Brian McKenna

Brian McKenna inquired about the incremental opportunity and pipeline size in Ares Management's non-sponsor channel for direct lending, comparing it to a year ago. He also asked about spread resilience in non-sponsor deals versus sponsor-backed deals and its impact on overall spreads and yields.

Answer

Company Representative Mitchell Goldstein stated that non-sponsor originations, historically around 10% of the business, are expected to grow to 15%+ of gross originations in the U.S. over the next three to five years, with continued investment in industries like healthcare, consumer, and financial services. CEO Michael Arougheti added that non-sponsored business generally commands modestly higher spreads due to different counterparty risks, often involving lower leverage and better documentation.

Brian McKenna inquired about the incremental opportunity in the non-sponsor channel for direct lending, including deployment potential and pipeline size compared to a year ago, and how spreads and all-in yields in this segment compare to sponsor-backed deals.

Answer

Mitchell Goldstein, a Company Representative, stated that Ares has heavily invested in non-sponsor origination across 6-7 industries, aiming to increase its historical 10% origination share to over 15% in 3-5 years. Michael Arougheti, CEO, noted that non-sponsored business generally commands modestly higher spreads due to different risk profiles. Mitchell Goldstein further explained that non-sponsored deals typically involve lower leverage and better documentation, despite the sponsor business continuing to grow significantly.

Brian McKenna highlighted a successful outcome for an underperforming direct lending portfolio company, restructured and sold for a 15% IRR, and asked about the criticality of Ares' portfolio management and workout capabilities, as well as historical recovery rates.

Answer

Mike Arougheti, Co-Founder, CEO, and Director, explained that a low loan-to-value (LTV) position provides significant optionality to capture equity value from underperforming assets, historically adding over 100 basis points to returns. He emphasized the critical role of Ares' large and experienced portfolio management and restructuring teams (65+ in the U.S., 35-40 in Europe) and the need for dry powder to capture this option value. He cited historical recovery rates of approximately 93% in U.S. direct lending and 95% in European direct lending.

Brian McKenna asked about the criticality of Ares' portfolio management and workout capabilities, citing a successful restructuring of an underperforming direct lending asset, and requested historical recovery rates within the direct lending business.

Answer

Mike Arougheti, Co-Founder, CEO, and Director of Ares Management Corporation, highlighted the importance of Ares' loan-to-value statistics, which provide optionality to capture equity value when assets underperform. He noted that Ares' 30-year history shows over 100 basis points of positive impact to returns from this phenomenon, enabled by deep, experienced portfolio management and restructuring teams (65 people in the U.S., 35-40 in Europe). He stated historical recovery rates are about 93% in U.S. direct lending and 95% in European direct lending.

Brian Mckenna asked for perspective on the continued resilience of direct lending credit quality across the industry and why a traditional credit cycle has not materialized, questioning the role of private credit's structure.

Answer

CEO Michael Arougheti countered the narrative that private credit is untested, pointing to Ares's long track record of low loss rates. He attributed the sector's resilience to high-quality borrowers, record-high sponsor equity contributions creating low LTVs, and the bilateral nature of private loans, which facilitates constructive resolutions and has helped dampen overall market volatility.

Brian Mckenna asked for perspective on why direct lending credit quality has remained so resilient across the industry despite higher rates and whether the absence of a major credit cycle is due to the structural nature of private credit.

Answer

Michael Arougheti, Co-Founder, CEO & Director, pushed back on the narrative that private credit is untested, citing consistently low loss rates around 10 basis points. He attributed current resilience to high-quality portfolio companies, record-high equity contributions from sponsors creating low LTVs, and the bilateral nature of private loans that facilitates constructive workouts. He believes that if a traditional credit cycle were to occur, it would highlight the durability of the asset class and allow top managers like Ares to gain market share.

Brian Mckenna asked if private wealth investor behavior during periods of volatility might evolve to become more like that of institutional investors, and whether this change would be a function of investor education.

Answer

CEO Michael Arougheti acknowledged that retail investors have historically been more pro-cyclical. However, he is encouraged by their steady behavior in the recent volatility, suggesting that educational efforts by Ares and its peers on the benefits of private markets (e.g., lower NAV volatility) may be having a positive effect. While he hopes this signals a paradigm shift, he stated it is too early to be certain, and the firm will continue to maintain a balanced mix of institutional and retail capital.

Brian McKenna asked about the LLCX interval fund's performance, specifically the opportunity to expand leverage given its 80% fixed-rate assets and low 0.2x leverage, and whether the fixed-rate nature is driving incremental demand or accelerated flows into alternative credit.

Answer

CFO Alan Kirshenbaum highlighted the significant opportunity in alternative credit and LLCX, noting over $100 million per month in flows. He emphasized that success in private wealth stems from large, high-quality, well-performing products. Blue Owl expanded its wealth offerings in 2025 with ODIT and LLCX, now covering private real estate, private credit, and private infrastructure. He expects real assets and asset-based finance to attract more interest and detailed efforts to expand distribution globally and through new partnerships.

Brian McKenna asked about the momentum of OWL CX, specifically if there's an opportunity to expand leverage to enhance performance, given its 80% fixed-rate assets and low 0.2x leverage. He also questioned if the fixed-rate nature of these assets is driving incremental demand for alternative credit.

Answer

CFO Alan Kirshenbaum highlighted OWL CX's strong momentum, achieving over $100 million in monthly flows. He discussed the overall opportunity in the wealth sector, emphasizing the importance of well-performing products for scaling. Alan mentioned the addition of new wealth products like ODIT and the interval fund, expanding Blue Owl's offerings in private real estate, private credit, and private infrastructure, and noted that real assets and asset-based finance are currently of high interest.

Brian Mckenna of Citizens JMP asked about the key metrics, such as fundraising, management fees, or FRE margin, that would signal an inflection point for the recent series of acquisitions as they integrate and scale.

Answer

Co-CEO Marc Lipschultz asserted that the benefits are already materializing, with businesses fully integrated and driving synergies, evidenced by the 30% growth in fee revenues. CFO Alan Kirshenbaum added that despite reinvestment, the firm maintains a high 57% FRE margin and sees long-term expansion opportunities. They pointed to the success of their ORENT vehicle as the proven template now being applied to the newly acquired digital infrastructure and asset-backed businesses.

Brian Mckenna inquired about the evolution of retail investor behavior during periods of market volatility and whether Blue Owl's established brand could accelerate adoption timelines for future products in the private wealth channel.

Answer

Co-Chief Executive Officer Marc Lipschultz highlighted the significant secular growth opportunity in the private wealth channel, citing new platform rollouts like Edward Jones. He stated that during volatile periods, investors and their advisors increasingly recognize the benefits of Blue Owl's stable, income-oriented, and downside-protected products, which he believes will lead to market share gains.

Brian McKenna of Citizens JMP asked for updated timelines on the ORTF BDC merger and its potential uplisting, and inquired about the long-term growth strategy for Blue Owl's two large public BDCs.

Answer

Chief Financial Officer Alan Kirshenbaum confirmed the ORTF merger is on track to close in early Q2, with a listing expected shortly after, which would turn on an incremental $135 million in annualized management fees. For growth, he mentioned the potential for at-the-money (ATM) programs and continued debt capital raises.

Brian Mckenna questioned the fundraising outlook for Blue Owl's core direct lending business on the institutional side, asking about plans for additional private BDCs or traditional GP/LP funds.

Answer

Co-Chief Executive Officer Marc Lipschultz stated that while the wealth channel remains a powerful engine, the firm is structure-agnostic and aims to provide the best 'on-ramp' for all investors, including institutional ones, through private BDCs, public BDCs, or GP/LP funds. Chief Financial Officer Alan Kirshenbaum added that the firm also utilizes evergreen institutional structures that continuously raise capital.

Brian McKenna from Citizens asked about the potential upside and tailwinds from AI for Ares Capital's portfolio companies, especially those outside of software, and whether the portfolio collectively could experience more net benefits longer term. He also inquired about the extent to which differentiated deals are won due to Ares' full suite of value-added capabilities beyond just capital provision.

Answer

Kort Schnabel, CEO of Ares Capital Corporation, confirmed that there is 100% upside from AI, as portfolio companies are actively augmenting products and creating new modules, which could be a boon. He emphasized that winning deals is 'all about those capabilities,' citing the largest investment team in direct lending, long-term relationship building, and offering a flexible suite of products (senior, junior, equity co-investments) that positions Ares as a long-term capital provider.

Brian McKenna asked about the potential upside for Ares Capital's portfolio companies from AI, particularly those outside of software, and how much of ARCC's differentiated deal wins are a function of its full suite of capabilities beyond just capital provision.

Answer

CEO Kort Schnabel acknowledged significant upside from AI, noting that portfolio companies are actively augmenting products with AI solutions, which can create new modules and accelerate upsells. He believes this will be a boon for some companies and their equity co-investments. Schnabel emphasized that differentiated deal wins are a result of ARCC's large, talented investment team, long-term relationship building, and offering a flexible suite of products (senior, junior, equity co-investments) that positions ARCC as a long-term capital provider.

Brian McKenna asked about the drivers of Ares Capital Corporation's resilient credit quality beyond macro factors, and if there's a way to quantify incremental spread captured during historical periods of volatility.

Answer

Kort Schnabel (CEO) attributed credit resilience to defensive industry selection and diversification, unmatched platform scale allowing high selectivity, and the team's long tenure and strong underwriting DNA. He explained that quantifying incremental spread during volatility is difficult due to varying factors, providing examples of 50-75 basis points total yield during a multi-week period in April and 150 basis points spread widening plus 100 basis points upfront fees in late 2022.

Brian McKenna inquired about the factors contributing to Ares Capital Corporation's resilient credit quality and low non-accruals, asking if it's due to sector exposure, deal structuring, or the benefits of greater scale. He also asked if there's a way to quantify the incremental spread and ROE captured during historical periods of market volatility.

Answer

CEO Kort Schnabel affirmed that all factors contribute: strategic industry selection and diversification, which avoids softness and leans into consistent growth; unmatched platform scale, enabling high selectivity and investment in market-leading companies; and the deep-rooted underwriting and credit DNA within the team. Regarding quantifying incremental spread and ROE during volatility, Mr. Schnabel explained it's difficult due to varying factors, citing examples like a 50-75 basis point yield increase during a multi-week period of tariffs in April, and a 150 basis point spread widening with 100 basis points in upfront fees during late 2022 when banks exited the market.

Brian McKenna asked how long the team typically remains 'inward focused' on the existing portfolio during volatile periods before shifting to new investments. He also asked for color on structuring service fees in the current quarter.

Answer

Incoming CEO Kort Schnabel clarified that portfolio review and new origination are concurrent activities, not sequential, enabled by the team's size and experience. He noted that overall yields on new deals have recently increased by 25-50 basis points, a mix of spread and fees, and that historically, fees have widened materially in volatile markets.

Brian McKenna posed a broader question about Blackstone's ability to maintain strong outperformance and preserve its culture as the company continues to grow, acknowledging the accelerating fundamentals and improving performance across most businesses.

Answer

President and COO Jon Gray attributed the firm's success to a 'fierce drive' and a commitment to delivering returns for customers. He highlighted the enormous scale advantages, including insights from portfolio companies and real estate, which inform thematic pushes into areas like AI infrastructure, digital/energy infrastructure, India, Japan, secondaries, and GP stakes. He emphasized Blackstone's asset-light model, ability to write large checks, entrepreneurial spirit, and urgency, noting the firm's significant inflows ($71 billion in Q4, $239 billion for the year) even in a challenging environment, expressing optimism for future growth as market conditions normalize.

Brian McKenna asked a broader question about Blackstone's ability to maintain strong outperformance and preserve its culture as the company continues to grow, emphasizing the role of scale and data.

Answer

Jon Gray, President and COO, attributed Blackstone's sustained growth to a fierce drive to deliver for customers, leveraging enormous scale advantages for insights from its companies, real estate, and infrastructure. He highlighted thematic pushes into AI infrastructure, geographic focus in India and Japan, and expertise in secondaries and GP stakes. He asserted that scale and data provide a meaningful moat, enabling outperformance and fostering an entrepreneurial spirit.

Brian McKenna inquired about Blackstone's educational efforts with wealth management counterparts regarding proper allocations within private market portfolios through the cycle, given varying risk-rewards across strategies.

Answer

Jon Gray, President and Chief Operating Officer, stated that Blackstone dedicates significant time to educating wealth clients, encouraging a long-term, balanced portfolio approach similar to institutional investors. He emphasized that while certain asset classes may outperform, the enduring relative premium in private credit and benefits from lower rates in equity strategies make all areas attractive.

Brian McKenna asked about Blackstone's educational efforts with wealth management counterparts regarding proper allocations within private market portfolios through the cycle, considering varying risk-rewards across strategies.

Answer

President and COO Jon Gray emphasized advising wealth clients to adopt a long-term, balanced portfolio approach similar to institutional investors, with allocations across real estate, private equity, credit, and infrastructure. He highlighted the enduring premium of private credit relative to liquid credit and the benefits of lower rates for equity-oriented strategies.

Brian Mckenna asked about the real estate segment's $200 billion in performance-eligible AUM, seeking to understand what portion is currently generating performance revenue and how much is close to its hurdle rate.

Answer

Vice Chairman & CFO Michael Chae clarified that of the over $200 billion in performance-eligible real estate AUM, about 60% is above its respective hurdle. He specified that for carried interest funds, over 80% of the AUM is above the hurdle, representing the bulk of accrued carry in real estate. Additionally, 100% of BREIT's AUM is above its hurdle. This positions the segment favorably for an acceleration in the realization cycle.

Brian Mckenna asked for perspective on why private market solutions perform well in all environments and why large alternative asset managers, like Blackstone, tend to emerge from volatile periods in a stronger competitive position.

Answer

President and COO Jonathan Gray stated that the alternative asset model is designed for stress, highlighting Blackstone's minimal debt and significant dry powder, which allows it to be counter-cyclical. He noted that long-duration capital prevents forced selling and enables a value-add approach to portfolio companies. Gray expressed strong confidence that Blackstone will again emerge stronger from the current volatility, reinforcing the strength of the private asset model.

Brian McKenna inquired about PennantPark Investment Corporation's dividend strategy, specifically why the dividend isn't right-sized today given the NII shortfall, even with anticipated equity rotation and spillover income.

Answer

Chairman and CEO Art Penn explained that the company is continuously evaluating the dividend, balancing substantial spillover income that needs to be distributed with the ongoing equity rotation plan. He noted the plan is to work through both processes over the next few quarters before making further decisions. McKenna also asked about the timing of equity realization events, to which Penn responded that increased market activity suggests opportunities for equity rotation are closer than in previous quarters.

Brian McKenna inquired about any changes in the timing or expectations for realization events in equity positions over the last quarter or two, given a more constructive market backdrop.

Answer

Art Penn, Chairman and CEO, noted increased activity and expressed optimism that the company is getting closer to meaningful equity rotation opportunities, though nothing specific was announced on the call.

Brian Mckenna of Citizens JMP inquired about the ideal timeline for rotating the equity portfolio, the strategy for deploying realized gains, and whether the company's leverage target might increase after the portfolio shift.

Answer

Art Penn, Founder and Managing Partner, projected a 12 to 18-month timeframe for the equity rotation, with the goal of reinvesting the capital into yield-generating debt to increase net investment income. He also confirmed that a portfolio more heavily weighted towards first-lien debt could judiciously support a higher leverage ratio in the future.

Brian Mckenna inquired about the expected timeline for PennantPark's equity portfolio rotation, the strategy for redeploying capital from realized gains, and whether the company's leverage target might increase post-rotation.

Answer

Art Penn, Founder and Managing Partner, projected a 12 to 18-month timeline for the equity rotation, emphasizing the goal is to redeploy capital into yield-generating debt to boost net investment income (NII). He also confirmed that a portfolio more heavily weighted towards first-lien debt could judiciously handle higher leverage, making an increase a fair assumption over time.

Brian Mckenna asked about the potential timing and magnitude of monetizing equity investments to redeploy into loans and sought updated thoughts on a potential merger between PNNT and PFLT.

Answer

CEO Arthur Penn stated the goal is to reduce the non-JV equity portion of the portfolio, which is over 20%, by about half over time, though he acknowledged it has taken longer than desired. Regarding a potential merger with PFLT, he reiterated that the company must first focus on 'cleanup,' primarily by rotating out of equity positions, before evaluating strategic options like a merger.

Brian McKenna asked for clarification on the NII contribution from the $310 million asset sales to JVs post-quarter end, the initial origination dates of these loans, and the projected starting point for NII in fiscal 1Q. He also followed up on the dividend coverage, specifically the 'well in excess of the dividend' comment, and whether it contemplates the forward curve or credit quality changes.

Answer

Art Penn, Founder and Managing Partner at PennantPark Investment Advisers, LLC, clarified that the $250 million portfolio acquisition, completed mid-quarter, is projected to add $0.01-$0.02 per share to NII for a full quarter. He noted that the new JV (PSSL2) will become accretive as it scales over a year or two, aiming for a 15% return on junior capital. Penn affirmed that the dividend should be covered reasonably well, even with market assumptions of SOFR reduction, based on a 1.5x leverage model and anticipated equity rotation from M&A.

Brian McKenna asked for clarification on the $310 million of assets sold to joint ventures post-quarter end, including their original loan dates, the NII contribution in fiscal 4Q, and the projected NII starting point for fiscal 1Q, considering the new JV and portfolio acquisition.

Answer

Chairman and CEO Art Penn explained that the $250 million portfolio acquisition, completed mid-quarter, is projected to add $0.01-$0.02 per share to NII for a full quarter. He noted that the new PSSL2 joint venture's NII contribution will become significantly more accretive as it scales over the next one to two years, aiming for a 15% return on junior capital. Regarding dividend coverage, Art Penn stated that even with the existing SOFR curve and market expectations for SOFR reduction, they anticipate covering the dividend reasonably well.

Brian Mckenna of Citizens JMP inquired about the new joint venture with Hamilton Lane, asking about the potential deployment timeline for its $500 million in capital, the expected accretion to PFLT's P&L, and any strategic leverage PFLT could gain from the partnership. He also asked a broader question about the long-term growth plans for PFLT and PNNT, including the possibility of a merger or internalization.

Answer

Art Penn, Founder and Managing Partner, stated that the new JV is expected to ramp over 12 to 18 months and that similar JVs have historically generated mid-to-upper teens NII returns on invested capital. He expressed excitement about leveraging Hamilton Lane's relationships to source deals. Regarding a potential merger with PNNT, Mr. Penn reiterated that while all options are considered, the immediate focus is on resolving equity rotation issues at PNNT before assessing broader strategic moves.

Brian McKenna inquired about the expected pace of originations for the next few quarters, the anticipated mix of new versus add-on investments, and the long-term growth strategy for the broader PennantPark platform and its implications for PFLT.

Answer

Arthur Penn, Chairman and CEO, noted that while the current quarter is seasonally slower, he expects 2025 to be busy overall, with a continued focus on conservative underwriting. He anticipates a more balanced mix of new and add-on investments, highlighting that their strategy creates a built-in pipeline. Penn expressed confidence in the platform's long-term runway, citing its unique position serving the core middle market, a space he believes is underserved by larger direct lenders.

Brian McKenna asked about the average multiple on invested capital for KKR's $270 billion of carried interest eligible AUM that is above cost, and when the majority of this capital was invested on average.

Answer

Rob Lewin, Chief Financial Officer, stated that KKR would track down the specific data but noted that the portfolio is mature, and the multiple of money is healthy. He explained that the $17 billion of accrued gains and $9 billion of unrealized carried interest tend to expand over time, with less uplift in early years, suggesting a longer maturity profile. Craig Larson, Head of Investor Relations, added that almost 30% of the private equity portfolio's remaining fair value is marked at two-plus times cost, indicating a more mature portfolio with embedded gains compared to others in the industry.

Brian McKenna inquired about the average multiple on invested capital for KKR's $270 billion of carried interest eligible AUM (above cost and current carry), and the average investment timeframe for the majority of this capital.

Answer

CFO Rob Lewin stated that the specific data for average multiple and maturity was not immediately available but noted that the portfolio is mature, with a healthy multiple of money. He explained that the $17 billion of accrued gains and $9 billion of unrealized carried interest tend to expand over time, with less uplift in early years, suggesting a longer maturity profile than average deployment. Head of Investor Relations Craig Larson added that almost 30% of the private equity portfolio companies are marked at two-plus times, and KKR benefits from a more mature portfolio with more embedded gains due to its linear deployment and pacing.

Brian Mckenna of Citizens JMP asked for a bridge to KKR's 2026 adjusted EPS target, noting the significant growth implied from the 2025 run-rate and seeking clarity on the key drivers over the next 12-18 months.

Answer

CFO Robert Lewin outlined several key drivers. He pointed to momentum in management fees, growth in the capital markets franchise, scaling fee-related performance revenue, and a more meaningful contribution from third-party capital in the insurance business. Critically, he highlighted the record $17.1 billion of embedded gains on the balance sheet (unrealized carry and investment gains) as a major indicator of future earnings power. He also expressed confidence in beating the 2026 operating earnings guidance for the Strategic Holdings segment.

Brian Mckenna of Citizens JMP asked about the drivers behind the significant increase in accrued performance income and the expected timing for monetizing the embedded gains on the balance sheet.

Answer

Chief Financial Officer Rob Lewin explained the growth in accrued carry was broad-based, with a particular inflection from the maturing real assets portfolio, especially infrastructure. He noted that monetizing balance sheet gains depends on the market but could be material in 2025 if conditions remain constructive. Co-CEO Scott Nuttall added that many of KKR's newer strategies are now reaching the 5-10 year maturity point where carry generation accelerates.

Brian McKenna asked if FTAI has disclosed management and performance fees for SCI vehicles, suggesting that leasing could evolve into an asset management business with two high-multiple earning streams, and inquired about the possibility of FTAI's GP stake in SCI declining below 19% for a more capital-light model given robust demand.

Answer

Joe Adams, Chairman and CEO, confirmed that fees are market-based, with asset management fees of 1% or higher on total assets and low double-digit incentive compensation above a hurdle, aligning with the repositioning of the business into a factory and an asset manager. He acknowledged that while the initial equity commitment ensures alignment, a lower GP stake is possible over time with a demonstrated track record.

Brian McKenna asked if FTAI has disclosed management and performance fees for SCI vehicles, suggesting the leasing business is transitioning to an asset management model. He also inquired about the possibility of FTAI's GP stake in SCI declining further from 19% to create a more capital-light model.

Answer

Joe Adams, Chairman and CEO of FTAI Aviation, confirmed that fees are market-based, including an asset management fee (e.g., 1% or higher on $6 billion total assets) and low double-digit incentive compensation above a hurdle. He reiterated the aspiration to manage $20 billion and the transition to an asset management business. He also stated that a further decline in FTAI's ownership stake in SCI is possible over time, especially with a demonstrated track record, as alignment concerns lessen.

Brian Mckenna of Citizens JMP asked about the feedback from the alternative asset management industry regarding the SCI vehicle's early success and inquired about the potential for refinancing existing debt to lower capital costs.

Answer

Joseph Adams, Chairman, CEO & Director, described investor feedback on the SCI vehicle as 'very positive,' noting a strong group of investors who are expected to be repeat participants in future funds. On debt refinancing, he acknowledged they will evaluate opportunities as borrowing costs decrease, but stated that since no debt is currently callable, the costs of a transaction may not be justified at this moment.

Brian Mckenna inquired about the average module consumption per third-party customer and its potential growth. He also asked a governance question regarding Joe Adams' long-term role as Chairman of FTAI Infrastructure (FIP).

Answer

CEO Joseph Adams noted that module usage per customer has increased from around 4 to 8, with a goal to grow both the number of customers and their individual usage. On governance, Adams stated there are no current plans to change his role as Chairman of FIP, citing his strong working relationship with its leadership and noting the decision ultimately rests with the manager, Fortress.

Brian Mckenna requested an update on Repauno's Phase III caverns, including the permitting status, project financials, and timeline. He also asked about the progress of Phase II construction, whether Long Ridge is seeing increased inbound interest, and the cash flow implications of the new preferred stock financing.

Answer

Ken Nicholson, CEO & President, stated that the final permit for Repauno's Phase III is expected by September 30th. He outlined the project's compelling economics: a ~$200 million investment to generate ~$100 million in annual EBITDA, with a two-year construction timeline. He confirmed Phase II construction is on time and on budget. Nicholson also noted significant inbound interest for Long Ridge from data centers and others, expecting a development announcement before year-end. He explained the new preferred stock is non-cash-pay, allowing all cash flow from the combined rail business to be distributed to the parent company, significantly boosting FIP's free cash flow.

Brian McKenna of Citizens asked for a breakdown of the puts and takes from tariffs on FTAI's business segments. He also questioned if there was remaining capacity to contract at Repauno beyond the current deals and whether the $80 million EBITDA target for Phase 2 could see further upside. Lastly, he requested more specific timing and the expected earnings contribution from the 20-megawatt power uprate at Long Ridge.

Answer

CEO Ken Nicholson stated the impact of tariffs 'depends,' noting Repauno is best positioned to benefit from increased energy exports to Europe, with potential positives for Jefferson and Transtar as well. He clarified that Repauno's Phase 2 has little remaining capacity, but upside exists in optimizing Phase 1 (for a potential $10 million in additional EBITDA) and in the future Phase 3. Nicholson confirmed the Long Ridge 20-megawatt uprate is likely for Q4 2025, requires no capital, and is expected to add approximately $8 million in incremental annual EBITDA.

Brian Mckenna inquired about the permit status for Repauno's underground cavern and the potential for a future sale. He also asked about Transtar's 2024 EBITDA growth relative to its 15% target and the timing and financing strategy for potential M&A.

Answer

CEO Kenneth Nicholson stated that Repauno's cavern permits are expected by the end of Q1 2025 and that a monetization could be evaluated once permitted. For Transtar, he expressed comfort with the 15-20% organic growth forecast for 2025, citing tariff impacts and new business. On M&A, Nicholson noted growing momentum and would be surprised if a deal isn't announced in the next three months, with financing expected to come from the debt markets.

Brian Mckenna asked for an update on the U.S. Steel transaction's potential implications for Transtar and inquired about the status of Transtar's M&A pipeline, including timing and potential accretion relative to its organic growth targets.

Answer

CEO Kenneth Nicholson stated that the U.S. Steel transaction would not have a material impact on Transtar, though an approval of the Nippon Steel acquisition would be a slight positive due to planned investments. Regarding M&A, he confirmed Transtar is actively evaluating three opportunities and that acquisitions could be a 'game changer' for value creation, supplementing the company's 15% annual organic growth target.

Brian Mckenna asked about the progress of realizing merger synergies from the OBDE deal and the potential for further ROE upside, as well as the quantifiable impact of new platform capabilities on deal origination.

Answer

CFO Jonathan Lamm explained that while expense synergies are fully realized, financing synergies are a 'slower burn' and could add 50 basis points to ROE over the next year. CEO Craig Packer added that portfolio rotation into JVs could contribute another 25+ basis points, for a total potential ROE improvement of 50-75 bps over time. Regarding new strategies, Packer noted it's early but could become 10-15% of the portfolio in the coming years. President Logan Nicholson specified that 10% of Q1 originations were from these new equity and JV investments.

Brian Mckenna inquired about the macroeconomic landscape, specifically how credit spreads have trended amid recent volatility and how a muted M&A environment could impact OBDC. He also asked for an update on the potential public listing of the firm's tech fund, OTF.

Answer

CEO Craig Packer explained that while public market volatility would typically widen credit spreads, they have only stabilized due to a muted M&A environment caused by tariff uncertainty. He noted that the firm continues to find high-quality deals, often through add-on acquisitions for existing portfolio companies. Regarding the tech fund, Mr. Packer stated there was nothing specific to disclose but that the firm regularly evaluates all strategic options to deliver shareholder value.

Brian Mckenna asked about Blue Owl Capital Corporation's potential Return on Equity (ROE) for 2025, considering the benefits of the OBDE merger, and inquired about how the public BDCs fit into the long-term growth strategy of the broader direct lending platform.

Answer

CEO Craig Packer acknowledged that while lower rates and spreads could push ROE from the low 12% range into the 10% range, he expects the OBDE merger to generate 50-75 basis points of additional ROE through cost savings and portfolio optimization, offsetting some of the decline. He added that Blue Owl's expanded credit capabilities in areas like data centers and alternative credit will broaden the origination funnel for OBDC, enhancing its competitive advantage while maintaining its core investment strategy.

Brian Mckenna asked about the current state and future outlook for yields and spreads on new deals, and how Blue Owl's broader platform expansion into areas like alternative credit and data centers will impact lending opportunities for its BDCs.

Answer

CEO Craig Packer stated that he believes new deal spreads have troughed around 4.75% over SOFR and that private credit continues to offer a significant premium over public markets. He also explained that while the BDC's core strategy remains unchanged, the platform's expansion will significantly enhance deal flow and provide select, high-quality investment opportunities without causing strategy drift.

Brian Mckenna of Citizens JMP questioned the dividend payout strategy, noting that the declared $0.25 per share dividend was significantly less than the roughly $0.85 per share in realized gains for the quarter. He asked for the rationale and the outlook for future distributions in 2025.

Answer

Mark Klein, Chairman, President, CEO & Director, explained that the company projects its dividend cadence and that Q2 gains helped offset prior unrealized losses. He stated that SuRo Capital anticipates further monetizations from public holdings like CoreWeave and Gravagun, and expects to declare at least one or two more distributions before year-end, with the size dependent on those future liquidity events.

In a follow-up, Brian Mckenna from Citizens questioned the valuation of SuRo Capital's OpenAI investment, asking why the markup was approximately 60% when the company's valuation appeared to have doubled.

Answer

Mark Klein, Chairman and CEO, clarified the valuation mechanics. He explained that the markup reflects the change from the previous round's post-money valuation to the current round's pre-money valuation, which is a smaller increase than the headline post-money to post-money comparison might suggest.

Inquired about the 2024 NAV decline, expectations for 2025 NAV growth, potential for further markdowns, the total value of pre-IPO investments, and the timeline for these companies going public.

Answer

The company does not provide forward NAV guidance but pointed to the potential upside from CoreWeave and OpenAI. Learneo was the biggest past drag and is already marked down significantly. For IPOs, CoreWeave is expected soon, with Lime, Canva, Liquid Death, and VAST Data as other possibilities depending on market conditions.

In a follow-up, Brian McKenna of Citizens JMP Securities asked for the total dollar amount of investments in pre-IPO companies and what percentage of that portfolio could realistically go public in the next year.

Answer

Chairman and CEO Mark David Klein did not provide a specific dollar amount but highlighted several companies with near-term IPO potential. He expressed high confidence in CoreWeave's IPO occurring this month and mentioned Lime, Canva, Liquid Death, and VAST Data as other potential candidates for public offerings between late 2025 and early 2026, contingent on market conditions.

Brian Mckenna of Citizens JMP asked John Redett about his priorities as he transitions back to leading Global Private Equity and the opportunities to leverage the broader Carlyle ecosystem to accelerate growth.

Answer

CFO John Redett stated that collaboration is already a core strength and his focus will be on building on recent progress. He highlighted the strong performance in U.S. corporate private equity (up 17-20% LTM) and the successful fundraising for the latest real estate fund. CEO Harvey Schwartz added that John's leadership will be critical for driving strategic initiatives like CPAP and ensuring best practices across the firm.

Brian Mckenna of Citizens JMP asked John Redett about his transition to leading Global Private Equity, focusing on opportunities for collaboration, top priorities, and strategies to accelerate growth in the segment.

Answer

CFO John Redett emphasized that collaboration is already a strong hallmark of Carlyle's culture and that he is stepping into a business that is 'performing exceptionally well.' He highlighted the strong performance in U.S. and Asia private equity and the successful fundraising for the latest real estate fund. CEO Harvey Schwartz added that having Redett in the role is beneficial for driving strategic initiatives like CPAP and ensuring uniform best practices across the firm.

Brian Mckenna asked about the growth drivers and fundraising outlook for AlpInvest for the remainder of the year, and queried the long-term potential for its contribution to firm-wide fee-related earnings (FRE).

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CEO Harvey Schwartz attributed AlpInvest's success to its strategic integration into the firm's global distribution and strong LP demand for secondaries. CFO John Redett added that the current secondaries fund is already 57% committed, creating a clear path to launching the next vintage soon. He noted that accelerating activity in the secondary market provides a strong tailwind for continued growth.

Brian Mckenna asked about the BDC merger, seeking details on the incremental fees for Carlyle, the timing of their activation, and the future growth outlook for the combined BDC and the broader direct lending platform.

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CFO John Redett stated the BDC merger's fee impact will be positive but not material to the overall credit business, with a closing expected in late Q1 or early Q2. He acknowledged that Carlyle's direct lending platform is less scaled than peers, viewing it as a significant upside opportunity where the firm is actively investing.

Brian Mckenna asked about the firm's capital deployment strategy for the future cash generated from the significant increase in net accrued performance fees, specifically regarding the balance between organic growth, M&A, and share buybacks.

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CFO John Redett outlined the firm's capital allocation priorities, stating that the primary focus is investing in organic growth to achieve the best returns. The second priority is continuing the active share buyback program. While the firm evaluates inorganic opportunities, he clarified that nothing is imminent and the current strategy is centered on organic growth and repurchasing shares.

Brian Mckenna of Citizens JMP Securities inquired about Sixth Street's strategy for portfolio diversification, noting its relatively concentrated position sizes, and asked about the most attractive current investment themes.

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CEO Joshua Easterly explained that their outperformance stems from disciplined, idiosyncratic underwriting and minimizing losses, rather than broad diversification. He identified off-the-run, non-sponsor deals in sectors like specialty pharma, asset-based lending, and energy as currently more attractive than the crowded sponsored-finance market. Vice President Robert Stanley added that they leverage deep sector expertise to find unique opportunities, avoiding competition with commodity capital providers.

Brian Mckenna of Citizens JMP Securities inquired about Sixth Street's strategy on portfolio diversification, specifically its larger average position size compared to peers, and asked about the most attractive current investment themes and those being avoided.

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CEO Joshua Easterly explained that their strong risk management and idiosyncratic underwriting, proven by NAV growth and low loss history, justify their position sizing. He stated that minimizing losses is the primary path to outperformance. Regarding themes, Easterly and President Robert Stanley identified off-the-run, non-sponsor deals like specialty pharma, asset-based lending, and energy as more attractive than the crowded sponsored finance space, leveraging deep sector expertise to find value.

Brian Mckenna of Citizens JMP asked how the firm prices risk amid heightened market uncertainty and where it is currently finding the most attractive deployment opportunities. He also asked for a reminder of why the TSLX model performs well through cycles, especially during volatile periods.

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President Bo Stanley responded that while private markets may be slow to price risk, TSLX leverages its deep fundamental analysis, understanding of its cost of capital, and broad platform insights to price risk effectively. He noted that volatility creates opportunities for their strategy. CEO Joshua Easterly added that TSLX's structure exhibits 'anti-fragility,' performing better in stress because its disciplined capital allocation ensures it has capital and liquidity to invest when others are risk-off, a function of its permanent capital structure and prudent balance sheet management.

Brian Mckenna from Citizens JMP asked for insight into why Sixth Street's model consistently delivers strong results across various market backdrops and what factors lead borrowers to choose Sixth Street as a lending partner.

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CEO Joshua Easterly attributed their consistent outperformance to disciplined credit underwriting, resulting in significantly lower historical loss rates, and a broad origination funnel that sources differentiated, higher-return opportunities. President Robert Stanley added that borrowers value their speed, certainty, scale, and deep thematic industry expertise.

Brian Mckenna asked about the key factors behind Sixth Street's consistent performance across various market backdrops and why borrowers choose them as a lending partner in a competitive environment.

Answer

CEO Joshua Easterly attributed their success to disciplined credit underwriting, resulting in significantly lower historical loss rates, and a broad origination funnel that includes less competitive non-sponsored deals. Both Easterly and President Robert Stanley emphasized that borrowers value their ability to provide speed, certainty, and significant capital, supported by deep thematic industry expertise.

Brian Mckenna asked for details on Sixth Street's nonsponsored investment business and inquired about the potential for an acceleration in sponsored M&A deal flow following the U.S. election.

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CEO Joshua Easterly explained that the nonsponsored business, which comprised about half of new investments in Q3, leverages the firm's 250 investment professionals and thematic industry expertise. He noted that while lower rates could unlock M&A, the bigger issue is the high valuations of assets purchased in the zero-rate era, which will take time to work through. President Robert Stanley added that M&A activity will be driven more by interest rates and valuation dynamics than by the election results alone.

Brian Mckenna of JMP Securities inquired about the sustainability of the $0.45 regular quarterly dividend after full fees kick in, and asked about potential levers to boost Net Investment Income (NII). He also questioned the share repurchase strategy, asking if the company should be more opportunistic given the stock's discount to NAV, the specific amounts repurchased, and the rationale for not increasing the buyback authorization.

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CFO Shai Vichness affirmed confidence in covering the dividend, stating it was set with future fee structures in mind. He identified several levers for incremental NII: capturing wider spreads, rotating out of lower-spread assets, redeploying repayments, and optimizing liability costs. Regarding the buyback, Vichness explained the program is designed to automatically increase purchase volume as the discount to NAV widens. He noted the authorization's timing was extended but the amount was not, a decision under regular review.

Brian Mckenna of Citizens Financial Group inquired about the potential to expand Churchill's network of private equity firms and further leverage these relationships. He also asked about the current deal flow environment, sponsor sentiment, the primary drivers for M&A in 2025, and specifics of the stock repurchase plan, including recent activity and its structure relative to the NAV discount.

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Executive Kenneth Kencel explained that Churchill is actively expanding its relationships, noting a 30% increase in deals with new firms and the annual addition of 7-10 new private equity LP relationships. He stated that deal activity has already increased significantly, with senior lending up 60% year-over-year, driven by interest rate clarity. Regarding the buyback, Kencel confirmed the program's activity increases as the discount to NAV widens and that $14 million of the $100 million authorization had been used through October.

Brian Mckenna inquired about the outlook for new investment originations versus add-on deals for the remainder of the year and sought a current assessment of portfolio company performance, including revenue and EBITDA growth trends.

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Kenneth Kencel, Chairman, President and CEO, responded that the origination pipeline remains exceptionally robust, with strong activity expected to continue through Q3 and Q4 without the typical summer slowdown. He noted that while add-on activity is significant, new deal activity is expected to grow as a percentage of overall investments. Kencel also confirmed that portfolio companies are demonstrating positive performance, with a majority showing revenue and EBITDA growth, and the overall portfolio risk rating remains healthy at 4.1.

Brian McKenna of Citizens asked for details on the quarter-to-date fundings, including the weighted average yield and sector mix. He also inquired about the progress of the portfolio rotation strategy and what lessons management learned from the recent industry downturn.

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Executive Sajal Srivastava explained that yields on recent fundings are consistent with the 13.3% reported in Q1 and that the sector mix reflects a successful rotation into AI and enterprise software. He characterized the portfolio rotation as being in its 'early' stages, with a couple of quarters still to go. Srivastava shared that key learnings from the recent cycle included the challenges high-burn companies face in adapting to higher capital costs and issues arising from non-traditional investors in syndicates, lessons which are now informing their deployment strategy.

Brian McKenna asked about the sustainability of the $0.30 quarterly dividend given the Q4 NII of $0.32 and the impact of lower base rates. He also questioned how the portfolio's overall yield might trend in 2025 as assets turn over.

Answer

Executive Sajal Srivastava acknowledged that dividend coverage is influenced by portfolio growth and prepayments. While TPVG has historically covered its dividend on a full-year basis, he noted the company will be pragmatic in 2025 and adjust if growth doesn't materialize. On portfolio yield, Srivastava expressed confidence in maintaining the current profile, citing the benefit of prime rate floors on new and older investments and the yield-boosting effect of prepayments, which should offset spread compression from lower base rates.

Brian McKenna asked for financial details on the Peppertree acquisition, including its fee-earning AUM, average fee rate, future growth expectations for its funds, and the fundraising timeline for its next flagship fund.

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CEO Jon Winkelried noted plans to develop an evergreen fund structure with Peppertree to lengthen capital duration. CFO Jack Weingart provided specifics, stating Peppertree's fee-earning AUM is approximately $4.5-$5 billion with average fee rates of 1.5%-2.0%. He confirmed the next fund would likely begin fundraising at some point next year, consistent with its historical two-year cycle.

Brian Mckenna of JMP Securities inquired about the drivers of Hercules Capital's strong origination activity amid macro volatility and the outlook for yields on new deals.

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CEO & CIO Scott Bluestein explained that Hercules tends to outperform in volatile markets as equity capital becomes scarcer, driving quality companies to seek their financing. He added that a 'risk-off' posture from some banks is also creating opportunities. Bluestein noted that while the core yield dipped due to prior Fed cuts, they are seeing a potential 25-50 basis point increase in yields on new business that has not yet impacted reported numbers.

Brian Mckenna asked if 2025 could be another record year for originations and inquired about the RIA business, including the potential size and timing of the next fund and its future earnings contribution to HTGC.

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CEO Scott Bluestein stated that if credit quality remains strong, 2025 could indeed be another record year, noting a very strong start to Q1. He confirmed the private credit fund business is a growing part of the platform but did not provide specific timing for the next fund, emphasizing a controlled growth strategy. CFO Seth Meyer added that the RIA's dividend guidance reflects current growth and a new fund would likely not impact 2025 earnings.

Brian Mckenna asked for an update on the competitive landscape in venture debt and whether larger private credit firms are attempting to enter the space. He also inquired about the outlook for the base dividend into next year and the strategy for supplemental distributions, given the strong earnings coverage.

Answer

CEO Scott Bluestein described the competitive environment as sporadic, with no single consistent competitor across all deals. He emphasized that Hercules' 20-year track record and specialized teams are significant differentiators that are difficult for larger, less-focused asset managers to replicate. On the dividend, Bluestein noted it is a Board decision but conveyed confidence in covering the $0.40 base distribution and stated the company's intention to continue paying supplemental distributions as long as excess spillover income remains robust.

Brian Mckenna asked for quantification of the deal flow that was pushed into the fourth calendar quarter and the expected magnitude of net portfolio growth. He also inquired about broader market dynamics, including competition from larger players and banks, and its impact on transactions and yields.

Answer

CEO Bowen Diehl confirmed that significant net portfolio growth is expected in the December quarter due to deals pushed from Q3. Michael Sarner, CFO, quantified this by projecting $150 million to $200 million in net portfolio growth. Diehl explained that increased competition from larger private equity firms moving down-market and from regional banks has led to tighter pricing. Sarner added that spreads have compressed by 50 to 100 basis points over the last few quarters, from around 750 bps to 650 bps over SOFR.