John Redett. Earlier this morning, we issued a press release and a detailed earnings presentation, which is also available on our Investor Relations website. This call is being webcast and a replay will be available. 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 a reconciliation of these measures to GAAP in our earnings release to the extent reasonably available. 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 that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. In order to ensure participation by all those on the call today, please limit yourself to one question and return to the queue for any additional follow-ups. With that, let me turn the call over to our Chief Executive Officer, Harvey Schwartz.

Thanks, Dan. Good morning everyone and thank you for joining us. Over the past year and a half, we undertook several strategic actions to drive better performance, including realigning our compensation model, appointing new leadership, and prioritizing margin expansion among other initiatives. As we stand here today, you're beginning to see the early impacts of those steps. These actions, combined with a pickup in activity across the platform, generated one of the best quarterly performances in the firm's history. We delivered record quarterly fee-related earnings, up 36% versus the third quarter of 2023 and our best ever FRE margins at 47%, up more than 10 percentage points since last year. Overall, we are on track to hit our FRE target of $1.1 billion for the year. Our underlying investment portfolio is performing very well. This drove strong corporate private equity fund appreciation that fueled a nearly 30% increase in our net accrued performance revenues compared to the prior quarter. This accrual represents nearly $8 per share of future earnings for our shareholders. As we talked about previously, capital markets was a significantly underleveraged part of our platform that is gaining substantial momentum. This is the direct result of proactive steps we've taken to increase alignment around transaction fee generation. Including closed Q4 activity, we've already generated our highest level of annual transaction fees. This, despite a still subdued M&A and IPO environment. Obviously, we expect further growth in capital markets fees. On fundraising, we raised $9 billion of new capital in the quarter and have raised $43 billion over the past 12 months. We anticipate a very strong fourth quarter of capital raising to close out the year, and we continue to target about $40 billion of inflows for the year. Now switching to the macro environment. Obviously, let's start with the election results. Being past the election has removed market uncertainty, first and foremost. Markets like certainty and you're seeing that broadly across capital markets, particularly in the stock market yesterday. Over the medium to long-term, this should be a further catalyst for IPOs, M&A, and key sectors we invest in. This should be an environment in which we are well positioned to capitalize on monetization opportunities and put capital to work. Prior to election, we had already seen the U.S. Federal Reserve shift in stance on interest rates and that was a clear sign that we entered a new era of monetary policy and that inflation has stabilized. The election certainty and the change in monetary policy are a powerful combination supporting economic growth and our business. We're already seeing a significant uptick in IPO activity this year. There's been a 30% increase in listings and a 50% increase in IPO proceeds in the first nine months of this year. We've seen this trend benefit our portfolio as well with two significant IPOs in just the last month, StandardAero in the U.S. and Rigaku in Japan. StandardAero marked the second largest sponsor-backed U.S. IPO of the year and the best first-day performance for U.S. IPO, raising over $1 billion, this since 2021. Aerospace, defense, and government services is a key focus area for Carlyle. Our roots in D.C. and more than 30-year history in this space is a core differentiator for us. This was the largest aerospace IPO ever and demonstrates that the market is starved for high-quality businesses and growth outside of the tech sector. Rigaku is the second biggest Japanese IPO this year and the largest ever sponsor-backed IPO in Japan. Japan remains a very attractive market for us. This year's improved market sentiment has driven stronger investment activity and a more active pipeline across our platform, reflecting our ability to act on opportunities in a dynamic environment. A more liquid realization backdrop and strong underlying portfolio performance have supported higher investment returns. Our two largest U.S. buyout funds were up north of 7% each this quarter, and our two largest Asia buyout funds were up 9% and 13%, respectively. This quarter represented the third largest quarterly increase in net accrued performance revenues in our firm's history. Over $600 million of net performance revenues were generated. Switching to Global Wealth, another area of strategic focus, we're seeing strong momentum across the platform, where we benefited from a record $1.8 billion of wealth inflows. Our wealth inflows this quarter were nearly three times the amount in the previous quarter, and our global wealth AUM is up 70% year-over-year. Part of the momentum is our newly launched secondaries wealth solution, CAPM, which is seeing very strong early traction with advisers and their clients. We're also making progress in our private equity wealth product and are still on track to launch in 2025. Another area where we see accelerating growth is in asset-backed finance. We continue to identify differentiated partnerships with specialty finance companies to further bolster our origination capabilities and give us a data edge in the market. We've also seen record leveraged loan and CLO issuance in 2024. Loan spreads have tightened to post-GFC levels and demand for new paper is outpacing supply. Full year 2024 U.S. leveraged loan issuance is expected to exceed $1 trillion for only the third time. At Carlyle, the team has been very busy with our leading CLO business having priced 22 transactions globally on track to be a record year of resets and transactions priced. The opportunities in our insurance business remain quite significant. Fortitude has grown its general account assets by almost 70% in the past year. It has increased its excess capital position to more than $1 billion, allowing us to pursue a robust reinsurance pipeline. We also continue to grow our relationships with insurance clients broadly and further leverage our private investment-grade and asset-backed finance capabilities in this important channel. To wrap things up, we had a strong third quarter with Carlyle extremely well positioned to capitalize on an improving macroeconomic environment. Our leadership team remains laser-focused on driving performance and accelerating growth to drive long-term value for you, our shareholders. With that, let me now turn the call over to John.

Thanks, Harvey. Good morning, everyone. We are very pleased with the progress we've made over the last year. The business is just performing much better than it was 12 months ago, and we are also benefiting from a material step-up in market activity. The actions we've taken over the past year include improving FRE margins, activating the capital markets flywheel, improving investment performance, realigning our compensation strategy, appointing new leadership, and we continue to see benefits of the revised capital allocation strategy we implemented this year. These actions have generated significant operating leverage and momentum across our business, including record AUM of $447 billion, up 17% compared to last year; record fee-earning AUM of $314 billion, which has grown at a 15% CAGR over the last five years; record quarterly FRE of $278 million at a 47% FRE margin; and strong performance in our corporate private equity funds, which drove a material shift higher in net accrued performance revenues to $2.8 billion. We produced $367 million in DE for the quarter or $0.95 in DE per share. And year-to-date DE per share of $2.74 is 15% higher than last year. Now, let's cover three important areas; fee-related earnings, appreciation in our corporate private equity business, and capital return to shareholders. Starting with fee-related earnings. FRE increased to $278 million in the quarter, up more than 35% from the third quarter of 2023. We are on track to hit our 2024 FRE target of $1.1 billion, which would represent nearly 30% year-over-year growth. Pending fee-earning AUM stands at $21 billion, our highest level since the third quarter of 2021. In the fourth quarter, we expect to activate fees on our latest Japan buyout fund. And in 2025, we'll activate fees on our new U.S. opportunistic real estate fund. Year-to-date capital market fees were more than 80% higher than a year ago. We will see a significant increase in Q4 capital market fees as several large transactions have already closed. We expect to see further growth over time as our focus on expanding our capabilities in this area should support a higher level of capital markets activity. Let's turn to fund appreciation. As Harvey noted, our corporate private equity fund appreciation was up significantly. Driving this performance in the U.S. was strong EBITDA growth, up 15% year-over-year and continued margin expansion across the portfolio. This positive underlying growth is driving significant value creation at the fund level, and our portfolio is well positioned to further benefit from a better exit environment. Net accrued performance revenues increased more than $600 million to $2.8 billion. As we noted, this represents almost $8 of pretax earnings per share for our shareholders. Finally, let me touch on capital allocation. We continue to balance deployment of capital into our business and returning capital to our shareholders. We repurchased $150 million of shares in the third quarter, bringing total repurchases to almost $480 million year-to-date. Total shares outstanding are down for the second consecutive year, and we have over $900 million remaining on our share repurchase authorization. It is our intent to continue repurchasing shares. However, our first priority is investing for growth. Wrapping up, we continue to focus on delivering strong results for our shareholders. We are on track to achieve the financial targets that we laid out for 2024, and we have increasing conviction in the ability of our investment platform to drive higher earnings for shareholders over time.

Certainly. Our first question comes from the line of Alex Blostein from Goldman Sachs. Your question please.

Hey, good morning everybody. Hello Harvey, hello John.

Morning Alex.

So, maybe just to kick us off with a little bit of a macro question, obviously, related to the election, and I know you made a couple of comments in your opening remarks, but curious how you think the Trump administration could impact activity in the alt space, both on a macro set of activity side, but also any regulatory items you're paying particular attention to and how that could impact Carlyle? Thanks.

Thanks Alex. Well, maybe take a step back for a minute because obviously, the market had an unexpectedly strong reaction to the outcome. I think that has a lot to do with expectations, obviously going in. David was on TV yesterday, David Rubenstein, and he made a comment. He said something to the effect that the losers in this process were the posters. And he said, maybe we need to get AI involved in the polling process. And now taking that quite seriously, coming into this election, there were concerning headlines about the fact that we might not have a result for days, if not weeks, possibly months. That creates a lot of uncertainty in CEO's minds in how they think about strategy, how they think about committing capital and making decisions. And I think the election certainty and having the outcome behind us was obviously a very significant relief factor for the market. Now, from a policy perspective, whether it's sustained or further cuts in the tax regime, whether it's a lighter regulatory touch, all these things will get translated in CEOs' minds, Boards or portfolio companies into really confidence around the operating environment, and that will lead to more decision-making. It should lead to more M&A activity. If you're not quite certain whether or not you can get your transaction done from a strategic perspective, obviously, that gives you a lot of pause as a Board. And so I think this is what the market is reacting to. Now, in terms of our business, we're already seeing lots of tailwinds. You see it in the numbers today. A big part of that is the strategic actions the management team has taken. A big part of that is the market environment. And when we saw the stability of interest rates flattening out, I just think election certainty, future policies plus Fed policy normalizing. I think Fed policy normalizing and being past the election, that's a pretty powerful one-two punch for markets and for our business specifically at Carlyle.

And Alex, I want to add to what Harvey mentioned. I spoke with a few of our portfolio company CEOs yesterday, and they all seem to feel that the clarity following the election will boost confidence levels. This is beneficial for capital markets and mergers and acquisitions. With all these aspects improving, we believe it will positively impact our business.

Thank you. And our next question comes from the line of Ken Worthington from JPMorgan. Your question please.

Hi, good morning. Thanks for taking the question. I wanted to dig into performance. You called out and are having some nice exits, StandardAero, Rigaku, and it seems like there's more to come. At the same time, the net IRR in CP7 sort of remained at 8% despite the jump in accrued carry. And if you look at CP5, the IRR fell to 4%. How should we think about the performance metrics developing in buyout if and as you get the exits you expect in this improving environment? And I think we, the investment community, see performance in buyout as a headwind. Do you see that changing or have a different view, again, given the environment? And if so, is it big enough to change the fundraising trajectory?

Hey Ken, it's John. We have observed a significant enhancement in our corporate private equity business. As Harvey mentioned, this improvement was especially notable in the U.S. and Asia. The performance fee accrual increased by nearly $600 million, totaling around $700 million, with corporate private equity contributing the majority. This was one of our strongest quarters ever. The appreciation in our U.S. and Asia funds looks very promising, primarily driven by operational enhancements. We're experiencing solid EBITDA growth, revenue growth, and margin expansion. This indicates that we are in a robust economy, and better exit markets contribute to that positive performance. We have been transparent about this topic in past calls, and the leadership team has concentrated on enhancing our private equity business performance. The results this quarter really demonstrate the commitment we have to this area. We are optimistic about the future trajectory of this business and believe it has great potential for growth. The performance boost in the U.S. is particularly noteworthy in CP7. The net IRR won't change significantly as we're still in the catch-up phase, but there was a 100 basis point increase in the gross IRR in just one quarter. When it comes to CP8, our most recent vintage, I would emphasize the gross IRR since that fund is not yet fully deployed, making the net IRR less pertinent.

Okay, great. Thank you.

Thanks Ken.

Thank you. And our next question comes from the line of Ben Budish from Barclays. Your question please.

Hey, good morning and thanks for taking the question. I wanted to ask about your outlook for 2025 a little bit in terms of what you expect on the credit side. I think on the private equity side, you're kind of done with a lot of the major fundraises, and it sounds like you're expecting a big pickup in activity. Same with the solutions. As I recall, you should be mostly done kind of fundraising there by the end of this year. So, on the credit side, what's sort of your expectation for fundraising activity? What else are you kind of thinking about in terms of how to build, grow, develop that platform? Thank you.

The momentum in credit and insurance is quite significant. I'm referring to the strategic aspects and opportunistic credit, including asset-based finance. The private investment-grade market continues to grow, and we are well positioned due to our partnership with Fortitude and the insurance intelligence we gain from that as well as their excess capital. I'm very optimistic about the credit markets. We discussed the CLO activity, and the current spreads are quite attractive, leading us to expect high levels of activity to continue.

Got it. Thank you.

Thank you. And our next question comes from the line of Patrick Davitt from Autonomous Research. Your question please.

Hey good morning everyone. I think all the positives from the Trump win for the alts are fairly obvious, and you went through a lot of those. But curious if you guys have done any scenario testing of how the business and/or in-ground portfolio would fare through some of the more aggressive plans that you have like tariffs and/or mass deportations where the outcome is a little bit muddier for us? Thank you.

Well, on tariffs, obviously, as a firm, we've worked through tariffs before in the firm's history. And so you can be assured at the portfolio company level and at in the C-suite, we risk manage around any number of scenarios, not just around things like that. But this is going to have to be a wait and see in terms of how policy gets implemented. Where we benefit from is the diversity of the franchise, both across industry groups and also, obviously, geographically. But obviously, this is something that all industries will focus on as we move forward, but there are no unique issues for Carlyle. Thanks Patrick.

Thank you. Our next question comes from the line of Brian McKenna from Citizens GMP. Your question please.

Thanks. Good morning all. So, it was great to see the significant step-up in net accrued performance fees in the quarter, which clearly has positive implications on future earnings over time. But with the vast majority of this ultimately moving to cash on the balance sheet once realized, how should we think about deploying this excess capital over time, specifically as it relates to organic growth, strategic M&A, as well as buybacks?

Yes, Brian, it's John. Thanks for the question. We consider capital allocation in terms of where we can achieve the best returns. We have a couple of options as a firm. One is share buybacks, which we have actively pursued. The other is investing in our businesses for organic growth, which is our top priority, and we discuss it frequently. Additionally, there are inorganic opportunities where we can allocate capital. We assess various options and, right now, we believe the best returns for our shareholders come from investing in our business for organic growth and continuing share buybacks. That said, if a strategically and financially sound inorganic opportunity were to arise, we would be open to it. However, at this moment, nothing is imminent. We are focused on organic growth and continuing our share buyback efforts. To date, we have nearly $500 million remaining in the buyback authorization, with $900 million left. We're carefully balancing our objectives of returning capital to shareholders while prioritizing organic growth.

Thanks John.

Thank you. And our next question comes from the line of Glenn Schorr from Evercore ISI. Your question please.

Hello, thank you.

Hey good morning Glenn.

Good morning. We would all appreciate seeing an increase in mergers and acquisitions and IPOs, along with improved capital market activity. The potential short-term downside could be less or no net asset growth if outflows exceed fundraising, as was slightly the case this quarter. When I see the 2% year-on-year growth in management fees, I feel it doesn't accurately represent the actual underlying growth and the momentum you've mentioned. I'm curious about whether there is a possibility for achieving double-digit management fee growth as you begin to utilize your available capital. Thank you.

Yes, Glenn, hey, it's John. Look, we had fee revenue growth of 7% in the quarter. A lot of this was driven by our capital markets capabilities. Look, this has been a focus area for the management team, and we're very pleased with the progress we've made in terms of capital markets. And I think you need to take a step back and look at our capital markets in the sense, it's a balance sheet-light business. We really aren't taking balance sheet risk. And again, we're only focused on Carlyle-related capital markets activity. So, I think it's a little different than others in the industry. This business has grown 80% this year. We'll generate a record result this year. So we feel very good about our capital markets effort. And again, this has been a very deliberate focus area for the firm. In terms of management fees, we're seeing really strong management fee growth in solutions. It's up nearly 45%. We're seeing good management fee growth in credit. That grew nearly 11%. And look, as expected, we're still seeing some headwinds in our private equity business in terms of management fee growth, more on the corporate private equity side. We're in the market raising a real estate fund, and we're very optimistic on that outcome. And we've said in the past that fund will be larger than the previous fund. But in terms of corporate private equity, we've been very focused on the performance in this business. We really like the trajectory of this business. And we're confident that we can grow this business over time.

I would just say, Glenn, I agree with your first statement. Sitting here, being in the seat now for a bit over a year and a half, the momentum in the franchise is really just starting to translate into the top line, whether it's in wealth, credit, asset-based finance, the insurance strategy, credit solutions, and in private equity. So the momentum feels quite good.

Thank you. And our next question comes from the line of Mike Brown from Wells Fargo Securities. Your question, please.

Hi. Good morning. Thank you for taking my question. So it seems like at this point, Harvey, year and a half plus into the job, the foundation is kind of in place and established at Carlyle. As you think about the next few years, what is the right way to think about the annual fundraising potential? Is this kind of $40 billion level what Carlyle can kind of deliver on an annual basis? And then also the FRE growth potential from here. I guess if you think about that kind of multiyear horizon, can Carlyle get to a point of delivering low double-digit FRE growth annually? Thank you.

Over the past year and a half, I've focused on ensuring we have the right people in the right positions with an effective capital strategy, expense methodology, and strong leadership. I've made several appointments during this time. Looking ahead, to understand our FRE growth, we need to concentrate on the emerging areas. The capital markets are showing exceptionally high quality in revenue as we maintain a balance sheet-light, low-risk approach, and there's significant potential here. The wealth channel and the Carlyle brand is gaining recognition globally, making it challenging to predict its growth over the coming years. However, we've just launched our second solution and plan to introduce our private equity solution next year. There is clear momentum as reflected in our discussions with advisers and in this quarter's numbers. For fundraising, we set a target of $40 billion this year to assure you amidst my new role. We’ll clarify our communication on this over time. I realize we may have given the impression that this would translate to consistent quarterly figures of $10 billion, but it’s still early at 18 months in, and I can confidently say the momentum is quite remarkable.

Thank you. And our next question comes from the line of Brian Bedell from Deutsche Bank. Your question, please.

Good morning, everyone. I appreciate you taking my question. Harvey, I'd like to revisit the topic of tariffs from a global trade perspective and discuss deployment outside the U.S. How do you view the potential landscape? Are there any regional frictions in deployment that you're noticing? Also, how are you considering deployment across the company between Europe and Japan, and is there any impact from the tariffs in those regions?

So again, regarding the tariffs, it's very challenging for any business, whether global or local, to predict government policy. I believe it would be a mistake to change strategy significantly. However, companies can prepare for various scenarios, which is something that top management teams typically do. In terms of our operations, we have a global presence but also strong local expertise. For instance, in Asia, we maintain a leading franchise in Japan and our reach extends across Southeast Asia, India, and China. This combination offers us a global advantage with regional capabilities. While this is beneficial in any market environment, it's important to prepare for different outcomes. Expectations about tariffs are something we will have to observe as they unfold. What we can be more confident about is regulatory policies and tax measures that can significantly impact the market, investment, and exit opportunities. Nevertheless, there will always be a degree of uncertainty that we will need to navigate over time.

Thank you.

Thank you. And our next question comes from the line of Brennan Hawken from UBS. Your question, please.

Good morning, Harvey. Good morning, John. Thanks for taking my question.

Hey, Brennan.

Hey. I'm really interested in the fundraising aspect. I might be overinterpreting this, but it appears like you're mentioning a target of 40, while the current pace is in the mid-20s year-to-date, which is somewhat lagging behind that target. Was the figure of 40 intended as a way to soften expectations around that number? How should we anticipate the fourth quarter? What are the factors that will influence it? Also, can you confirm if the Real Estate X Fund was closed in the third quarter?

Brennan, it's John. I'll start with that, and Harvey, feel free to add. Look, I'll echo a little bit what Harvey said on fundraising. We feel very good about the momentum we have in fundraising across the franchise. You alluded to it, the number we're $26 billion year-to-date. That's the second-best year-to-date period we've ever had in our history. So I think we have a lot of momentum. We have pretty good visibility into the fourth quarter. The fourth quarter looks strong. So we'll get in and around 40. It's really hard to manage the business from a fundraising perspective to a specific number stuff. Stuff moves forward, stuff moves back. And I focus much more on it over a longer period of time. I think we'll get close to the 40, maybe we exceed it slightly, maybe we underachieve it slightly. But in terms of how we think about managing the business, it doesn't really matter because we look at it over a multi-quarter period. And quite frankly, we focus a little bit more on just the momentum we have across the franchise, whether that's in our asset-backed business. Whether it's in solutions, whether it's in real estate, and Harvey touched on this, we're seeing great momentum in the wealth channel. And we continue to think that will be a big component of fundraising going forward. So I guess, I'd answer it more in terms of we feel very good about the momentum we have going into the fourth quarter and next year.

We weren't trying to indicate anything specific with that statement. There are aspects we can fully control, like how we're managing FRE as we approach the end of the year, which allows us to provide more certainty. If a few key clients decide to delay their decisions for reasons related to the election or other matters, we will collaborate with them. Our approach to fundraising is not about reaching a specific target; instead, we focus on deployment, running the business, and meeting our clients' needs. That’s the rationale behind what I mentioned. If I gave the impression that 40 was a hard target, I should have clarified that it's more about being flexible around that number. Overall, there's no significant indication beyond the fact that the momentum is looking strong. Thank you.

Thanks for that clarity.

Thanks.

Thank you. And our next question comes from the line of Steven Chubak from Wolfe Research. Your question please.

Hi. Good morning, Harvey and John. And thanks for taking my questions. So I was hoping you could help frame the revenue opportunity in capital markets. With deal activity poised to accelerate, you noted you're seeing momentum across the franchise. Just trying to gauge how you think about an achievable run rate for this business and whether you're adequately resourced at least in relation to the opportunity that you envisage?

In terms of our resources, we feel fully equipped. The changes we implemented last year focused on prioritization, alignment, and incentives, which is evident in the results we're achieving. As for Q4, we are already seeing record activity for the firm despite the quiet environment we anticipate. A key question for us is when this will transition into a more balance sheet-intensive model, but we still have plenty of room for growth before reaching that point. I believe we have significant capacity, and increased deal activity will lead to further opportunities. It’s challenging to predict future economic activity, but I can assure you that all components of our operation are in the right place now.

Yes, Steve, I would just echo what Harvey said. We're going to have a record year across the platform in terms of capital markets revenue. And I would just repeat this was in a relatively quiet market. And as markets continue to improve, we are very comfortable that we think that number should continue to accelerate.

Thank you. And our next question comes from the line of Bill Katz from TD Cowen. Your question please.

Okay, thank you very much and good morning to everybody. Just maybe a slightly different tack on FRE. You've done a very good job of enhancing the FRE margin as you mentioned, year-on-year, and if you look at the different segments it's up very strongly. What's the algorithm for next year as we look ahead? How much more incremental margin can you shoot for? And then just to have a secondary question. Just given the interplay between where you're growing assets, where you're realizing assets how do we think about the interplay between fee paying AUM growth versus the base management fee rate? Thank you.

Well, before we dive into the details, I want to take a moment to acknowledge John and the entire management team. Over the course of several months last year, they completely restructured the compensation methodology and implemented expense-saving initiatives. They have achieved remarkable results in a short amount of time and have laid a strong foundation for the operation of the firm. Personally, I believe there is even more potential for growth. Now, I will hand it over to John to discuss some of the specifics, though he might not give himself or his team the credit they deserve, but I will do that for him. John?

Yes, Bill, we are very optimistic about FRE. We achieved a record year and are on track to reach $1.1 billion for the year. We have strong visibility for the fourth quarter and are pleased with the current margin at 47%. To put this into context, that's 1,000 basis points higher than last year and about 2,000 basis points higher than five years ago, reflecting significant progress. However, the management team's focus is primarily on growth. I would prefer to see the FRE margin increase through organic growth rather than solely through efficiency improvements. While we will gain some margin from operating efficiently, I believe you can expect that margin to enhance as we grow over time.

Thank you. And our next question comes from the line of Michael Cyprys from Morgan Stanley. Your question, please.

Hey, good morning. Thanks for taking the question. Just wanted to ask about asset-based finance, a meaningful growth opportunity for Carlyle. So hoping you could just update us on where that stands today just in terms of AUM, how that part of the business has been growing. And maybe talk about some of the steps you might take into '25 to accelerate growth of that platform. And to what extent might you look to expand platform capabilities here to best capture the opportunity set? Thank you.

Yes, it's John. Look, I think it's an enormous opportunity for the industry and for Carlyle. And I do think it will be a large driver of credit growth for us going forward. But I'd say, look, it's very early days in the ABS space. Again, I think this market is enormous. It's multiples of direct lending. We obviously announced the Discover transaction a couple of months ago. It was a very high-profile transaction for us. That transaction is largely closed post the third quarter. So we're very pleased with that. Look, this is a business we started from scratch organically a couple of years ago. We already have roughly $7 billion of AUM. The pipeline continues to be one of the stronger pipelines we see across the platform. And look, it's a mix of one-off portfolio purchases and flow arrangements. We have in place a handful of flow arrangements. I would expect that to continue to increase over time. But I think it will be a mix of kind of portfolio purchases and flow arrangements. A couple of the flow arrangements that we have that you've probably heard us talk about in the past are Monogram, Triad, Unison, covering multiple different assets, and we have others. And you should expect us going forward to have more flow arrangements or more flow partnerships as the business continues to evolve. But we really like this business. We're really pleased with where the business is, and we think this business has a lot of potential.

Great. Thanks so much.

Thank you. And our next question comes from the line Craig Siegenthaler from Bank of America. Your question please.

Hey, good morning everyone. Hope you are all doing well.

Hey, Craig.

Stock-based comp is now run-rating between 120 and 130 after the grants earlier this year. And I believe you commented on prior calls that there should be a step-down next year in 2025. However, I also believe the mechanics of the issuance is related to the price of the stock, which is higher today. So I just wanted your perspective on how we should be forecasting stock-based comp next year relative to where it came in this past quarter.

Hey, Craig, it's John. Good to hear from you. And I've said this on previous calls, a little bit of this is around the specific accounting treatment for the performance stock units. As you recall, from an accounting perspective, we are expensing them heavily upfront versus when they actually vest. And you've seen our stock-based comp at elevated levels the last few quarters. It's elevated today in the third quarter. It will continue to be at the third quarter level in the fourth quarter. But in 2025, we do expect to see that stock-based comp number trend down to more normalized levels.

Again, this is the accounting phenomenon of the grants that we gave. One of the things that we strategically did obviously is announcing the share buyback in advance of those awards, which are much higher stock levels. We already bought back a significant portion of anything associated with that dilution. So that's why you're seeing these dilution numbers look so attractive, certainly relative to all the years prior to John and I doing this. This is the first two years dilution hasn't been a negative.

Yes. I mean, Craig, the last two years, the share count is actually down. It's down 1% this year. And look, we're very focused on repurchasing shares.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Daniel Harris for any further remarks.

Thank you all very much for your time and attention today. Should you have any follow-up questions, feel free to reach out to Investor Relations after the call. We look forward to talking with you again next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.