All right. I know everyone's eating their lunch here, filing in, but why don't we get going? Hopefully, everyone can hear us okay. My name is Brian McKenna. I cover the alternative asset managers and the BDCs and equity research at Citizens. I've actually covered the space for over a decade now, so I've seen firsthand the evolution of the industry, the business models, what's been incredible growth, and most importantly, really strong investment performance. I have seen a few of these double-digit drawdowns in the stocks as well. They're never fun in the moment, but I think one word that I would use to describe the industry is resilient. In the next 15 minutes or so, we're going to talk about the industry. There's a lot to cover. We'll talk a little bit about the past, a lot about the present, everything going on, and kind of where we go from here. It is great to have two of the leaders on stage with me today: Marc Lipschultz, Co-CEO of Blue Owl. He founded, with a few others, the legacy credit business at Blue Owl, Owl Rock, back in 2016. Prior to that, he was a longtime partner at KKR. We have Kipp deVeer from Ares. He is now C o-President of the firm, also a longtime partner. He previously ran ARCC and was head of credit. It is great to have both of you on stage today. There is a lot to cover. Kipp, maybe to start with you, I would love to just hear about how the new role is going as co-president, how your day-to-day has changed a little bit. I'm assuming you're doing a lot of this stuff, seeing investors, et cetera. The two co-president announcements at the firm, how does that coincide with just the natural evolution of Ares? Yeah, sure. It's nice to be here. Thanks for having me. I'm joking around a little bit. I was already doing a lot of this, and now the good news is I get to do it with a better title, as I was joking around. That helps, particularly in other places, not like New York, where that matters more. Yeah, obviously, I've been with the company for 20 years, so I've kind of been there through the growth and the evolution of everything that we've done. I think coming up through the private credit side of the business and then taking over credit, actually, I think in 2016, when you guys were getting started, Marc, we have five businesses on the credit side. It's two direct lending businesses in the U.S. and in Europe. We have an asset-based finance business. We have our loan and high-yield business. Then we have our opportunistic credit business. The short answer to your first question is I kind of worked myself out of a job, which means we have a really, really great, deep, talented bunch of people in all five of those businesses. Any of the strategic stuff or hiring or just changing of the strategy and the people was really done. I went to Mike a couple of years ago, and I said, "I think there are a lot of other things going on at the firm that are pretty exciting where I could be valuable." Obviously, with the transition, with Blair and I getting promoted in February, Blair, just by way of background, my Co-President's based in London, spends a lot of time in the States, was someone I hired to really help drive the growth in the European direct lending business in 2013. If he were here, he'd probably say the same thing. He'd worked himself out of a job a little bit too. That's a hugely successful business for us. We're both able to spread our wings doing different things. What the three of us agreed on was we have a couple of things that we're working on, I'd say, at the enterprise level of the firm, things to do with sales and customer-facing things. There is always operations and technology improvements. We have our hands dirty in a handful of those things. We each, Blair and I, took a couple of different things to really lean into. The opportunities that I saw that I'm spending a lot of time on today include everything from our real estate lending business to our infra debt business, which, unlike some of our other friend and competitor firms, actually do not sit in credit at Ares. They actually sit in our real assets team. Trying to bring a little of what we've done in credit to those two businesses and think about talent and think about maybe additions that we might need to make either to the existing team or new geographies. It also coincides quite a bit with what we're doing on the insurance side, which I know is a focus for you. Obviously, there is a desire, I think, for many insurance companies to figure out how to access alternatives in a way that they never have before. They're in a particularly tough spot with how tight IG spreads are and the way their balance sheets support. That's a smattering of the things that I'm doing. Yeah, it was hard to give up my time in credit. Obviously, it's our largest business, and most of the people that are there are folks that we've hired over the last 20 years, but it's a great group of people. That's great. Marc, looking at the early days of Blue Owl, Owl Rock, going back to 2016, really a direct lending business. Fast forward to today, it's not just direct lending. You have asset-based lending. You have digital infrastructure, GP space, et cetera. Talk about the evolution over the last decade. You've been acquisitive. It would just be helpful to, from your perspective, think through and walk through just the natural evolution of your business as well. Sure. Look, it's great to be here, Brian. Your understanding of this industry is, I would dare say, unique, and to sit with a superstar of the industry is a privilege. Look, we've come a long way in 10 years, but I think some things have stayed the same. Maybe I'll start with what's the same, and then we can talk about the evolution. What's the same was we started the business with a couple of key principles in mind. One was that we wanted to be a capital solutions provider. That is to say, the picks and shovels provider to the gold miners, whatever metaphorical example you like. Our job is to provide bespoke solutions to ultimately what's proven to be a wider range of users. That was the principle first. The reason for that, very importantly, number two, was to architect a set of investment strategies for investors that are much more about downside protection, principal preservation, yield. That is the common thread when you look across the things we do. While it is many more than it was 10 years ago, they are actually still very much adjacent. The common thread is they are very much about the, how do I protect capital and make a nice return, sort of in that order, if you will. Alts, perhaps prior to that, and I was in Alts for 21 years before, mostly had the character of how do I get kind of maximum returns and manage the risk to go with it. That was two. Third was the idea of serving the individual investor and the institutional investor as true peers and not as this, I'm an institutional business and I can deign to do business with these individuals. Those were the three premises, and those are consistent. I guess today I would characterize that as really the DNA of the firm. What we have done is where we see opportunities organically or through acquisition to deliver on those promises, that is how we have built the business. The bulk of our growth has been organic, the substantial bulk of our growth. It is true we have done a number of, which we are very happy about, acquisitions. In a way, the number of acquisitions probably, I do not want to say it is misleading, but actually as a percentage of our enterprise, each one was quite small. We have taken them and done organic things with them. If you take our real assets business, at the time that we acquired what was then Oak Street, it had $12.5 billion of assets. Today, I think we are at $45 billion of assets. Last year was the largest real estate fund raised in the world, I think. Our continuously offered product in real estate is thriving. That now has over $7 billion of equity in it. Not to go down this rabbit hole, but the idea is that it is where we can find strategies that deliver on that promise from 10 years ago and are additive to what people want in their portfolios today. I'm not going to speak for you, but I'm going to add something on that we talk about a lot, which, and I think you guys, knowing you guys as well as we all do know one another and respect one another, a lot of these businesses actually operate better at scale, and they operate better if you can manage them in a global way, right? The acquisitions that we've done have been really to add complements to what we started as a credit business. It is, it's real assets, it's secondaries, it's other things that all of our investors, when we talk to them day to day, want to see from a large, diversified global firm. Most of them actually view us as better positioned to manage those assets as an integrated manager than as a single strategy manager. Yeah, and one other comment on that, because this is a commonality between our firms. That said, there's another version, and this is neither good, bad, or otherwise, just strategy. Some versions of the Alt model are all things to all people. That is not our model. I think I can speak for Kipp as well. It is not their model. It is about certainly multiple different ways to deliver for investors and to win for our shareholders, but it is not everything. I think scale is hugely important in each business and collectively. On the other hand, it is very hard to be good at everything all the time, and you got to know your strengths. That's great. I guess sticking on the point of scale, I think a lot of folks that look into the industry from the outside, they see firms getting bigger and bigger and bigger, and they think it's a bad thing. To both your points, scale is critical. Scale creates the outperformance. Maybe just talk through this a little bit more. From your seat, why is scale so important? What are the competitive advantages? Really, how does scale create differentiated returns for your investors? Yeah, I'm happy to start. No, please, please. Here's the thing too. Scale is not a monolithic term. In some worlds, in some strategies, scale is decidedly advantageous. In others, it's not. In credit, or I'll call it even generally, these capital solutions products more generally, scale is undoubtedly a uniformly advantageous fact. It's about more origination, more underwriting, and ability to participate with the largest companies with their solutions. You want to do a big financing, and you're a big company, and you're a big sponsor. There's only a few people you're going to call, and a couple of us are here. I don't say that with any arrogance. I say that with the benefit of the scalable solutions. There's only an advantage to be able to see more credits and see bigger credits and see better ones and then be one of the few people that's positioned to take advantage of them. That's not true of every strategy, right? Let's take the opposite version, which obviously has nothing to do with what we all do. Venture capital is not like, oh, it's just uniformly better if you just raise more and more and more capital and you're bigger and bigger. It's just not true. In fact, evidence would probably be to the contrary. I think it's important to know what fits your model here. Take the other side of it, the contra. Why would you want to be smaller so you can see fewer things, so you can lend to smaller companies? Less information. Yeah, have less knowledge, less credit. Yeah, it's all over. Honestly, they're just, other than what is not accurate, this argument of, oh, we get better spreads, better agreements, which is just not true in the smaller market. There's just no advantage. In fact, you've seen this. That's why today, if you look at the scale participants, again, just pick credit as the discussion, it's the same people that were really big five years ago have just gotten bigger. That's actually a very rational outcome for this business because it's a better way to do credit. Anything to add, Kipp? Nope. I guess just going back to the business models a little bit, because I think this is important. Five, 10 years ago, the industry was primarily some private equity funds, some direct lending funds, some liquid credit. Fast forward to today, you have capital-light businesses, you have capital-intense, you have on-balance sheet insurance liabilities, you have transaction fees, et cetera. The models have evolved quite a bit. I think you and your peers, you're all kind of doing the same thing, but you're going at it at a little bit of a different angle. I look at Ares and Blue Owl, both models are capital-light, they're fee-driven, they're FRE-centric. Just walk through, I don't think it's a coincidence that both of those models are like that. Just walk through why capital-light and why you operate the business that you do. Maybe start, Kipp. Yeah, I mean, I think it's really important you point that out because we have a lot of folks that come into our office and start asking us questions about our company that seem like they're better suited for not our company. You can probably guess at what I mean by that. People have ended up going different directions, I think, based on their own experiences with how those companies got built. To your question, we've tried to keep it incredibly simple, right? Ares is an asset management firm with strong expertise across a wide variety of alternatives. To Marc's earlier comment, we don't participate in every portion of the market, but we want to participate in the areas where our investors think we can bring them value and great performance. At the end of the day, for the folks that are buying our stock, I think they love the fact that we've been able to grow both organically and inorganically with a very simple business model that at the end of the day, I think is quite easy to value. Other than maybe the last three or four months, it has proven to be the case. Yeah, I'll just echo that. Look, at the end of the day, our businesses both are highly cash generative. Obviously, we've equally made the selection to give that cash to our shareholders. I guess we don't think that there's anything we're going to do with that capital internal to our balance sheet at scale that'd be better than the smart people in this room can do with that capital. If that were strategically relevant, look, you can't be Apollo and say, "I'm going to be an insurance business," oh, and I'm going to be capital-light. You can serve the insurance industry, like we all do. You can have a small insurance business, but that's just a fundamental strategic question. Again, it doesn't make one model right or wrong, but you definitely have to know what your model is and build a business that's consistent with that. We build businesses that are all about fee income, fee revenues. Our entire revenue line is fees, our entire revenue line. That is just compatible for us with having a high margin, high cash flow, high dividend stock. It kind of goes into my next question. I feel like every period of volatility we've had, I've covered the space again 12 years. It's like every few quarters, you get these periods of volatility. People are very negative on the sector. When I take a step back, I look at my Alt coverage, collectively, there's $600 billion-$700 billion of dry powder. I think some folks forget volatility is actually a good thing for your businesses. Spreads have been tight, you get some volatility, they gap out, you can deploy capital into higher quality companies, better spreads, et cetera. Just from your standpoint, why is that so relevant? I think too, you go back and look at where the outperformance comes from through the cycle, it's periods of volatility. I'll take that because that's what I was going to kind of lean in. We've actually, I think, developed real expertise in all the assets that we manage, frankly, in volatile markets, right? We tend to see accelerated growth during periods of volatility. We like that. I was having a meeting before coming over here, and not to give you my commercial on where the world is, but my thinking is actually if you'd asked me three years ago how you're going to see things with a dramatic monetary tightening cycle and all of that, I would have thought you would have seen slower growth, higher defaults, worse credit performance, et cetera, and we're just not seeing it. Rather than talk about first brands, I'll just leave that there. I think the problem is that markets, Marc and I were just talking about this, markets generally feel kind of expensive, particularly here in the U.S., because I think a lot of global investors that we talk to continue to believe, despite all of the negative headlines, people were concerned, not to be political, people were concerned about Trump, then came Liberation Day, and now everything's rallied back, save for maybe the last couple of weeks, to be all-time market highs, tight corporate IG spreads, really tight leveraged finance. That is in response to the fact that the economy is good and people want to invest here in the U.S. I'd be happy if things were a little more volatile in the next year or two because I think we'll succeed as a firm, and I'm sure Marc would say the same thing. Yeah, volatility is fine. And remember, our capital is largely permanent. And so we're quite happy with there being today, good luck underwriting a syndicated loan or a bond deal because the market's wild and woolly in terms of trading behavior. Not fundamentals, right? Our businesses are doing great. Kipp's businesses are doing great. Our portfolio's in great shape. But obviously, the market's all now stirred up about whatever this constellation is of fears. And so that's good for us. I mean, that means more people come to the private market. It means on the margin terms are better. Risk premiums are higher, investing is easier, all of that. It reinforces our model. I mean, today, to me, the irony will be now the new one is data center overbuilt. People should make as much noise as they want. That'd be great because then we'll just all get to do more business with five of the most highly rated, biggest market cap companies in the world. On the point of pretty healthy valuations, things have really recovered off of the April lows. I mean, you still have capital to deploy, right? There are a lot of perpetual strategies in the industry that are raising capital on a monthly basis. I guess where are you leaning in from a risk-reward perspective, right? You have capital coming in, it has to get deployed. How do you make sure you're deploying into the right assets, the structure is right, and you're getting paid for that risk? Yeah, I think there's value in a lot of asset class. I'll just say one caveat for us is we actually, I think, have been thoughtful entering the wealth market and raising capital there in terms of open-ended strategies where we really don't want that capital to kind of overwhelm us. As we always say, fighting the inflows of those, i.e., to deploy because you have those inflows, can be very dangerous. The firm today, I'm just going to use rough numbers because I'll get them wrong, manages about $600 billion of AUM. I think our flows through the wealth channel this year will be about $16 billion-$18 billion. For us, that's pretty manageable. We don't feel the weight of deployment. The way that you counteract that, and I think Marc said it before, is the scale of your origination teams are key. We have 4,000 people in 50 offices. You find a lot of deal flow when you have 4,000 people in 50 offices. That is kind of how I'm thinking about that. For us, I think unlike maybe some of our friends in the industry, it is a little bit less of a concern. It is something that we are really conscious about, being careful about how we grow in that channel. Got it. I guess on the flip side of that, kind of going back to periods of volatility, because I guess the way the stocks are trading, it feels like we're going into this credit cycle, things are going to get really bad. I think, and I believe I asked it on the ARCC call, but when you look back at periods of volatility, I mean, how much excess return has been generated across some of your strategies? I think the beauty of the model is you're not a forced seller, you can lean in during periods of volatility. Is there any way to quantify that? One thing that's important, I think, to probably start with is in our world, and again, be careful because our worlds have lots of different components to them. For the moment, let's talk direct lending, which I think is often where people's focus tends to be coming at the moment. In a way, it ultimately is a relative product in some level, and in some level, it's an absolute product. The absolute part, your earlier question, you say where to lean in, actually even that sort of frame of reference doesn't tend to be what we all do in our core businesses because actually that is to have a standard of credit that is incredibly high. That's why we have such durable books, such low loan losses. That's actually bedrock. What's really happening is deal flow may move around that standard, but the key is to be large enough and disciplined enough to hold the standard. That means, yeah, you'll have some periods where you deploy more, some periods where you deploy less. Even kind of the lean-in mindset doesn't exist within the confines of, if you will, maybe a narrow vertical, other than to say that with regard to looking for opportunities, key is for us to make sure on the relative basis, we're always commanding a very attractive premium for our investors for being a part of our product. We don't live in a bubble. It'd be silly to say it just doesn't matter what the market is. If you look practically speaking over any long period of time in the modern version, where we're talking about these kinds of large cap solutions, spreads go up and spreads come down. They live in a band. I mean, there's a spread level where it just doesn't make sense for us to be active lenders. There's a spread level, by the way, on the other side where it doesn't make sense for people to be active borrowers. If you look, it's just this amplitude. Remember, the portfolios have hundreds and hundreds of names in them. The portfolios aren't like today's spread. The portfolios have some things from today. They have some things from last year. They'll have some things from next year. I think people are getting way too micro-focused about this moment in time and kind of missing the bigger picture, which is great, consistent premium with great credit protection that really works for investors through thick and thin. If you're really worried, I'll just leave this. If you're actually worried about private credit performance, then as soon as we leave here, everyone ought to get out of their stocks and get out of their private equity. I mean, remember, we're the top of the stack, senior secured. By the time you get to that, if that's where your concern lies, I mean, you're skipping a lot of steps between here and there. That's sort of the big miss. I bet we have a lot of the same conversations with many of the same investors. Look, I've kind of been one of the early players, obviously, in direct lending. I've heard this story a lot, which has been wrong for the last 20 or 25 years pretty consistently. Marc's making a really important point, which is there are billions, hundreds of billions of dollars of hard invested equity below the private credit industry as a whole. I'd also remind people it's really not an industry as a whole. It's an accumulation of different managers, some who are quite good and some who are not. I think that manager selection is really important. With some of the, let's paint the whole thing with a broad brush coming out, it's just not a really very accurate way to think about analyzing a market or analyzing returns. Again, just back to longevity in the space, we reported our earnings at Ares, whatever it was, a couple of weeks ago, and the results were quite good. A bunch of the people in our room were like, "Oh, this is great. We're going to put great numbers up. Stock's going to go up 10%." I'm like, "That stock's not going to go up." Yeah. You don't think so? I'm like, "I'm positive. It was 10%. It's just like. I'm positive it's not going to because you catch these moments of sentiment and you can't do anything other than focus on what we've done historically, which is just do your job and generate really good performance and really good results and let the results speak for themselves. Because if people are looking for things around the corner and we're able to put up four quarters of great future earnings, people are going to feel a lot better. Keep it simple. Yeah. Kind of transitioning a little bit, but covering the BDCs as well, I have a whole new appreciation for the portfolios, ARCC, OBDC. They're performing incredibly well. I think people don't understand or fully appreciate the diversification that sits in both of those vehicles, right? The average position size at ARCC is sub 20 basis points. You look at OBDC, I think it's about 40. The non-traded, it's somewhere in between. Talk about the diversification of kind of the direct lending portfolios. You have a turn of leverage. LTVs are at 40%-45% to your point, the amount of equity cushion that sits in these deals. I feel like I have a lot of conversations where it's just educating on some of those dynamics. When you kind of put all those things together, I mean, how bad could things really get? I'm just going to go back to one comment, and then I'll let Marc speak. Just having been CEO of our BDC for 10-ish years or whatever it was, it's actually something that BDC investors do not talk enough about. You say, "Oh, you guys have these huge diversified portfolios," which we do, "and they do not use a lot of leverage," which they do not. That is not what every player in the space does. You see a lot of direct lending portfolios that have 50 names in them that are levered three to one. Back to the scale point. Totally. Why would you want a 50-name portfolio? Totally different potential for outcomes, right? I think you're complimenting us, which is great. I think we've both positioned ourselves appropriately to manage the asset class well. I'll just add a piece of math to that. I agree entirely. I think also, oddly, when you try to do the stress tests, I think people leap from just, "Well, let me just suppose there was some sort of set of problems in the world," which A, starts with a premise that the data does not support today. It does not matter. Just, "Okay, but I'm contingency planning." The durability of being a highly diversified pool of senior loans with deep equity cushions beneath them that in turn are generating a 10% return, you start doing the math and it actually becomes, to use some of your, you use this word, but it becomes impossible in a well-managed, well-diversified portfolio to create the kind of problems people are trying to dream up. Just do some math and go from a world and just simplify it. Let's just take default rates in respective portfolios, like 1%-ish. Multiply by any number you want and reduce recoveries from historic levels of like $0.70 reduce them by anything you want and put that over any reasonable period of time, and then compare that to the fact that there's 10% coming in every year. You can't do it. Yet again, the leap just goes from this noise-generated machine into. Your point on the equity is super important. I was sitting in a BDC meeting a couple of years ago, I think, with our CFO Scott, who I see back there. I had somebody who I'm not going to throw under the bus. Hey, let me go through your first lien portfolio. It is 55% or 60% first lien. Let's say the defaults there get to 5% in recoveries in any case. This is a quick analysis. They're like, "So then I think your NAV goes down by" I'm like, "Guys, what happened to the other half of the capital structure invested in equity? Is it all just gone?" They're looking at me like I'm nuts. I'm like, "Man, this is frustrating. Yeah. That That is the opportunity today because I am looking quite clear. Our stocks are collectively trading with this bizarre fear factor. That is the opportunity for investors. What Kipp said, like, "Look, just keep executing. We know our businesses are working well." That is not to be dismissive. We listen, we hear concerns, we all care. On the other hand, it is not useful for us to come in here and just complain about our lot in life. We have great businesses and they are working well. We have to keep doing it and then try our best to clear the signal and the noise. I think there's also, and maybe it's true of some participants, but we're talking about how this industry has sort of evolved. I really very much think that in direct lending in particular, the winners are already the winners and they're not going to change anytime soon because of the advantages that we've built that are very difficult to break down and compete with. There's sort of this narrative, and it's largely in the press. I was with Bloomberg a couple of times yesterday. I said it to them. He didn't hear it, just joking around. I'm like, there's sort of this narrative that everybody in direct lending is sort of like unwittingly participating in this massive growth of an asset class that we're all like just rowing around, not looking at risks, not being concerned to Marc's point at all. It is a little bit silly because we have kind of set this business up very intentionally over a 20-year period and have demonstrated great results for investors. This notion that like, "Oh, you guys are benefiting from a lack of regulation and the fact that no one wants to do this business except you," is a little bit insulting. Yeah. So what do you think changes that perception? The misinformation that I see is incredible. And part of my job is getting the facts out into the market. I'm bullish on the sector. But it feels like every period of volatility, there's a new cynical narrative that is coming into the market. Ten years ago, it was private equity, marks are garbage, those portfolios are worthless. Then it was the energy, then it was picked, and here we are, it's all private credit. And so, I mean, is it education? Maybe this is just how the markets will always be, but does that ever change? And if it does, what? I mean, I was with one of our friends in the industry who I do think that private credit and the BDCs broadly have not done a good job telling our story. And it's not for lack of trying. I can promise you we've all tried. Whatever we're doing, we're not landing as well as we could. I think it's on us to sort of say, "What can we do better?" I come back to what I said before, which is individually and as a firm at Ares, all we can do is keep showing that really strong result because people pay for performance. I'd come back to that. I do think it's a good question. There's something that we could and should be doing better than we've been doing for the last 10+ years. I also think you kind of break it into two pieces, right? There is the authentic, "Gee, this is bigger than I understood and I do not really think I get it." There particularly, I think it is our job. It is no one else's job or fault to go out and explain some of the things Brian and you explained to people and that we are all talking about today about the portfolios and what we do and how we do it and the nature of the structure of the industry. There is a group of people that are just, it is a self-interested set of attacks. That can be those who compete with us. That can be, look, negative stories get a lot more clicks than, "Hey, you know how great Ares is?" It is just how it is. I think that was the last time you bought a magazine. It was like, "It's sunny and everything's great. Yeah, right. People were like, boring. That's the world we live in, right? Some of it's intentional, some of it's unintentional. We'll try to do our best with the unintentional part, I think. By the way, it has happened over and over. You just talked about this sequence where everything trades down now, all the BDCs, all the stocks. The pattern's kind of obvious. I mean, there's a tremendous pull on all these portfolios over time, all of them that are well done. It's a par. That's the pull to par over time. You go through these panicky moments and people say, "I knew it. Time has come." Every time the same thing happens, I predict the exact same thing will happen this time. Results will be the real proof in the pudding. It'll be forthcoming. It's true that, remember the pandemic? That was going to be the end of it all. Oh, that turned out to be a great opportunity, actually, private credit. Then there was a run on the banks, Silicon Valley Bank. Oh, that was going to be it. Nope, that's okay. That's fine. There's going to be Liberation Day. Oh, no, wait. Nope, that's fine. All you do is keep trying to answer this. You never know. Yeah, okay. We could be in a simulation right now. You never know. I mean, that's a very unhelpful argument. The other one that gets me is the asset class has never been tested. I'm like, "I don't know. We're managing $80 billion of private debt from our houses when companies had no revenue and no one could see each other." During a pandemic, we ran a public BDC through, I hope, the greatest financial crisis we'll see in our careers on Wall Street, so to speak. I mean, it felt like a test to me. It was pretty hard. I always like to say this and someone asks me why, and I think maybe it's just trying to sound smart. I mean, the Medicis were doing private lending like 600 years ago. It really is so not a new idea, but more to be non-facetious about it. Leverage lending has been an active, and I was doing LBOs, when they were called LBOs in 1995, using leverage loans. Just putting the word private in front of them does not make them not credit. That is also a very strange mindset to say, "Yeah, but private credit." Right. You mean the ones with the better documents and deeper diligence. Okay, you're right. Let's go look at the ones that do not have that and see what they did during the financial crisis. Some others are like, "No, forget all that. It's just this imaginary new thing called private credit. Got it. Another topic. I know you guys are getting a lot of questions about it. Software lending. In this new era of AI, I think there are concerns about the quality of that portfolio. Again, I'm quite familiar with OTF, the Blue Owl Tech Lending BDC. ARCC gave some great color on the earnings call on the software portfolio. I mean, you look at all of direct lending, that sector, those portfolios are probably the highest performing, highest quality parts of the portfolio. Why is that? You're getting paid additional incremental spread lending to those types of companies. Let's just walk through why that portfolio is performing so well. Are there any, how do we from the outside think about the risks as AI continues to come into our lives more and more and kind of just walk through that and what's driving it? If you guys have OTF, I'm happy to come on. Sure. Yeah, happy to come in. Maybe to your point about the focus on software is because life loves irony because it is the best performing area in our collective perspective portfolios. OTF, which is obviously therefore visible and you can look at it line by line, our default rate in OTF is three basis points. We've never had a loss on a software loan. That's why I'm making the OTF work. I was waiting for those stats. I mean, it is. Again, then we get to, "Yeah, but what about?" What is really happening in the vast preponderance of the software businesses we finance, and again, this is not one where we are all saying never. I am sure some software company will have a problem, and out of those many, many, many line items. They already have a couple of bankruptcies that are endemic. Exactly. Happens in every industry we've ever been in. If anyone tells you they're doing lending, they'll never have a loan problem. You're in the wrong place. What is happening really is, to use the current terminology, agentification is happening on top of the current software platforms. They have the customers, if you pick the right ones. They have the data. They have the moats to go with it. They have the workflow. Very importantly, when you pick industries, it's not like we just think any software business is a good business. You want someone who has a very large share, controls the data, and very importantly, has a zero tolerance environment. Our biggest sectors are things like financial services, regulatory, healthcare. That's not a place where you can say, "What a pity that the AI in that case happened to have hallucinated your disease." I mean, it doesn't work that way. And so. Sorry, I'll interrupt you for one second. Sure, go ahead. Because that's kind of a big miss. Software is not an industry. It's a product. And its end markets deliver into a wide variety of, you hope, defensive, not cyclical end markets where their products are really important to these end companies that are probably not experiencing difficulties in a recession. Even if they are, for us, and I think for you guys too, this is software they really can't shut off. This is essential to driving their day-to-day business and the management of that business. Remember, our average loan duration in any of these portfolios is about three years in terms of actual time outstanding. We are not only talking about, "Oh, and in three years," that all this happens and the software companies are not paying attention. They are. They did learn a hard lesson. The legacy software companies learned a very hard lesson through the SaaS transition, a painful lesson. It is not like they are sitting there saying, "No, I never saw this movie before." They are saying, "I know exactly what this looks like." Many of you invest across sectors. It is not like the software companies are saying, "Yeah, that AI thing, forget that." They are all adopting the tools. I do not know who will win 10 years from now, but that is really quite unimportant to a lending portfolio like ours. For sure. LTVs of the software portfolio, can you just remind us where those sit today? I think that's another important stat. Is it 30%? Yeah, close to 30%. And there are loan to values in these loans that time, back to the point, time you do a deal, typically it is 30%-ish for a software deal where it is 40%-something for a non-software deal. Both are low. Again, if you want to know where the risk, the fluctuations on it, and it is true that software, people got pretty hyped about it in 2021. Maybe this is the growth. Maybe this is not the growth. If 70% of the capital structure is equity, all the shock absorber is just to the question of the equity results. It has nothing to do with the debt results. Shifting gears a little bit. I mean, it's funny. People talk about private credit the last few years, five years. It's really been direct lending. Now we're getting into, I kind of call it private credit 1.0. 2.0 is all asset-based lending. Really, that's where a lot of the growth is going to be coming from. Kipp, you and Ares have built an incredible alternative credit business really from scratch, organically. Just talk a little bit about that strategy, the assets you're acquiring. It's pretty similar to direct lending in terms of the process and how you underwrite, but what do some of the differences look like just to the regular direct lending? Yeah, I mean, our entry really came out of the great financial crisis. I mean, because we come from kind of a direct lending background, at least a lot of us, the experience that we had setting up the businesses in direct lending are very similar to the experiences the alternative credit teams have had setting up at Ares where they basically said, "Everything I do at a bank, I can't do anymore." It was partially because of regulation. It was partially because the way the banks thought about risk changed. What we wanted to do, because actually the impetus was investing in other people's CLOs. That was the first business that we had back to 2007, 2008, probably managing $2 billion-$3 billion of capital doing that. We realized that all the other businesses built on securitizations were never going to come back, particularly the middle market securitization. Because if you were a bank in 2007, if you did a big securitization that you could rate and sell, you sold that to a financial institution that looked a lot like us, a leverage loan. All the middle market stuff that used to sit on principal desks in banks, guess what? Never came back. That to us looked like a middle market corporate direct loan just with different underlying. We went out and started hiring everybody who got fired from 2009 to 2012. There were a lot of good choices. We wanted to come at it with people that could really evaluate a multitude of different assets. What was happening back then was so-and-so was like, "I'm an aircraft leasing guy. I'm going to pop up an aircraft leasing strategy. And we wanted to be very agnostic in terms of what the underlying collateral was because we could move around. And And we could really select what we thought was great risk-reward. So I mean, our asset-based business today is now about, oh, sorry, about $25 billion of sub-investment-grade money that's looking for a higher return, call it 10% net at a minimum. And then we do have what some of our friends with big insurance companies talk about, which is the investment-grade substitute business. That's about $25 billion as well. But inherently, all of the business is built on direct origination. And that can mean direct origination to banks, but it can also mean a lot of direct origination to company. And we're not doing a lot of consumer right now, but it's everything from consumer to hard assets to royalties. Really see any pool of underlying assets that pays a coupon that's not a company. You can lend to that asset. You can buy the entire pool. The way that you buy those assets as a lender or as an owner expresses your view on where you think the appropriate risk return is and how you want to enter that. It's been, for us, I know you guys bought some friends to get into the business who we have friends at Atalaya who we've known a long time. There's two. One of the guys that runs our alternative credit was Ivan's partner from the early days of the company. Yes, I know. When they had like eight people or whatever it was. Common lineage. Yeah, which is funny. They all kind of grew up in the business together. We think the end markets there are enormous. Like direct lending, we do not think the banks are ever going to be able to get back into these businesses. Frankly, the people who work at Ares and at Blue Owl are not going to want to go back to the banks to run the businesses. It has been a huge growth business for us. We think it will continue to be. Adding one feature to that, it has an even higher barrier to entry, which is great. Now, being the managers for a moment, it has an even higher barrier to entry because someone may very well convince themselves and some LPs like, "Oh, I'm going to go find the next widget manufacturer. I can figure out how to make a loan to that." You can't say, "Oh, I'm going to figure out how to make a loan to these 1,000 medical equipment leases." I mean, it's a super data-intensive business. It's evolving the same way where there are bigger people originating portfolios that need a sophisticated durable partner. It is really quite appealing because the barriers are even kind of higher. The thing that's cool too is when you talk to investors just having, I mean, when I joined Ares in 2004, we were $3 billion of AUM, 60 people. We would go out and we would talk to institutional investors about direct lending. And they're like, "That sounds kind of neat, but we do not know what that means. We do not understand that." We have a fixed income team and we have a private equity team. Where do you guys fit? And we're like, "We kind of do not. We kind of fit in the middle." This asset class is the same. There are so many large global investors that understand that there is something exciting here. And they're like in the first inning of scoping out how they want to get exposed, which managers they want to select for mandates, etc. We think it is a huge opportunity. I know you guys do too. Yeah. I guess thinking about the adoption of private capital solutions, started as private equity and then direct lending and then here we are, alternative credit, digital infrastructure. You kind of keep going down the list. When you look at the adoption of private capital today, I mean, where are we across the spectrum? Direct lending is probably a little bit more mature. You look at digital infrastructure and asset-based lending, I mean, what's the opportunity? Is there a way to think about the TAM there at $50 billion? I'm assuming that could be multiples. Even Atalaya, now alternative credit, that could be $12 billion-$13 billion today. In three to five years, what do some of these end markets in terms of your business look like? A couple of comments just to build on what Kipp just said. For sure, on the asset-based side, like I said, take it directionally. Cut it how you want. It's a bigger addressable market than direct corporate credit. It doesn't matter if it's a lot bigger or not a lot bigger. Everyone draws the map a different way, and whatever. I agree with you. Let's just start there. It's a bigger addressable market that has penetration that looks a whole lot like corporate direct lending 10 years ago, a lot like. Digital infrastructure is obviously emerging at scale in my wildest dreams, but I think I can speak for both of us. I don't think we ever started a business thinking, "You know what I'm going to do? I'm going to be a lender to Microsoft. That's what I'm going to do." I mean, that was not part of the playbook, but that's what we now do because it scales solutions with very bespoke attributes with an ability to build an asset they desperately want and need. What a great partner to have. The world's getting bigger because it's not going to eliminate. The public markets are phenomenal for so many things. This is part of it. If you like to set up this battle between the publics and the privates, we do something very valuable for a certain set of users. It's a big set of users, which is we have very long-dated solutions, very bespoke solutions, and we're your partner for the long term. That has real value you'll pay for for some people. The public markets do some other things. They cut up really high volatility risks that none of us will take in our book into lots of small pieces. That's really good because we're not financing, "Hey, I have this really neat idea to build an LNG import facility." That's not what we do. You need both markets to be healthy. They both have a reason. Private markets are just finding part of any market that exists to be a private market solution. In some cases, it'll be a big part of the market. In some cases, it might be small, but it's because it works for the investor. It works for us as an asset manager, and it works for the user of the capital. Just a couple of final questions to wrap. I mean, kind of going back to the macro, I mean, again, another thing, dynamic that's underappreciated is the amount of data that sits in both of your firms, all the different data points. But from a macro perspective, an underlying growth perspective, I mean, what are your firms seeing in terms of revenue growth, EBITDA growth? Maybe some of that has to do with the sectors you're allocating to. I mean, what is the house view on the macro over the next year, one to two years? I think our simple view I mentioned is the economy is good. You made the point about industry mix. I already said this on the BDC calls, but our mix of companies should be growing faster than GDP. That is obviously by design. The BDC has had numbers that have ranged from 8%-12% over the last six quarters. That is pretty high. My own view is things are slowing a little bit, but it depends really on the direction of rates. I personally think rates will stay higher for longer. Inflation seems like it is more or less under control and away from the lower-end consumer. Spending is pretty good. The employment picture is pretty good. I do not see a huge need for lower rates. I think we are in kind of a nice coupon clipping-y credit, actually, environment that is quite good for credit. I mean, that's perfectly said. Yeah, perfect. Okay. Maybe just the last question. Let's fast forward, call it five years, outside of maybe a robot asking you guys questions on stage about pick income. My robot will answer those questions. That's right. We're getting fed the same answers we see today. What does the industry look like? Who are the winners? Are the winners of the last decade the winners of the next five to ten years? I guess just thinking about AUM in longer term, where do we go? I was going to say that's too hard a question for me. I think you have to go business by business a little bit. I mean, I made the point about direct lending winners sort of being, I think that's pretty fully baked. Alternative credit, I think we need to be innovative and think about growth in areas that we can continue to build upon what's clearly an attractive kind of first mover advantage that we have along with some others. I guess the last thing I'd say, and I'll leave it to Marc to conclude, but our investors love the idea of having fewer high-quality alternatives managers. You made this point. So long as what you're delivering to them is really, really good. You made the point, and I corroborate, which is we do not want to manage assets for clients where we do not think we are at least top five in that market. Can you truly be great at everything? Probably not. To answer your question simply, I think generally speaking, the folks that are at the top of the industry today will stay there. Yeah. This is the funny other side of the commoditization coin where people tend to think it's pejorative to say, "But yeah, but isn't the product kind of getting commoditized?" When you're already one of the leaders, that's not a bad fact because you don't need any more. The leaders have been largely established. The one place where I'd say that's still evolving on the margin is in the wealth channel. By the way, there, though, leadership's really important because you see the top few products get really all the funds flows. That's sort of being occupied by different ones of us and other firms. That maybe still has a little more evolution to go. I think you have a pretty good guess at who the winners in terms of market share and kind of position as the go-to firms for the most part are going to be. All right. Great. I think we're a few minutes over. We'll leave it there. Thank you both for being here. Great perspective as always. Good luck. Thank you.