Good day and welcome to Ares Management, L.P.’s First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on Thursday, May 3, 2018. I will now turn the call over to Mr. Carl Drake, Head of Investor Relations for Ares Management. Mr. Drake, the floor is yours, sir.

Thank you, Mike. Good afternoon and thank you for joining us today for our first quarter 2018 conference call. I am joined today by Michael Arougheti, our Chief Executive Officer and President and Mike McFerran, our Chief Operating Officer and Chief Financial Officer. In addition, David Kaplan, Co-Head of our Private Equity Group, will also be available for questions. Before we begin, I want to remind you that comments made during the course of this conference call and webcast contain forward-looking statements and are subject to risks and uncertainties. Our actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. We assume no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results. Moreover, please note that performance of and investment in our funds is discrete from performance of and investment in Ares Management, L.P. During this conference call, we will refer to certain non-GAAP financial measures such as economic net income, fee-related earnings, performance-related earnings, and realized income. We use these as measures of operating performance, not as measures of liquidity. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with Generally Accepted Accounting Principles. These measures may not be comparable to like-titled measures used by other companies. In addition, please note that our management fees include ARCC Part I fees. Please refer to our first quarter earnings presentation that we filed this morning for definitions and reconciliations of the measures to the most directly comparable GAAP measures. This presentation is also available under the Investor Resources section of our website at www.aresmgmt.com and can be used as a reference for today’s call. Please note, we plan to file our quarterly report on Form 10-Q by next week. I would like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any securities of Ares or any other person, including any interest in any fund. This morning, we announced that we have declared our second quarter common dividend of $0.28 per share, which will be paid on June 29, 2018 to holders of record on June 15. We also declared our quarterly preferred dividend of $0.4375 per Series A preferred share, which is payable on June 30, 2018 to holders of record on June 15. Now, I will turn the call over to Michael Arougheti.

Great. Thanks, Carl. Good afternoon, everyone. Our first quarter results reflect our continued strong momentum with fee-related earnings, up 29% year-over-year and another strong quarter of fundraising with over $6.9 billion of capital raised. We also continued to generate strong investment performance and we were successful in using our flexible strategies to drive capital deployment in a challenging environment. I will spend a few minutes discussing the key events of the quarter and then I will hand the call over to Mike McFerran, who will take you through our financial results. So, let’s start with fundraising. We believe our strong and consistent long-term fund performance, loyal and growing LP base, differentiated strategies and deep and highly effective marketing and business development teams have translated into additional interest in Ares funds and a strong level of new commitments. During the first quarter, we raised gross new commitments of $6.9 billion, one of our highest quarters ever. Our fundraising was highlighted by $3.5 billion in new and additional U.S. and European direct lending commitments, U.S. and European CLOs totaling $1.1 billion in the aggregate and $300 million in new commitments to other credit funds. We also experienced the first closing for our fifth European real estate fund of €624 million and now we are well on our way to our target of €1.25 billion. On this particular closing, we had great support from our existing investors, who represented approximately two-thirds of first closures and increased their commitments by an average of 42%. Since quarter end, in fact, just yesterday, we held a significant first closing on our fourth European direct lending fund of over €5 billion in equity commitments. Including anticipated leverage on the equity commitments closed thus far, the total pool of capital exceeds €8 billion, or close to $10 billion…

Thanks Mike. From a financial perspective, we are off to a great start in 2018, with year-over-year double-digit growth rates in AUM, management fees, fee-related earnings and economic net income. Based on our new funds already closed, along with our forward pipeline of new potential funds, our AUM growth outlook remains strong. The 29% year-over-year growth in our core earnings, otherwise referred to as fee-related earnings and the continued pace of strong fundraising with approximately $12 billion of capital raised since the beginning of the year, as Mike referenced, illustrate the significant momentum of our business as we continue to execute on our key business objectives. Before going into details on the quarter, I do want to highlight that we have made a change to our financial reporting to better reflect our new corporate tax status election. We will now be reporting realized income instead of distributable earnings. We believe realized income is a more appropriate measure and concise earnings measure to evaluate our current operating performance, which takes our economic net income and deducts the unrealized performance-related earnings. Since our dividend policy is to pay a fixed quarterly dividend reassessed annually and based on expected after-tax fee-related earnings, we believe realized income allows us to assess current period income, while distributable earnings was related to cash available for distributions in our old flow-through structure prior to our change in tax status. Next, I will spend a few minutes on our quarterly results. As Mike described, the strength of our fundraising has supported our AUM growth, which is up 13% year-over-year to $112.5 billion and our fee-paying AUM growth, which is up 8% to $75 billion over the same period. For the first quarter, management fees and fee-related earnings increased 11% and 29% from the first quarter of 2017 respectively.…

Great. Thanks Mike. We just couldn’t be happier with where we are. And as you can see from the growth in all of our metrics, we are trending positively and we have meaningful industry tailwinds driving our business momentum. Our investors continue to reward our performance with larger commitments, which is deepening our relationships with them. Our client growth has also benefited from our investors giving us a greater share of wallet, both in existing strategies and a growing number of new strategies. We believe we have a lot of room to grow and we firmly believe that alternative investments will be even more important part of our investor portfolios in the next 10 years than they have been in the last 10. Over time, our new corporate tax structure and dividend policy should enable us to retain more capital for growth. We have opportunities to grow organically by increasing our fund sizes or by expanding our products, geographic coverage or channels of distribution. And in addition, we continue to actively seek opportunities to grow through acquisition inorganically that we expect would be beneficial to our stakeholders over time. So as always, we appreciate your time and support today and for the company and thanks for the time. And with that operator, could you please open up the line for questions?

Yes, sir. [Operator Instructions] And the first question we have will come from Craig Siegenthaler of Credit Suisse. Please go ahead.

Good afternoon. This is Jordan Friedlander filling in for Craig Siegenthaler. So Ares converted to C-Corp for tax purposes in March of this year. However, we believe you converted to the check-the-box structure and estimate Ares would need to go one step further to the up-C structure to be eligible for index inclusion in the major indexes. What are your updated thoughts around converting to the up-C structure? And can you provide some color on this process?

Sure. So, you are right, Jordan. What you are referring to is check-the-box as synonymous with a corporate tax change to – or change of corporate tax structure from a partnership. What I think the step you are referring to that we did not take was actually just making a state law or legal conversion from a partnership to a corporation. We don’t believe and we are still working on this that that in itself results necessarily in index inclusion. We are currently spending time looking at indices and talking to some of the major index managers, including Russell to fully understand the rules and think about how our structure applies to them. But at this point, we haven’t concluded whether a legal change increases the likelihood of being included in the search in indexes or not. We are aware that certain indexes were focused on ensuring that you did not publish K-1s and do not have any UBTI flow-through income, which we affirmatively do not have, probably start conversion on March 1. So, it’s something we are continuing to look at and we will keep everyone posted as our thoughts evolve.

Got it. Thanks, Mike. And then one quick follow-up, Europe and U.S. direct lending products are seeing very strong demand from investors, can you touch on a little what’s driving this? And given the large deployment activity in these strategies at this point in the cycle, how are you thinking about the underlying credit risk?

Sure. I’ll take that and Kipp, who I think has joined us, can chime in. So when you think about direct lending as an asset class and what it provides for investors as an alternative to traditional fixed income, first of all, you have shorter duration than you have in most traditional high grade or liquid fixed income assets. You have floating rate. And so as we are seeing a move up in short-term rates, we are seeing outperformance. You have active management, which we think leads to superior credit outcomes and performance over time. And you have seniority in the capital structure of which late cycle, I think is very attractive to folks. When you put all of that together with short duration and lack of correlation to other asset classes, etcetera, we are still able to generate returns of about 150 to 250 basis points in excess of other fixed income alternatives for our investors in our U.S. and European direct lending strategies. The trade-off is illiquidity and as we have been highlighting over the course of the last couple of years, our investors have been willing to trade that liquidity for that excess return more willingly than they probably had 10 years ago. In terms of why we are comfortable obviously, Ares manages close to $80 billion in both the liquid and illiquid credit markets. You have to appreciate these are very significant addressable markets globally. To put it in perspective, we believe that the U.S. direct lending market that we serve is close to $1 trillion end market. We know this from the deal flow that we see and that we evaluate. And to put the selectivity in perspective in the U.S. direct lending business to core middle-market companies, we look at close to 1,400 discrete…

Great. Thanks, Mike.

Next, we have Brent Dilts of UBS.

Hi, thanks, guys. Appreciate the color on the increased interest from public shareholders in C-Corp election. Was wondering if you could talk about what if any impact the election has had on conversations with existing or potential LPs?

Yes. It hasn’t actually factored into the conversation at all. One added benefit that’s new launched is with our new strategy of retaining performance earnings for investment in growth, I think some of our more sophisticated LPs recognize that over time that should drive even greater alignment with us is the GP and there is the LPs as it allows us to invest more of our own capital into the funds alongside of them. So, I do think there is a longer term benefit in terms of greater alignment, but it really hasn’t factored into the conversation we are having with our institutional investors at this point.

Okay, fair enough. Thanks. And then this one is probably for Mike Arougheti. At a recent conference you spoke of seeing structural weakening in the credit markets, although you did mention the default environment is still benign. I was wondering if you could just elaborate on specifically what you are seeing that suggests there is a little structural weakening, just talk about how Ares is positioned, particularly in an increasingly competitive backdrop for private credit that seems to be kind of in the later stage of the credit cycle?

Kipp, do you want to handle that?

Yes. Can you hear me?

Yes.

Great. Look, we have positioned ourselves as best we can in a challenging new deal environment by moving substantially up the balance sheet trying to be senior secured or junior secured in most of the investing that we are doing. That’s true both in the U.S., probably less in Europe, because we are less concerned about the competitiveness frankly there as we are here in the states. If you spent any time going back and looking at the ARCC metrics from yesterday’s call, which certainly isn’t a requirement, but what we told people was in fact our non-accruals, which is obviously an indication of our distressed loans are in fact down. I think qualitatively when we look at the portfolio we do see a little bit more stress, a little bit more on the watch list and that’s just probably to Mike’s comment whenever he made them at whichever conference, it is the anecdotal theme that would run through some of our thoughts on our U.S. credit portfolios.

And again, when we talk about structural weakness and this is not anything new. We have been seeing it develop as the cycle matures. It’s things like lose your covenant levels, underwriting more adjustments to EBITDA in base cases, looser definitions and baskets within credit agreements. But that’s true in every asset class where we are seeing structural loosening, it just manifests itself differently. Again, I think the key is we have all been in these markets for 25 years. We have been through many cycles together. We know how to navigate them. So you can’t be blind to them, but knowing how to navigate around them, we are still finding very, very attractive relative value that we are excited about investing in.

Great. Thanks, guys. Much appreciate it.

Next, we have Michael Carrier, Bank of America.

Alright. Thanks, guys. Just one question on sort of the FRE margin outlook and it’s – I mean, if we look at the fundraising, Mike, you mentioned the European direct lending at €5 billion like double the first one. And then over the next maybe year or so, you have got the ACAS portfolio repositioning and then eventually the waiver is rolling off. And then you might get the leverage up in the BDC. So I am just trying to understand given kind of the growth on like the top line or from a fundraising standpoint, how should we be thinking about that over the next maybe 2 years from like a margin standpoint as some of those businesses continue to increase scale?

It’s a great question. Your final statement is there in your question, I think is the answer, which is as our businesses continue to scale and that capital comes online and gets deployed, we think over the longer term our margins will continue to expand. We have demonstrated this over the last couple of years. In the last 12 months alone, we have had a 15% operating margin expansion. So, our expectation is a lot of what we do is scalable and there is inherent efficiencies across a lot of aspects of our business, particularly in our operating model, where you have heavier fixed costs that serve a larger platform, your margin is going to go up. So, we don’t have what I would call a targeted year-by-year margin outlook for the coming years, but our overall philosophy is it should grow and we believe it will.

Okay. And then Mike just something small on – when I look at the like the performance kind of earnings like the incentive versus kind of the investment income, it seemed like it was more divergent this quarter. I don’t know if there was anything like specific that drove kind of like a weaker investment income versus the incentive income?

No. I don’t think, it has to do with where you are with certain funds. And keep in mind, a lot of our funds now are earlier stage deploying capital, where we are going to be picking up, where there is current income out of the gate, but investment or the carry will come later. But that’s – you see a little bit of that fluctuation in any given quarter.

Okay, thanks a lot.

And next, we have Kenneth Lee of RBC Capital.

Hi, thanks for taking my question. Just wondering if you could comment on the current environment for deploying capital, whether there have been any changes from recent quarters and also what’s your near-term outlook for potential portfolio realizations? Thanks.

So I like some of the comments I just made, but the markets we are in are competitive. Again, we are late cycled. There is a lot of liquidity in the markets. Good news is the economy is fundamentally strong. We are seeing it in all parts of our portfolio and we are seeing it in all geographies. As I mentioned, you drive competitive advantage focusing on proprietary origination and self-sourcing. You drive it with research and information edge. You drive it with long-dated and flexible fund structure. So we are still able to drive what we think is very attractive deployment. We deployed $5.8 billion in the quarter as I mentioned in what are large addressable markets, but we are having to work hard to do it, we are looking at a lot of different situations. But when we find the ones we like, we have a lot of tools at our disposal to make those investments. In terms of the realization environment, I will hand it over to Mike McFerran, because I think there is a really interesting story that we should probably highlight for folks.

Yes. I think you have to look at where our accrued carriers today. And if you look at our earnings presentation, I know we called it out during our prepared remarks. We have net accrued performance fees of $257 million at quarter end. And to think about the timing of realizations on those, it’s important to think of where they – which funds are those in and where they are in their lifecycles. So of that amount, about $180 million is an American style waterfall funds, which means as we get realizations, we will be able to take to carry real time. Of that $180 million, 97% of it is in funds that have now ended their investment period, which means they are effectively in harvesting mode and no longer deploying capital. So stepping back, about 70% of our accrued carry is eligible for real-time payment as realizations occur and as tighter funds pass investment periods. So I think we have talked about on past calls, this remains an attractive realization environment. It is going to be volatile for any given quarter based on when transactions happen and get closed, but where we are overall from an accrued carry perspective, it feels really good in the quarters ahead.

Great. And just one follow-up on the direct lending side, maybe you could comment on the competitive environments, whether you are seeing any new entrants come in and whether competition from the banks have changed more – in the more recent quarters? Thanks.

Kipp, you want to take that one?

Sure. I think we have seen more – I will hit the U.S. perhaps first, more just a shift in terms of who is managing some capital. There have been some interesting transactions in the space, one where a firm like a KKR, for instance, has taken over a whole host of assets there and have added capabilities. But again, that’s kind of not new capital in the system. So in terms of truly new entrants in the U.S., I would say, not really, right. It continues to be, I think to Mike’s earlier comments, the LPs putting more hands and more capital on the hands of the market leaders like ourselves. In Europe, I think which is a bit of a more significant growth opportunity it’s earlier in the development of the markets there. I think we are seeing more attempts at true new entrants. But that same dynamic that I mentioned in the U.S. is occurring in Europe, where many LPs are finding it more efficient to simply choose market leaders like Ares and give them more capital. And that’s obviously what happened vis-à-vis the first closing that Mike talked about on our forced fund there. So, we are thrilled. We are thrilled about that. I am sorry, your follow-on question?

Yes, just whether you are seeing banks step back and obviously the regulatory changes? Thanks.

Yes, sorry about that. The up-market in our U.S. business, we will participate for sure underwriting larger transactions. We have done deals as large as $1 billion, slightly over $1 billion. So in a transaction of that nature, we will see the investment banks come in, but as obviously, as an underwriter and syndicator of transactions, not as a holder or as an owner of any of that transaction. Down-market, there continues to be this belief that regulatory rollback and other relief for the financial systems has led the middle-market bank types to come back into our market, which we haven’t seen it at all. They really don’t have the staff to compete with us. They don’t have the flexible product offering and we just don’t see it at all. On the European side, it continues to be less and less bank driven, but we have always under – operated under the assumption there. And frankly, in the U.S., that we are happy to do deals with banks, banks still make up about 50% of the UK and European lending markets and we don’t think that it will ever quite swing to where the U.S. has gotten where it really is kind of 90% non-bank, 10% bank, we do think it will keep going down below that 50% number. But our product set in Europe is very different, much more flexible, much more nimble, can write larger tickets, more substantial hold sizes. These are all just huge advantages that we have vis-à-vis the banks these days.

Great. Very helpful. Thanks.

One last comment just to follow on that we are seeing, which I think is something to watch is the banks have shown a greater willingness to fund the growth of the non-bank lending platforms. And so again, there is a misperception that there has been a huge displacement of the banks by the non-banks. And in fact, if you look at the way that capital is flowing into the market, the leverage facilities that the banks are providing folks like us, there is actually a pretty meaningful symbiosis between the banks and how they allocate versus our business. So, they are great partners for us.

Great. Thanks.

The next question we have will come from Allison Tayler Rudary of Oppenheimer.

Hi, good afternoon guys. My question is on your overall direct lending strategy, again and specifically for the BDC space and it seems to me that there is starting to be a noticeable bifurcation in the market between folks like you who are going to be able to take advantage of the regulatory landscape and perhaps folks that can’t. And I know that you have said in the past that while you really aren’t interested in kind of pursuing an aggressive takeover structure, your performance makes a really strong argument for scale. And I am wondering if you think that the industry needs to take a close look at consolidation and what might be the challenges that, that could present an opportunity?

Yes. I think scale matters so much in direct lending and we say this all the time. I think people have been conditioned to think that size is the enemy of performance in investment management and at least in the private credit markets, it’s exactly the opposite. It’s funny. Kipp is not with us directly, because he is presenting today that very argument and demonstrating how over time our scale has become a huge competitive advantage both in terms of how we source flow, how we evaluate flow, how we fund ourselves. So if you look at the BDC space, we have obviously already been a big consolidator through the acquisition at Allied and ACAS. We are seeing huge performance dispersion between those that has scale and have been in the markets a long time versus those that don’t and are somewhat new entrants. And so we tend to see more consolidation of market share in weaker markets, because obviously, the weak performance comes out and catalyzes consolidation, but I think the investors are on to it. And some of the LP behavior we are seeing in the private markets, I think is a good indication that most folks who are looking at allocating into this sector understand the value of scale and what it can mean in terms of the performance over time. So I think we are seeing consolidation and given that we are still in a benign credit environment and default rates at least industry wide have below, I have actually been pleasantly surprised with the amount of consolidation that we have seen happening within the private credit space over the last 12 to 18 months.

Great. That’s terrific color. And I guess my one follow-up to this would be – especially in light of the fact that you really are going to have a great deal of capital to use for growth going forward, where might we see geographic expansion in the type of direct lending and products that you offer in private credit? Is there opportunity for the types of things that you do to expand to parts of Asia or perhaps other developing markets? I mean are there ancillary opportunities in adjacent competencies that you guys have in power and other types of infrastructure investing?

The answer is yes, without going into too many specifics, private credit broadly define whether it’s lending directly to middle-market corporate borrowers, private equity firms, infra-lending, asset-based lending, transportation finance, commercial real estate mortgage lending, all of those fall into our illiquid credit businesses and we see the opportunity to grow geographically in all of those. As you could appreciate, in order to have a robust private credit market, you need certain regulatory frameworks to be in place. You need a fairly well-established rule of law and bankruptcy code. You actually also need liquid capital markets to create that appropriate capital flow between the liquid and illiquid markets, etcetera, etcetera so each of the markets that you mentioned are in different spaces of development. Europe is obviously the poster child for how this all plays out. We went into the European market in earnest in 2006 at a time when the market was heavily banked. We had a view that the market would de-bank through bank consolidation with the development of the liquid capital markets. And that happened and here we are 10 years later and that team is now approaching $20 billion of capital with this new fund and have really asserted some significant competitive advantages and leadership there. So, we have the playbook. We have seen the markets develop. We have planted seeds in other parts of the world like China, but we are taking a very long-term view as to how these markets can develop, but we do have the view that they will over time and then given our track record, we are supposed to be there.

Perfect. Thanks. That’s it for me.

Thank you.

[Operator Instructions] Next, we have Alex Blostein of Goldman Sachs.

Hi, thanks. Just a follow-up I guess to the last discussion outside of the BDC consolidation, what are you guys broader thoughts on M&A strategy for Ares as a whole? Clearly, you guys are retaining more capital from distribution. So, also you did a little bit of primary from recent offerings. So maybe just help us kind of think through the rationale from retaining more cash and what it could mean for M&A?

Sure. So just to remind folks, when we articulate the value of retaining the cash, we now have the ability to be more active investors in our existing fund strategies to drive some of that alignment and growth that I referenced earlier. We have the ability to seed and accelerate the growth of new fund strategies using our own balance sheet capital. We also have the ability now to look at share repurchases either opportunistically or to pursue a share count neutral strategy over time, which we are actively evaluating. And then there is M&A. And as we have talked about before, M&A has been and will continue to be a meaningful part of the growth opportunity here. You have seen us execute whether it’s the Allied acquisition, the ACAS acquisition, the acquisition of AREA Property Partners or Indicus, our history is that we strongly believe that we can take good companies and make them better by giving them access to more capital, giving them access to some of the information advantages that I referenced earlier. So, where we look and see opportunities, it’s really across the board. We have the opportunity to scale up in things we already do well. We have the opportunity to grow into adjacent markets that we are not currently in, but where we can leverage some of our core competencies to grow a business and we are seeing acquisition opportunities across real estate, PE and credit. And I think folks know this, as we have developed over time, we have a fairly sizable corporate strategy infrastructure here that’s constantly looking at the market both opportunistically and reactively to things that are put in front of us. And to put that in perspective over the last 2 years, we have probably evaluated over a 150…

Great. Thanks. That was pretty comprehensive. Just a clean-up question for you guys as well, just around the – and apologies if it was already addressed, but I am thinking this way, but if I look at the performance fee comp rate, so just kind of the competition associated with gross performance fees in the quarter. That rate was meaningful than it was last – all of last year. I am assuming it’s just the specific investments or specific funds, I guess where the carryover was coming out of, but how should we are thinking about, I guess, that ratio on a go-forward basis?

You hit it spot on. It’s based on the mix in any given quarter. I think we have said in the past that probably the appropriate ratio I always think about in the low 70s, I don’t think that’s changing anytime soon.

Got it. Alright. So, kind of backup next quarter. Got it. Alright, great. Thanks.

Thank you.

And our final question will come from Michael Cyprys of Morgan Stanley. Please go ahead.

Hi, good morning. Thanks for taking the question. So we look across the firm, you have $17 billion in AUM not yet earning fees, some strong fundraising coming in. Can you just talk a bit about how you are creating capacity to put all of this capital to work? How are you expanding, for example, some of the direct origination capacity and the platforms that you have today?

Sure. So obviously, with the increased capital we have to add people and we have done that, I think folks know there are over a 1,000 people here at Ares in 18 offices around the globe, 400 plus investment professionals. And so while we have the advantages that we have in terms of information and capital and people we are constantly adding, I think a great example of that is what we have been doing in our special situations and special opportunities business. We had a scaled capital base. We had a track record and really beginning 1.5 years ago with the hiring of Scott Graves from Oaktree, we have now hired 15 people into that business in the last 12 months. We have retooled and reoriented some of the origination in trading there and showing up not just in investor demand, but showing up in our performance. So we are constantly adding people and resources to scale businesses where we see growth and we will continue to do that.

Okay. And just as a follow-up question, separate topic, performance fees in private equity, I think they were a little bit weaker this quarter. And I think in the release you flagged to the Asia fund and EIF, just hoping you could elaborate a little bit on that and if it was a single investment or more broad-based? Just a little color on what happened there.

Yes. So why don’t we – it was a little bit down this quarter. Asia was off I want to say net to us $5 million, $6 million. It’s not a big part of our investment portfolio. It was a couple of names there. EIF, we gave back in March market, some previously unrealized gains on a particular investment that’s still in development. That investment is still being carried at or above cost. So – and we feel good about the long-term outlook for it. If you recall, an EIF needs a long-term developmental play. So during the course of the development, as you are refreshing your valuation inputs based on electrical prices and other variables, there is going to be a little bit of mark-to-market volatility till projects get completed and sold. But there is nothing what I would call widespread there. And if you look at the quarter obviously, the biggest part of that business is our corporate private equity business, where the portfolio overall was up for the quarter.

Got it, okay. And if I could just sneak in another question on ARCC, I think it’s still below the hurdle rate. I think maybe it was like 100 basis points or so, if I am not mistaken. So just curious if you could help us better understand the timeframe look back to get back up and what actions you might be able to take and could that happen this year? How you are thinking about that?

So when you are referring to the hurdle rate, that’s the hurdle rate on the part 2 or cap gains. Fees were obviously meaningful – meaningfully above the 7% hurdle rate on the income-based fee generation, which has been the historical experience. One of the things that Kipp and the team talked about at length yesterday on the ARCC earnings call was just the historical gains track record and the gains momentum that we continue to see within ARCC. So, there is an opportunity with continued gains to eventually get into the hurdle on part 2, but it’s a large AUM number, but not a large dollar number in terms of the aggregate opportunity for carried interest incentive fees coming out of Ares. So when people look at the incentive eligible AUM, reconciliation in the earnings presentation, that $12.4 billion number of ARCC obviously is disproportionately high in terms of the size of the AUM relative to the overall incentive fee given that obviously they are largely credit portfolio is where we are having good gains performance. That’s not a core focus of the fund.

Okay, thank you.