Patrick Davitt

Patrick Davitt inquired about the total portfolio changes, specifically whether other large pensions are following CalPERS' lead in shifting allocations, and the expected pace of meaningful capital reallocations under this new approach.

Answer

President Jim Zelter stated that the adoption of new channels will be gradual, as public institutional marketplaces are risk-averse. He highlighted Apollo's focus on all six demand pockets, citing examples like Apollo Sports Capital and third-party insurance sidecars (ADIP) where institutions are seeking opportunities beyond traditional asset class definitions. CEO Marc Rowan added that public market volatility could accelerate this shift, as trustees seek less risk for similar or better returns.

Patrick Davitt inquired about the broader implications of total portfolio changes, specifically if other large pensions are following CalPERS' shift and the expected pace of meaningful capital reallocations under this new approach.

Answer

President Jim Zelter indicated that institutional adoption would be gradual due to risk aversion, but highlighted Apollo Sports Capital, insurance Athene Sidecar, and ADIP as examples where institutions seek opportunities beyond traditional asset class definitions. CEO Marc Rowan emphasized that public market volatility would accelerate this mindset shift among trustees and plan heads, driving demand for better risk-adjusted returns.

Patrick Davitt asked for Apollo's perspective on Colm Kelleher's warning regarding private letter ratings arbitrage in U.S. insurance as a systemic risk and inquired about the extent to which Athene utilizes similar private letter ratings in its portfolio.

Answer

CEO Marc Rowan disagreed with Colm Kelleher's view, stating that Athene does not use Egan Jones and less than 8% of its assets are rated by Kroll or DBRS, with 70% having 2+ ratings from S&P, Moody's, and Fitch. He emphasized that the issue is not private credit ratings but rather late-cycle behavior and weak players, particularly in offshore jurisdictions, and highlighted Athene's conservative credit profile with over 90% investment grade assets.

Patrick Davitt from Autonomous Research asked about the potential financial impact of the Athora PIC acquisition, specifically on FRE and the valuation of Athene's balance sheet.

Answer

CEO Marc Rowan stated that while it is early and subject to regulatory approval, the transaction is expected to be accretive to both Athora's valuation and Apollo's FRE over time. He framed the deal strategically, explaining that PIC's scale in the UK market will incentivize the creation of a massive pound-denominated asset origination ecosystem, mirroring the successful synergy between Apollo and Athene in the U.S. market.

Patrick Davitt of Autonomous Research followed up on the partnership theme, asking for more details on the hybrid illiquid/liquid product with Lord Abbett and the potential timeline for seeing tangible demand for such products.

Answer

President James Zelter explained that these partnerships leverage the distribution of traditional managers and will likely evolve into an 'open architecture' model, similar to bank partnerships. He positioned these initiatives as being in their early stages, emphasizing that the key to success is producing the 'rare commodity' of private assets. He expects 'traditionals' to become a distinct business pillar discussed on future calls.

Patrick Davitt asked for an update on Athene's willingness and capacity to pursue large or complex M&A transactions, given recent market chatter about potential insurance assets coming up for sale.

Answer

CEO Marc Rowan confirmed hearing the rumors and outlined Apollo's multi-faceted approach to insurance acquisitions through Athene (U.S. spread), Athora (Europe), and Venerable (variable annuities). He stated that Apollo has ample capital and is well-positioned to execute any deal that makes economic sense, but stressed that the primary goal is earning attractive spreads, not simply growing assets for the sake of scale.

Patrick Davitt questioned Apollo's retail distribution costs and margins, noting that other managers are reporting headwinds from platform payments and asking why Apollo's experience seems different.

Answer

CFO Martin Kelly explained that Apollo is not seeing a margin headwind, as costs are migrating from upfront fees to revenue-netted trailers, and some key channels like family offices incur no external distribution cost. CEO Marc Rowan added that strong, supply-constrained demand for private assets should support stable fees, making origination capacity the true bottleneck, not distribution.

Patrick Davitt asked about Carlyle's CLO exposure to software, given recent volatility, and how this could impact over-collateralization tests.

Answer

CFO Justin Plouffe stated that Carlyle's CLO performance is among the best, with software exposure aligning with the index, neither overweight nor underweight. He expressed confidence that recent volatility would not affect CLO performance. CEO Harvey Schwartz added that there might be technical opportunities in the market.

Patrick Davitt asked about Carlyle's CLO exposure to software, and the potential impact of recent market volatility on over-collateralization tests within the CLO bucket.

Answer

Mark Jenkins stated that Carlyle's CLO performance has been strong, with software exposure aligned with the index. He expressed no expectation for recent volatility to affect CLO performance. CFO Justin Plouffe added that there might be technical opportunities in the marketplace for new deals.

Patrick Davitt of Autonomous Research asked about the tipping point for taking cash carry on the CP7 fund, given its 8% net IRR, and the outlook for realized performance fees in the second half of the year.

Answer

CFO John Redett acknowledged CP7 will not be a top-performing fund but noted its 17% appreciation over the last two years. He explained that while the exact carry tipping point is hard to predict, the focus remains on driving performance to boost realizations and DPI. He pointed to the firm's $2.9 billion in accrued carry (up 30% YoY) as a significant source of future value for shareholders.

Patrick Davitt of Autonomous Research asked about the CP7 fund, specifically the tipping point for taking cash carry given its 8% net IRR, and the outlook for realized performance fees in the second half of 2025.

Answer

CFO John Redett reiterated that CP7 will not be the firm's best fund but highlighted its 17% appreciation over the last two years as 'quite extraordinary.' He stated that the only way to drive carry is to continue to improve performance, which the firm is doing. Redett pointed to the firm's total net accrued carry balance of $2.9 billion, up 30% year-over-year and representing $8 per share, as a tremendous source of future value for shareholders.

Patrick Davitt asked if the significant Q1 insurance transactions count towards the firm's ~$40 billion annual inflow guidance and requested an update on wealth product flows and redemption requests following recent market volatility.

Answer

CFO John Redett confirmed that the insurance-related inflows are included in the $40 billion target. He noted strong momentum in the wealth business, with fundraising up 40% in the quarter and AUM in evergreen products up 70% year-over-year. He also stated that April data showed no negative impact on flows or redemptions from recent policy shifts.

Patrick Davitt questioned the outsized negative mark in fee-paying AUM relative to the reported positive fund performance, asking if it reflected a negative mark at Fortitude and if Carlyle might change its mark-to-market fee basis.

Answer

CFO John Redett attributed the Q4 fee-paying AUM decline to non-economic 'noise,' specifically a $6 billion mark-to-market adjustment at Fortitude from interest rate movements and a $3 billion FX impact. He emphasized that these have no material economic impact and directed focus to the $23 billion in pending fee-earning AUM.

Patrick Davitt asked if Carlyle has conducted scenario testing for how its business and portfolio companies might be affected by more aggressive potential policies, such as tariffs or mass deportations.

Answer

CEO Harvey Schwartz responded that the firm has managed through tariffs before and that risk management across various scenarios is a standard practice. He emphasized that it is a "wait-and-see" situation regarding specific policy implementation and that Carlyle's diversification across industries and geographies provides a natural hedge, meaning there are no unique issues for the firm.

Patrick Davitt asked about the percentage of Blue Owl's total credit AUM that is not direct lending, the growth outlook for the asset-backed finance (ABF) business, and sought clarification on the LLCX interval fund's AUM, specifically how it reached $1.8 billion from the $1.25 billion mentioned in the deck.

Answer

CFO Alan Kirshenbaum clarified that LLCX has about $1.3 billion in inflows, reaching $1.8 billion with debt. He stated that 30% of Blue Owl's credit business is now diversified away from direct lending. He highlighted alternative credit and digital infrastructure as major growth areas, expecting them to match or exceed the growth seen from the Oak Street acquisition. Co-CEO Marc Lipschultz also pointed to the organic growth of their BOSE (GP-led secondaries) product, which has reached $2.5 billion, as another significant growth driver outside of direct lending.

Patrick Davitt inquired about the percentage of Blue Owl's total credit AUM that is not direct lending, the growth outlook for this segment, and sought clarification on OWL CX's AUM, specifically if the reported $1.8 billion implies significant Q1 inflows.

Answer

CFO Alan Kirshenbaum clarified OWL CX inflows, stating approximately $1.3 billion in inflows, leading to $1.008 billion with debt. He noted that 30% of Blue Owl's credit business is now non-direct lending. Alan highlighted alternative credit and digital infrastructure as significant growth areas, comparing their first-year growth rates post-acquisition to the Oak Street acquisition. Co-CEO Marc Lipschultz added that organic products like GP-led secondaries, which have grown to $2.5 billion, also contribute to growth outside direct lending.

Patrick Davitt from Autonomous Research asked if the strong Q2 fundraising performance pulled forward results from the second half, questioning the previous outlook for accelerating flows later in the year.

Answer

CFO Alan Kirshenbaum confirmed that Blue Owl still feels 'very good' about fundraising in the second half of the year for both institutional and wealth channels. Co-CEO Marc Lipschultz added that the strong quarter reflects the balanced model, with both channels performing exceptionally well. They noted that while the OREF VII fund close was an early positive outlier, the overall pipeline remains robust as more products across the platform hit their stride.

Patrick Davitt sought clarification on retail flows and asked if the $250 million from new non-U.S. sleeves represents a new quarterly baseline, also inquiring about the pipeline for similar international products.

Answer

Chief Financial Officer Alan Kirshenbaum confirmed the retail flow expectation. Regarding non-U.S. sleeves, he and Co-CEO Marc Lipschultz explained that these new international distribution channels often operate on a quarterly closing cadence, which will result in a recurring boost in the final month of each quarter rather than a smooth monthly baseline. They expressed excitement about the potential to continue growing these local feeder funds globally.

Patrick Davitt of AllianceBernstein asked about the new alternative credit retail product, how it will be differentiated from established competitors, and the company's confidence in gaining placement.

Answer

Co-Chief Executive Officer Marc S. Lipschultz expressed high confidence, highlighting the 20-year track record of Atalaya, which forms the basis of the offering. He stated that Blue Owl is already out with platforms and receiving a strong reception, and he fully expects to be a key leader in the alternative credit category, similar to their position in direct lending and real estate.

Patrick Davitt inquired about the scale of fundraising flows from recent acquisitions in Q3, the expected quarterly run rate from Kuvare, and the potential contribution from all new deals in Q4.

Answer

Chief Financial Officer Alan Kirshenbaum noted that over 20% of Q3 fundraising came from new strategies and said that nearly $1 billion quarterly from insurance solutions (Kuvare) is a 'good benchmark.' He expects fundraising from Atalaya to ramp with its flagship fund and a new wealth product in 2025. Co-CEO Marc Lipschultz added that these deals add new 'layers to the layer cake' of growth.

Patrick Davitt asked about the current mix of Arctos's $15 billion AUM between sports and solutions, and why Arctos, despite a strong secondaries team, hadn't raised more AUM in that space, suggesting KKR's distribution could accelerate a mega fund.

Answer

CFO Rob Lewin explained that Arctos, founded in 2019, has the majority of its AUM in sports, with no fixed end date, and is a leader in this double-digit growth asset class. GP Solutions is a newer, successful business for Arctos. He clarified that secondaries is not a current business for Arctos, but KKR sees a compelling opportunity to build a leading platform with a 'blank sheet of paper,' leveraging Arctos's team and KKR's capital and expertise. He emphasized the synergy, where Arctos can originate for KKR's ecosystem, and KKR can provide a differentiated toolkit like stadium financing. Co-CEO Scott Nuttall added that growth in the sports business is not contingent on changes in league ownership rules.

Patrick Davitt inquired about Arctos's path to $100 billion AUM, the current mix between sports and solutions within its $15 billion, why Arctos hasn't raised more AUM in secondaries, and the potential impact of KKR's distribution on raising a mega fund.

Answer

CFO Rob Lewin explained that Arctos's $15 billion AUM is primarily in sports, with a growing GP solutions business. While secondaries are not a current focus for Arctos, the team's experience combined with KKR's expertise and capital provides a 'right to win' in building an innovative secondaries platform. He emphasized that KKR's ecosystem will help originate opportunities and provide a differentiated toolkit, such as stadium financing and sports-adjacent real estate.

Patrick Devitt asked about the perceived disconnect in strategic buyer activity for sponsor-backed companies despite a 'deal dam breaking' narrative, and whether the exit channel mix will shift more towards IPOs versus strategic buyers this cycle.

Answer

Scott Nuttall, Co-Chief Executive Officer, advised against overreacting to some data, stating that KKR is actively engaged in dialogues with strategic buyers and financial sponsors for its assets. He noted the IPO market is open, and opportunities for recaps and refis are also present, indicating a broad-based exit environment for KKR. Rob Lewin, Chief Financial Officer, added that KKR expects another transaction to sign today, which would increase monetization visibility to roughly $1 billion over the next couple of quarters, a level not seen since Q4 2021. He emphasized that KKR's experience differs from general headlines, highlighting 'dispersion and bifurcation' in the market.

Patrick Devitt asked about the perceived disconnect between the 'deal dam breaking' sentiment and continued low strategic buyer activity for sponsor-backed companies, and whether the exit channel mix might shift towards more IPOs versus strategic buyers in the current cycle.

Answer

Co-CEO Scott Nuttall advised against overreacting to data, stating that KKR is actively engaged in dialogues with strategic buyers and financial sponsors for its assets, and the IPO market is open, alongside opportunities for recaps and refis. CFO Rob Lewin added that KKR expects another transaction to sign today, potentially increasing monetization visibility to $1 billion over the next couple of quarters, a level not seen since Q4 2021. He emphasized that KKR's experience differs from headlines, highlighting 'dispersion and bifurcation' in the market.

Patrick Davitt of Autonomous Research noted KKR's success in monetizing assets to strategic buyers, which seems to contrast with broader market commentary, and asked for KKR's perspective on the bid-ask spread and the strategic buyer appetite.

Answer

Co-CEO Scott Nuttall stated that KKR's direct experience has not matched the negative headlines. He confirmed the firm has been very active selling assets to strategic buyers, particularly in Asia. Nuttall observed that the bid-ask spread has been dissipating, and with public company stocks up, strategics have a more attractive currency to make acquisitions. He concluded, 'we're not experiencing what we're reading about.'

Patrick Davitt of Autonomous Research asked why insurance earnings are expected to remain flat around $250 million per quarter and not increase, given portfolio repositioning and potentially wider investment spreads.

Answer

CFO Rob Lewin explained that the firm is focused on the 'all-in ROE,' which is approaching 20%, rather than just the insurance segment's operating earnings. He noted that KKR is intentionally under-earning in the near term by elongating liabilities and adding more alternatives to the portfolio. These strategic shifts, which optimize long-term value, take time to impact the P&L, as returns from alternatives are not all yield-based.

Patrick Davitt asked for the current visible realized cash flow statistic and whether management views the monetization theme as a first-half or second-half 2025 event.

Answer

CFO Robert Lewin responded that monetization timing is fluid but is expected to be up for the full year. He provided a visibility metric of 'approaching $400 million' in high-visibility revenue from signed or announced deals. He also noted that deal pipelines were strong five weeks into the new quarter.

Patrick Davitt of Autonomous Research asked for a housekeeping item: the updated visible realization pipeline for the upcoming quarter.

Answer

Chief Financial Officer Rob Lewin provided a visible monetization pipeline of approximately $500 million for Q4. He added the important detail that about 60% of this revenue is expected to be taxed at the lower 10-20% compensation ratio, resulting in a more significant flow-through to the bottom line.

Patrick Davitt asked for clarification on the annual cadence of lumpier target date plan losses, specifically if they occur in months other than December.

Answer

CEO Robert Sharps stated that outside of elevated activity around year-end, there is no specific seasonality to target date plan activity, and losses can occur throughout the course of the year.

Patrick Davitt asked for clarification on the cadence of lumpier target date plan losses, specifically if they occur in months other than December.

Answer

CEO Rob Sharps stated that outside of elevated activity around year-end, there is no specific seasonality to plan activity, and it can happen throughout the course of the year.

Patrick Davitt of Autonomous Research asked about the rationale for reclassifying model delivery assets into AUM, requested details on the organic growth of that asset base, and inquired about the future pipeline for similar mandates.

Answer

CFO Jennifer Dardis explained the change was made because the business has grown and the firm is vehicle-agnostic in delivering its strategies. Since the value delivered and fee are similar to SMAs, it provides a clearer picture of business health. She noted the July win would be reflected in the next AUM release. President, CEO & Chair Robert Sharps added that model delivery is a meaningful market trend, and incorporating it into AUM is appropriate as the capability scales. Dardis contextualized the $9B by noting the existing SMA business is just over $10B.

Patrick Davitt requested more specific color and scale on the client wins in December that partially offset the large, previously disclosed sub-advisory redemption.

Answer

CFO Jen Dardis stated the wins were broad-based across equities, multi-asset, and fixed income, highlighting that there were 10 or 11 wins above $200 million each in December alone. CEO Robert Sharps added that the wins spanned various strategies and channels, including large-cap growth in wealth, institutional structured research, an insurance fixed income mandate, and a large Target Date fund win.

Patrick Davitt asked for a reminder on the client base makeup of the sub-advised business outside of the variable annuity (VA) segment and questioned why that business is considered stickier.

Answer

CFO Jen Dardis clarified the other sub-advised business is primarily in retirement. CEO Rob Sharps added that the trends seen in the VA business are not consistent across the entire sub-advisory platform. He explained the VA industry faces specific pressures from products like fixed index annuities, which is not the case for the rest of their sub-advisory business in wealth and retirement, making those assets less prone to the same outflow trends.

Patrick Davitt asked about the scale of third-party performance-related expenses excluded from guidance and requested detailed expense guidance for the next quarter.

Answer

Matthew Nicholls, Co-President and CFO, stated that third-party performance-related expenses are expected to be relatively small going forward, with a large $24 million expense in the previous quarter being a one-time event. He provided detailed Q2 guidance: EFR stable, Comp & Benefits around $860 million (including $30 million for calendar year resets, $50 million performance fees at 55% ratio), IS&T $155 million, Occupancy $70 million, G&A $190-$195 million (higher fundraising/professional fees), and a tax rate guide of 26-28% (now lower to mid-range). He reiterated the flat expense guide for 2026, with expense savings spread over the year, larger in the last two quarters.

Patrick Davitt followed up on the expense guide, asking about the scale of third-party performance-related expenses being excluded and for a detailed rundown of next quarter's expenses.

Answer

Matthew Nicholls, Co-President and CFO, clarified that third-party performance-related expenses are relatively small, primarily for former employees, and provided detailed Q2 guidance: Comp and benefits around $860M (including $30M calendar year resets), IS&T $155M, Occupancy $70M, G&A $190M-$195M, and a tax rate at the lower to mid-end of 26%-28%.

Patrick Davitt from Autonomous Research inquired about the insurance channel, specifically requesting an update on the Great-West Lifeco relationship, the remaining funding from their initial commitment, and any potential new commitments.

Answer

CFO Matthew Nicholls reported a 'really great relationship' with the Power group of companies, with approximately $3-4 billion of the initial $25 billion allocation remaining to be funded. He also praised the performance of the Putnam team, which was part of the transaction. Head of Global Distribution Adam Spector added that the firm is winning other significant insurance mandates by offering a broad range of solutions, particularly in alternatives.

Patrick Davitt asked about the impact of Variable Annuity (VA) mandate wins, inquiring about their contribution to quarterly flows, the pipeline for future wins, and the reasons behind Franklin's success in a channel where peers have struggled.

Answer

Head of Global Distribution Adam Spector explained that success stems from a strategy of deepening partnerships with select insurance companies that are consolidating their manager lists. CEO Jennifer Johnson added that Franklin's broad capabilities, educational resources like the Franklin Templeton Academy, and specific insurance expertise make it a preferred partner in these consolidation deals, noting the recent large Venerable win has funded.

Patrick Davitt asked about the potential for institutional rotation into money funds given the Fed's cutting cycle and the remaining room for growth, and inquired about the sustainability of positive operating leverage on the compensation ratio in 2026, assuming flat markets. He also clarified AUM and sales dates, and the nature of the $10.2 million fee decline.

Answer

Debbie Cunningham, CIO, projected one Fed rate cut in 2026, maintaining attractive money market yields (mid-3%) compared to direct securities for institutions and bank deposits for retail, expecting continued positive AUM growth, potentially single-digit. Tom Donahue, CFO, anticipated continued positive operating leverage on compensation in 2026, with comp increasing but at a slower rate than flows. Chris Donahue, President and CEO, clarified AUM was as of Jan 28th and sales as of Jan 23rd, confirming significant separate account inflows bucking fund outflow trends. He also confirmed the $10.2 million fee decline was for daily-based management, advisory, and distribution fees. Saker Nusseibeh, CEO of Federated Hermes Limited, elaborated on the $8.2 million real estate development fees, explaining they were for preparation costs on paused projects where clients paid fees but retained options, and highlighted a new mixed-use development win in Manchester.

Patrick Davitt asked for an updated outlook on institutional rotation into money funds given the Fed cutting cycle and potential curve steepening. He also questioned if the positive operating leverage on the compensation ratio could continue in 2026, assuming flat markets. In a follow-up, he clarified AUM and sales dates and inquired about the nature of the $10.2 million fee decline.

Answer

Debbie Cunningham, Chief Investment Officer for Money Markets, projected one 25bps Fed rate cut in 2026, expecting money market funds to remain compelling for both institutional and retail clients, anticipating positive, possibly single-digit, AUM growth. Tom Donahue, CFO, confirmed an expected increase in Q1 compensation due to seasonal factors but anticipates continued positive operating leverage if flows persist. Chris Donahue, President and CEO, clarified AUM was as of Jan 28th and sales as of Jan 23rd, confirming significant separate account inflows. He also confirmed the $10.2 million decline was for daily-based management, advisory, and distribution fees, while Saker Nusseibeh, CEO of Federated Hermes Limited, elaborated on non-recurring real estate development fees.

Patrick Davitt from Autonomous Research inquired about the potential for stablecoin and tokenization products to disintermediate the traditional money fund business, and whether management views this as an incremental opportunity. He also asked for an update on the institutional rotation into money funds ahead of potential Fed rate cuts.

Answer

CEO J. Christopher Donahue and CIO of Global Liquidity Markets Deborah Cunningham responded that they view tokenization as an incremental opportunity and a new distribution channel, not a disintermediating threat. They highlighted their partnership with BNY Mellon and Goldman Sachs as a sound strategy. Regarding fund rotation, Ms. Cunningham noted that while discussions are ongoing, a significant rotation has not yet started in earnest as anticipated Fed cuts have not materialized. She explained that Q2 money fund assets were flat, with tax-related and margin call outflows in April being offset by gains in May and June.

Patrick Davitt from Autonomous Research asked about the potential for tokenized products to disrupt the traditional money fund business and whether the long-awaited institutional rotation into money funds has begun ahead of anticipated Fed rate cuts.

Answer

J. Christopher Donahue, Chairman, President, & CEO, and Deborah Cunningham, EVP & CIO of Global Liquidity Markets, view tokenization as an incremental growth opportunity and a new distribution channel, not a disintermediation threat. They highlighted their partnership with BNY Mellon and Goldman Sachs as a sound strategy. Regarding fund flows, Ms. Cunningham noted that while the institutional rotation is 'alive and well,' it hasn't started 'in earnest' as expected rate cuts have not yet occurred. She described Q2 as a tale of two halves, with tax and margin-call outflows in April followed by a recovery and rotation into funds in May and June.

Patrick Davitt inquired about money fund flow trends since the April tax date, the status of institutional rotation amid Fed rate cut expectations, the impact of tariff noise on international clients, FX volatility's effect on expenses, and potential capacity constraints for the fast-growing MDT strategies.

Answer

CEO John Donahue confirmed no impact from tariff noise and no capacity issues for MDT. CIO Deborah Cunningham noted substantial inflows post-April 15 and expects continued positive flows due to attractive yields. CFO Thomas Donahue quantified post-tax inflows at approximately $5 billion and clarified that the steady-state for the 'other' expense line is around $4 million, with recent noise from GBP hedging.

Patrick Davitt asked about the apparent market share loss in money market mutual funds, why other large firms are seeing higher flows, and the company's stock repurchase strategy given its cash balance.

Answer

CEO John Donahue explained that on a three-year average, money market share is stable and client retention is strong, attributing quarterly fluctuations to normal large flows. CIO Debbie Cunningham added that Q1 2025 has started with surprisingly strong flows. Regarding buybacks, CFO Tom Donahue stated the stock is still viewed as significantly undervalued and the company expects to continue repurchasing shares in 2025.

Patrick Davitt asked about Federated Hermes' money fund market share, questioning the reasons for apparent share loss in Q3 and October despite strong inflows, and inquired about the nature of large flows benefiting competitors. He also requested clarification on the run-rate for the 'other expense' line, excluding FX impacts.

Answer

CEO John Donahue attributed short-term market share fluctuations to lumpy client activity, such as a $6 billion withdrawal to pay down debt. CIO for Money Markets, Deborah Cunningham, added that a late-quarter SOFR rate jump caused some institutional clients to temporarily shift to the direct market. She also noted that retail-focused competitors are gaining share by converting depositors to money fund clients. Regarding expenses, CFO Thomas Donahue explained the FX gain was from hedging and that about three-quarters of the impact could reverse in coming quarters if exchange rates stabilize.

Patrick Davitt inquired about the slow development of retail demand for investment-grade (IG) private credit strategies, despite increased institutional demand. He asked if the relative yields were too low for retail investors or if other factors were at play, and whether discussions with distributors indicate a path to a meaningful uptick in the future.

Answer

President and COO Jon Gray acknowledged that individual investors are currently more attracted to higher-yielding credit products compared to institutions seeking pure fixed-income replacement. He suggested that as alternatives mature, retail investors might increasingly recognize the premium return over liquid markets, similar to the evolution seen with institutions moving from private equity to infrastructure, real estate, and various credit types. However, he noted that this shift for investment-grade fixed-income is not yet fully realized in the retail channel.

Patrick Davitt asked about the demand for investment-grade (IG) private credit, noting strong institutional interest versus slow retail development, and whether there's a path to a meaningful uptick in retail demand through distributor education.

Answer

Jon Gray, President and COO, acknowledged that individual investors currently show more attraction to higher-yielding credit products compared to institutions seeking pure fixed-income replacement. However, he believes that as alternatives mature and gain acceptance, retail investors will increasingly recognize the benefit of a premium return over liquid markets, similar to the evolution seen with institutional clients, though this may not happen overnight for investment-grade fixed income.

Patrick Davitt asked if recent wobbles in the bank loan market, including pulled or repriced deals, were causing banks to rethink their aggressiveness in direct lending, potentially leading to less competition or wider origination spreads.

Answer

Jon Gray, President and Chief Operating Officer, indicated that while the bank market is sensitive to distribution, market participants have largely concluded that recent events were isolated. He stated that Blackstone is not currently seeing any significant pullback from banks or changes in their competitive stance.

Patrick Davitt asked about the impact of recent wobbles in the bank loan market on direct lending dynamics, specifically if banks are becoming less competitive and if new origination spreads could widen.

Answer

President and COO Jon Gray acknowledged that the bank market is sensitive to distribution, and recent events could cause some hesitancy. However, he believes market participants have concluded these were isolated incidents, and as a result, Blackstone is not currently seeing a significant pullback from banks.

Patrick Davitt asked about the potential impact of anticipated cuts to government research funding on Blackstone's life sciences portfolio and the overall investment opportunity in the sector.

Answer

President & COO Jonathan Gray acknowledged that potential funding cuts add uncertainty, particularly for tenant demand in life science office space. However, he stressed that the sector's fundamentals remain strong due to enormous innovation, which AI will likely accelerate, and significant capital needs from both large pharma and smaller biotech firms. He asserted that Blackstone's unique expertise and scale create a substantial investment opportunity despite potential policy changes. CFO Michael Chae added that new construction starts for life science offices are down over 80%, which will benefit the sector long-term.

Patrick Davitt asked if the scale of private credit can now fill the void when bank loan markets seize up, allowing private equity to deploy capital more quickly, and if Blackstone's direct lending business is funding other sponsors' deals.

Answer

President and COO Jonathan Gray stated the environment is 'fundamentally different' now. The scale of private credit allows M&A to continue during volatility because its pricing is more stable. He confirmed their private credit business provides financing to both Blackstone's own funds and other sponsors. CFO Michael Chae added that this certainty of capital is 'transformational' for the M&A market.

Patrick Davitt asked about the potential impact of significant tariffs or a trade war on Blackstone's in-ground portfolio and requested an update on the firm's capital exposure to Europe, Asia, and China.

Answer

Jonathan Gray, President & COO, stated that since few of Blackstone's portfolio companies export physical goods at scale to the U.S., he does not foresee a major impact from potential tariffs. Michael Chae, CFO, provided the geographic breakdown of the portfolio, noting it is heavily concentrated in the U.S. at approximately 75%, with about 15% in Europe and a modest single-digit percentage in Asia, resulting in manageable exposure to non-U.S. markets.

Patrick Davitt inquired if Ares is observing any signs of banks becoming more conservative or less competitive, and how new origination spreads tracked through Q3 and into Q4, especially given recent wobbles in the bank loan market.

Answer

Mike Arougheti, Co-Founder, CEO, and Director of Ares Management Corporation, stated that bank behavior at the top end of the market is less relevant to Ares due to its broad exposure across the private credit market. He noted a modest spread moderation of approximately 25 basis points in Q3, which may persist. He added that increased transaction volumes generally lead to more price stability, and Ares is well-hedged against bank behavior, benefiting from either taking market share or participating in liquid credit if banks drive volumes there.

Patrick Davitt inquired about spread dynamics in the private credit market, specifically if banks are becoming more conservative, leading to less competition, and how new origination spreads tracked in Q3 and so far in Q4.

Answer

Mike Arougheti, Co-Founder, CEO, and Director, explained that Ares' broad exposure across the private credit market makes bank behavior at the top end less relevant. He noted a spread moderation, with approximately 25 basis points of widening in Q3, which may continue. He added that increased transaction volumes tend to bring more price stability, and Ares is well-hedged against bank behavior, benefiting from either taking market share or participating in liquid credit if banks drive volumes.

Patrick Davitt questioned the deployment pipeline for Q3, particularly in light of recent refinancings from direct lending to the broadly syndicated loan (BSL) market, and asked how gross-to-net deployment is tracking.

Answer

CEO Michael Arougheti stated that Ares is often on both sides of such refinancings and is less reliant on the upper-middle-market sponsor flow that trades between direct lending and BSL markets. He affirmed that investment pipelines were building into Q3 not just in direct lending but across other strategies like secondaries and real estate.

Patrick Davitt asked for an update on Q3 deployment pipelines, particularly in light of recent refinancings from direct lending to the syndicated market, and how gross-to-net deployment is tracking for the second half.

Answer

Michael Arougheti, Co-Founder, CEO & Director, noted that Ares operates on both sides of the direct lending to syndicated market flow, often following credits into its liquid credit business. He emphasized that Ares is less reliant on the upper-middle-market sponsor flow that frequently moves between these markets. Arougheti confirmed that investment pipelines are strengthening into Q3 across multiple strategies, not just direct lending.

Patrick Davitt inquired about the direct lending pipeline and how spreads on new commitments have been tracking, specifically whether they have widened due to the BSL market closure or if competition is keeping them tight.

Answer

CEO Michael Arougheti stated that while the overall size of the investment pipeline is unchanged, private credit is capturing a greater share of new issue volume as the liquid markets have become more selective. Regarding pricing, he noted that spreads have widened by a healthy 50 to 75 basis points from pre-April levels, using ARCC as a proxy. This indicates improved terms, though not as wide as seen in some prior periods of extreme dislocation.

Patrick Davitt asked if the Q3 non-comp expense run rate is a good indicator for Q4 and whether AUM for new active ETF launches is primarily cannibalizing existing products or attracting new AUM.

Answer

CFO Allison Dukes indicated that non-comp expenses might be modestly higher in Q4 due to seasonality, while compensation as a percentage of revenue is managed on a full-year basis, targeting around 43%. President and CEO Andrew Schlossberg stated that active ETF launches, totaling a couple of billion dollars, are mostly in new strategies and are seen as incremental growth, not significant cannibalization, attracting new AUM from higher net worth advisors.

Patrick Davitt asked if the Q3 non-comp expense run rate is sustainable for Q4 and about the source of AUM for active ETF launches – whether it's new AUM or cannibalizing existing products.

Answer

CFO Allison Dukes expects non-comp expenses to be modestly higher in Q4 due to seasonality. President and CEO Andrew Schlossberg indicated active ETF AUM is a couple of billion dollars, mostly from new strategies, suggesting incremental growth rather than cannibalization.

Patrick Davitt from Autonomous Research questioned if the historical difficulty of achieving a shareholder quorum for the QQQ had changed, and as a follow-up, asked if the new structure would permit Invesco to generate securities lending revenue.

Answer

CFO L. Allison Dukes declined to speculate on the ease of achieving a quorum, directing the question to the proxy filing. She confirmed that while the new structure allows for securities lending, the potential revenue is expected to be 'relatively immaterial' and was not a primary driver for the proposed change.

Patrick Davitt asked about the impact of anti-U.S. sentiment on fund flows and Invesco's appetite for a large M&A transaction.

Answer

CEO Andrew Schlossberg and CFO Allison Dukes confirmed they are winning mandates and have not seen anti-U.S. rhetoric, attributing shifts to a broadening of allocations where Invesco's local presence is a benefit. On M&A, Dukes stated their willingness is unchanged and that recent balance sheet actions increase flexibility for a larger deal, while Schlossberg emphasized a preference for strategic partnerships.

Patrick Davitt asked if the accelerating ETF adoption in Europe represents the beginning of a 'catch-up' to the U.S. and whether this trend is a net positive or negative for Invesco, given its higher-fee legacy active funds in the region. He also requested an update on discussions with MassMutual regarding the preferred stock.

Answer

President and CEO Andrew Schlossberg agreed that Europe is in the early stages of a secular trend toward ETFs and views it as a net positive, as Invesco's scalable platform can create operating leverage. Chief Financial Officer Allison Dukes added that while European ETF fees are slightly lower, the organic revenue growth is a net positive. Regarding the preferred stock, Dukes stated there were no new updates, as conversations are ongoing and complex, involving tax and capital considerations for MassMutual.

Patrick Davitt followed up on the 'cash on the sidelines' narrative, asking where the strong bond flows are coming from within client allocations, given that money market funds are also seeing inflows.

Answer

President and CEO Andrew Schlossberg clarified that the bond inflows are not coming from Invesco's own money fund business. Instead, he stated that clients are moving money from the sidelines or from competitors and are also extending duration within their fixed income allocations, for example within their SMA portfolios.

Patrick Davitt of Autonomous Research asked about the feasibility of achieving a shareholder quorum for the QQQ structure change vote and inquired if the new structure would enable securities lending revenue.

Answer

Senior MD & CFO L. Allison Dukes declined to speculate on the quorum difficulty, directing the questioner to the proxy filing. Regarding securities lending, she confirmed the opportunity exists but stated its financial impact would be "relatively immaterial" and was not a primary motivation for the change.

Patrick Davitt asked if AMG is observing a trend of European clients reallocating capital away from U.S. managers due to ESG or geopolitical policy concerns.

Answer

President & COO Thomas Wojcik stated that while the topic has been discussed, AMG did not see this trend materially impact its Q2 flow numbers. He emphasized AMG's global diversification, noting recent European investments like Montefiore and Qualitas position the firm well regardless of regional shifts. CEO Jay Horgen concurred, adding that while they are well-positioned with European-based affiliates, they have not seen this trend significantly affect the business yet.

Patrick Davitt asked for an update on the alternative wealth opportunity, including distribution expansion, newly filed products, and the medium-to-long-term pipeline for new launches.

Answer

Thomas Wojcik, COO, detailed the success of AMG's vertically integrated U.S. wealth platform, noting alternatives AUM on it has grown tenfold in five years. He mentioned launching three new evergreen products in the past year and filing for two more. With the AMG Pantheon fund surpassing $5 billion in AUM, the platform will soon feature six continuously offered alternative solutions, with a strong future pipeline that includes active ETFs.

Patrick Davitt from Autonomous Research asked about potential changes to typical Q4 flow seasonality and whether an expected increase in alternative asset realizations could create a headwind for AUM.

Answer

COO Tom Wojcik stated that Q4 seasonality is typically muted for AMG and should become even less of a factor as the business mix shifts toward alternatives. He and CEO Jay Horgen clarified that they do not see realizations as a material headwind, as strong fundraising (20%+ annualized organic growth) is driving future earnings power, and many realizations are from older funds where AMG has no carried interest.

Patrick Davitt from Autonomous Research inquired about the emerging opportunity for asset managers to manage stablecoin reserves, the potential for a pipeline of mandates similar to Circle, and why platforms use managers instead of buying treasuries directly.

Answer

CEO Laurence D. Fink described dialogues with central banks on stablecoins as 'vibrant' and sees a massive future in the tokenization of all assets. He stressed that for a stablecoin to be legitimate, it must be backed by high-quality government bonds of the underlying currency. He implied that BlackRock's role is to provide the scale, operational expertise, and trust required to manage these reserves safely, ensuring the integrity of the stablecoin.

Patrick Davitt from Autonomous Research inquired about the emerging opportunity for asset managers in managing stablecoin reserves, asking about the pipeline for mandates similar to the Circle relationship.

Answer

Chairman & CEO Laurence D. Fink described conversations with central banks and regulators about stablecoins as 'vibrant,' stating that the tokenization of assets is the future and BlackRock is well-positioned to play a significant role. He stressed that for a stablecoin to be legitimate, its reserves must be invested in high-quality government bonds of the underlying currency, a principle BlackRock upholds. He believes this is just the beginning of a major trend as more countries look to digitize their currencies.

Patrick Davitt followed up on the alts in 401(k)s topic, asking about the level of demand from plan sponsors and whether uptake would be fast or slow if a legal safe harbor is established.

Answer

Executive Martin Small segmented the market, explaining that large plan sponsors will be the slowest to adopt, while mid-tier and smaller, adviser-sold plans show the most interest and will move fastest. He expects initial velocity to come from platforms like trust companies and RIAs. Small believes the operational implementation can be done faster than prior innovations because it involves allocating to funds within existing target-date structures.

Patrick Davitt asked about any noticeable uptick in policyholder inquiries for liquidity amid market uncertainty and the rationale for the new share repurchase authorization, weighing the low stock valuation against liquidity concerns.

Answer

CEO Jay Jackson confirmed a rise in policyholder inquiries, amplified by the company's advertising efforts in the current environment. He also noted strong investor demand for uncorrelated assets, evidenced by a $123 million capital raise for new funds. Regarding the buyback, Jackson explained it was a valuation-based decision, initiated when the stock's discount appeared more accretive than the return on equity from acquiring new policies.

Patrick Davitt noted that strong ETF flows are masking outflows elsewhere and asked about the strategy to return large, flagship active equity products to positive flows.

Answer

Executive Ali Dibadj countered that ETF success is broad, with four products over $1 billion, and the strategy is to offer strong investment capabilities in the ETF wrapper clients demand. For core active equity, the focus is on gaining market share. CFO Roger Thompson added that 13 different strategies saw over $100 million in net inflows during the quarter, demonstrating broader strength beyond a single product.