Good morning, and welcome to Apollo Global Management’s 2014 Fourth Quarter and Full Year Earnings Conference Call. During today’s presentation, all callers will be placed in a listen-only mode. And following management’s prepared remarks, the conference call will be opened up for your questions. This conference call is being recorded. I would now like to turn the call over to Gary Stein, Head of Corporate Communications.

Thanks, operator, and welcome, everyone. Joining me today from Apollo are Leon Black, Chairman and CEO; Josh Harris, Co-Founder and Senior Managing Director; and Martin Kelly, Chief Financial Officer. Earlier this morning, Apollo reported non-GAAP, after-tax economic net income of $0.23 per share for the fourth quarter and $1.42 for the full year ended December 31, 2014. Apollo also reported distributable earnings to common and equivalent holders of $0.91 per share for the fourth quarter and $3.13 for the full year. We declared a cash distribution of $0.86 per share for the fourth quarter bringing the total for the full year to $2.89. Today’s conference call may include forward-looking statements and projections, and we ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from these statements and projections. We don’t undertake to update our forward-looking statements or projections unless required by law. We will also be discussing certain non-GAAP measures on this call, such as economic net income and distributable earnings, which are reconciled to our GAAP net income attributable to Class A shareholders. These reconciliations are included in our fourth quarter earnings press release, which is available in the Investor Relations section of our website. Please also refer to our most recent filings with SEC for additional information on non-GAAP measures and risk factors relating to our business. As a reminder, this conference call is copyrighted property and may not be duplicated, reproduced or rebroadcast without our consent. If you have any questions about any information in the release or on this call, please feel free to follow-up with me or Noah Gunn after the call. With that, I’d like to turn the call over to Leon Black, Chairman and CEO of Apollo Global Management.

Thanks, Gary, and good morning, everyone. At our inaugural Investor Day in mid-December, you heard a story about growth about diversification and about investment excellence delivered by a deep bunch of extraordinary professionals. We demystified parts of our business by providing on enhance level of transparency particularly within credit. And importantly, we outlined a growth strategy, which we strongly believe is well within our reach. During my remarks this morning, I’d like to reflect on the few of our most significant accomplishments during the past year. Then, I’ll turn the call over to Josh who will provide you with additional color on some of our key business activities. As we look back on the year, 2014 continued to build on the strong momentum we generated previously. First, we continued to be incredibly active in monetizing our funds’ portfolios and delivering significant returns while at the same time enhancing the profitability of our management business. The funds we manage generated total distributions of more than $16 billion during the year, which resulted in a $1.7 billion of gross realized carry. The pretax cash earnings contribution of our management business increased 53% year-over-year to $435 million, or approximately $1.07 per share aided by improving margins. So putting these pieces together, strong realized gains in private equity and solid performance in our management business were the primary drivers of our $2.89 per share cash distribution for 2014, the second highest annual distribution in our history. In fact, 2014 capped a five-year period where Apollo has paid out in aggregate more than $10 per share in cash to our shareholders, representing more than 50% of our $19 IPO price on the New York Stock Exchange nearly four years ago. Next, we continue to solidified our position as a leading global alternative investment manager and…

Thanks, Leon. I’d like to continue the call by providing some specific commentary around investment performance and capital raising. Starting with investment performance. Given the volatility we’re seeing in oil prices, it’s not surprising that a common thread between the relatively muted performance in PE and credit during the fourth quarter was largely due to marks on our energy investments. To put some context around this, our fund’s energy exposure is only 5% of our $112 billion of AUM in Apollo managed funds and accounts. This includes the sub advised portion of Athene. However, material volatility in one sector in any given quarter can have an impact on the performance of our funds, which in turn can impact our incentive business. Our private equity fund portfolio is appreciated by approximately half a percent during the fourth quarter. If we excluded energy related investments from the private equity fund in the fourth quarter, the funds would have been up 5%. Looking at performance over the past two years, the private equity funds have appreciated by a combined 59% with approximately 6% appreciation in 2014 and more than 50% appreciation in 2013. Turning to credit, amid a generally soft backdrop that saw many indices post modest declines during the quarter, the approximately $60 billion of Apollo managed funds in our credit business produced a breakeven return fees and expenses. If we excluded energy related investments from the Apollo managed funds within credit, for the same period performance would’ve been improved by approximately a 100 basis points. For the year, this diversified pool of credit assets generated a positive return of 4.2% net to our fund investors. Given that our funds have long-term capital investment horizons, we believe that the recent volatility creates investment opportunities. Going forward, you should expect our contrarian style…

Thanks Josh and good morning again everyone. With regards to our cash distribution, the $0.86 we declared today includes our regular distribution of $0.15 plus $0.71 of other cash earnings. The additional amount above our regular distribution was primarily driven by carried interest earned from the sales of Athlon, Semico and Prestige, dividends from McGraw-Hill and Great Wolf, realized carry earned in the credit business, as well as refinements to cash tax estimates. Subsequent to the transactions in the fourth quarter, quarter, Fund VI held 45.5 million shares of Norwegian and 13.9 million shares of Sprouts. Moving to our management business, for the fourth quarter, Apollo’s management business earned $164 million of ENI, exhibiting strong year-over-year growth. Looking quarter-over-quarter, management business revenues were impacted by a $7.5 million contra revenue item at Athene Asset Management that was offset in the salary bonus and benefit plan within management business expenses. We currently expect approximately $6 million of the $7.5 million normalized in both management fees and compensation in the first quarter of 2015. Non-compensation related expenses within the management business were modestly lower quarter-over-quarter. The meaningful increase in other income within the management business was driven by a $30 million non-cash reduction to the value of the Firm’s tax receivable agreement. The impact of this adjustment is offset by an increase in the ENI income tax provision. Excluding this item, our effective tax rate on ENI would have been 7% in the fourth quarter. Turning to our incentive business, beyond the color that Josh already provided around our investment performance, I’d like to provide some additional details. In private equity the modest depreciation in the fourth quarter was driven by 3% appreciation in publicly-traded equity holdings, partially offset by two drivers. The first was the private holdings were essentially flat. The…

Thank you. This floor is now open for questions. [Operator Instructions] Your first question comes from Bill Katz of Citi.

Hi, thanks very much for taking my question. I guess maybe separately, I guess there’s some news out on Athene in terms of restatements. I’m sort of curious if you could talk about the implications, if any, there might be on the business?

Sure, Bill. Good morning. Yes, with respect to the restatements just to put it in perspective with the Athene just to make sure everyone is aware, Athene issued a press release. That was also issued through AAA this morning. So you can find the press release on the AP Alternative Assets website. They issued a pretty lengthy shareholder letter to the Athene investors providing an update on the business, it provide a lot of really good detail. It could in that letter was a reference to the fact that they were going to need to restate their Q1 2014 financials but just to put this in perspective Athene is a private company, we’re talking about the GAAP financials. At the same time, if they withdrew their GAAP financial information from the AP Alternative Assets website. They did post on their own website their stat financials for the third quarter of 2014. Also in the letter, they said that this restatement is actually going to have a positive impact on Athene’s financials, in terms of net income, ROE and book value. And also the letter said they are going to have very strong fundamental performance in the business, they got a few ratings upgrades. They talked about their acquisitions in Germany, and so forth. So I think fundamentally the business at Athene is very strong. So I think good performance there.

Okay. The second question is sort of a combined question maybe for Leon or Josh, and I’d appreciate both of your perspectives. Your MidCap FinCo seems interesting. It seems pretty leverage-able. So part one of the question is, are there more of those you can do, or can you accelerate growth through that entity even faster than the levered growth in front of that? And then secondly, on Oppenheimer, could you talk about the economic impact of that, and are there other sort of other retail platforms out there in the hopper that could add to that opportunity set? So I guess a two-part question, sorry about that.

Okay, so I’ll start with FinCo and then Leon can add on. In FinCo, look, this is a - clearly this is one of biggest opportunities which the long-term trend of banks sort of getting out of direct origination middle-market and asset-based lending. And so that market is, right. So, this is really about we have now created kind of $5 billion to $7 billion of firepower. We’re going to keep raising capital at FinCo. And it’s now about deploying into interesting investment opportunities. And obviously, the choppiness of the market kind of has two effects. One effect is it does affect your fund performance on a quarter - generally when you’re not selling, it affects it an unrealized basis, but the first set is it gets tougher for people to finance. And so this will be an opportunity. So yes, I think it could be a lot bigger over time. I don’t know, Leon, if you have anything to add.

No, nothing to add. Yes, in OpCo, yes, again, this is another kind of long-term trend about people - the retail investor which is only - which is kind of 1% to 1.5% allocated to alternatives being able to take advantage of kind of alternative credit which more and more is becoming an interesting place for people to be. And they don’t have a lot of options to get into that. So this is clearly through a larger fund structure, and that’s one channel to get to that retail investor. The reality is there are there are other channels, and we do have similar conversations in the works. And this is one part of the growth in our credit segment, but more and more we are focusing on retail. The retail investor, whether it be tapping into them privately, whether it be through larger fund complexes such as this one, whether it be in essence your closed-end funds in public markets, whether these are high net worth channels, there’s multiple opportunities and the retail investor is getting wise about this and saying why is it that endowments should be allocated kind of 30% to alternatives? Why is it that sovereign wealth funds and state pension funds should be allocated 10% to 15% alternatives and why am I only allocated 1%? And so how do I get part of this? And so you’re going to see this being a leg of growth in credit across multiple channels. Clearly, income is what retail investors want. It’s less - there are interesting things in private equity, but this is really, really larger in credit.

Okay, thank you.

Your next question comes from Mike Carrier of Bank of America Merrill Lynch.

Thanks guys. Hey Martin, maybe still on the credit segment, just when we think about the growth in 2015 and even 2016, just maybe give us some sense when you think about the assets coming in, the mix of fees versus performance fees, and then probably more importantly, maybe the scale in the business. And particularly when I think about, on your fee earnings, the monitoring fee is coming out on the Athene side, where could you potentially offset that over time as you grow scale throughout the credit segment?

Yes, its multiple different ways, on the – and focusing both on the management company and the incentive company, the management company is really consistent with, what we spoke about at the Investor Day, which is growing frequently around [ph], across that the whole suite investments or assets classes in what we call the yield bucket. It includes makeup, but it includes many other asset classes that we spoke to, EM, aircraft lease financing, shipping financing and generally senior secured and mezz lending, all of which we expect to do in an efficient way by managing the costs and improving our margins. On the incentive company side, there is a lot of carry potential within the complex today and that should increase further over time. Within credit, we have about $15 billion of carry invested assets earning carry and we have about the same again of carry generated, sorry, $15 billion of assets that are earning carry, $15 billion have invested is not earning carry, but is close to hurdle. And then we have dry powder on top of that. And so over time over time over the cycle you can apply a 10% to 15% carry rate or promote rate to that. And after profit share derive a meaningful contribution of the business. And then also if you look back in time, just in terms of what we have done, if you take out the last couple of quarters, in credit, which is taken the sell-off, we’re generating $300 million to $400 million of carry per year, in credit, more in 2012, less in 2011, but over 2013 through the first half of 2014, that was the run rate.

Yes, I mean, just to add, I mean, what we said at the Investor Day, which I still think is true, is that we should be able to increase credit assets kind of double-digit organically just by taking advantage of all the things that Martin talked about, which comeback to that the banks are pulling back and you need kind of institutional lenders such as us and our clients to step in and provide credit to non-investment grade companies and finance assets. And then you’ve got this opening of the retail channel. And then you have shift within the institutional complex toward alternatives, away from traditional fixed income. And then we’ve this R&D lab which is in the background which has overtime unpredictably on a quarterly basis to enable us stair step our growth above the organic growth and obviously Athene was a major stair step. We took a major stair step in the financial crisis. MidCap is a step in the right direction. I know it’s not obviously as large as Athene but we’re going keep coming out with these things to juice that double organic growth. And then when we look at our credit segment, we see margins going up not down, so overtime we think we should be able to drive margins up from here. In the management company and so I think that would – that sort of gives you a financial picture as much as we can a financial picture what we see happening over a kind of medium-term time period. I mean, obviously, fund-raising is episodic, returns are episodic, and on a quarterly basis, it’s a little hard to predict. But I think that hopefully lays out the picture. On the incentive side, as Martin said, and I’ll just repeat it, we have $15 billion in the ground. I’m giving round numbers. We had $15 billion that’s in the ground and that’s close. So we produce some good returns overtime. Hopefully we’ll get that and then we have I think round numbers about $10 billion of unused capacity to put money in. And we are putting up, if you look at our numbers, we’re putting a lot of money into the credit markets right now and in specific situations. So again you look at the incentive side of our business and it could go up quite a bit and so that would be the picture that I would paint relative to what we can do.

Okay. That’s helpful color. And then just quick on energy, you guys already hit on it. I just wanted to get some sense on when you look at the opportunities out there, how much time you spend in there, given what you’re seeing in the market, where you expect returns to be on near-term investments, and then obviously over the next couple of years as you generate the return on the asset.

Yes, so we spend a lot of time in energy and I think we’re well positioned in energy because truthfully we have relationships with kind of engineers and scientists all over the US that can underwrite, help us underwrite reserve quality, so we know, we are able to know where the good reserves are, and that’s actually tricky. In terms of – and that’s point one. Point two is the market has come down broadbrush relative to the price of oil dropping. And so everything has been pushed backwards. And so if you’re able to look at those quality companies and quality situations and differentiate them from other situations where the cost of producing oil might be higher, which are much more risky, you can really find some great value. And so that’s what we are trying to do. And I think like, fundamentally, we think the price of oil is likely to be higher over time. The issue obviously is predicting what that time period is. And so over a quarter or two quarters or three quarters, no one really knows. It’s extremely difficult to predict the price of oil, and we wouldn’t try to. So, our general approach is if we find something that we think is long-run intrinsically way undervalued, we are going to buy it. And guess what? If the price goes down, we will buy more of it. And so it does lead – it leads to a little bit of quarterly volatility, which you saw, but ultimately it has led over many years of doing this to fantastic returns. And so that’s kind of going to be our approach in energy. We do see it as a really significant fundamental opportunity over the medium-term, and we are going to keep investing capital in it prudently over time.

Okay, thanks, guys.

Thanks.

Your next question comes from Devin Ryan of JMP Securities.

Hey, good morning. So, I guess just to beat a dead horse here a little bit on energy, appreciate all that detail. But I know that the investments on the private side are generally hedged out on prices over the next several years. So, I’m just trying to think about with respect to marking those private investments, because I know there was not much mark this quarter, do you guys factor in any risk that maybe prices do remain lower through the hedges? I’m just trying to think if there’s any lag impact to the extent prices don’t recover, how that gets reflected through the marking process?

Yes, well, the answer is first of all a lot of our – I mean big chunk of our private equity investments are public, the biggest, the most noted one being EP Energy, and that goes up and down everyday. Feel free to type it up on your Bloomberg. The debt, most of the debt is also public. So, I do think that there is actually a reflection of the market view of the price of oil in those companies and the reality is that I think that - so I think that the markets actually should accurately reflect kind of the price of oil today. And the markets view of whether we’re hedged or not-hedge. I think, as an investment matter and in terms of a management matter, we actually also agree that price oil to stay low for a number of years. And so therefore with that kind of in the back of our head. We are making investments that will perform we’re both managing our companies in away and making investments in away that, is that were to happen. And like I said it’s not predictable that, we would still be able to make a good return and make money on those investments. So we’re not in anyway predicting or telling anyone that we can predict that short-term price of oil and I think all we’ll say is that long run economic fundamentals will govern. And we don’t see these prices are sustainable over a longer period of time. But certainly for a couple of years, they could be sustainable. And so I don’t know of that gives you the color of that you want, but that’s the way we’re thinking about it.

No, that’s actually great. I appreciate that. And then just to follow-up, with respect to Europe, how are you guys looking at the investing landscape there today? Has there been any change? Because there’s been clearly a lot of macro crosscurrents with QE and the decline in the euro and just some other moving parts, so I’m just curious if kind of the view or opportunity has changed one way or another.

I mean, look, the long run opportunity hasn’t really changed, in the sense that, look let’s say within Europe you have a banking systems that’s away larger than the U.S. deleveraging. And ultimately selling off what I technically call stuff, which is everything, like asset base loans, consumer base loans, corporate loans, businesses. And so that long-run opportunity continues. I do think, with the latest moves by the European monetary authority to announce large infusion of cash into the economies, into the banks and into the system quantitative easing, I would say that doesn’t help in terms of assets coming out. So I think we have seen kind of a slow down in dialogue if you will because the banks don’t have lots of liquidity, plus it’s a little more competitive there right now. I think offsetting all of that is that the economy is truly shakier in Europe. And so the opportunity in Europe is much more of a - its much more volatile, but its still interesting, but its different than the U.S. so - and it has slowed down a bit, so there will be a distressed opportunity in Europe, there will be asset sales, the latest trillion dollar infusion has definitely given the banks more liquidity and slowed it down a bit.

Great, thanks very much.

Okay, thanks.

Your next question comes from Chris Harris of Wells Fargo.

Thanks, hey good morning guys.

Good mooring.

Broader question about the credit business, this came out at the Investor Day, you guys are looking to enhance your efforts in direct originations, and obviously some of the announcements more recently are further evidence of that. The focus now or the greater focus now on direct origination I can’t imagine is kind of an easy thing to transition into. So, just wondering if you guys could talk a little bit about what you are doing within the business to try to make that transition as effective as it can be, and whether that requires any significant investments, or if you feel like your existing infrastructure is kind of set to handle that?

Yes, so we have been in that business for long time, and certainly obviously our publicly-traded BDC, as a direct origination vehicle we have numerous professionals that are working that business for a long period of time. In many cases, however, managed accounts, we have been relatively diagnostic to how we put capital out relative to good risk-return, if it’s a good risk-return, whether it’s a secondary opportunity or direct origination opportunity, we’ve been doing it. And I have said that more recently, we did acquire MidCap, which has a kind of close to 100 people doing direct origination. And FinCo this new business is the combination of MidCap’s infrastructure which existed, and exists down in Bethesda and has been operating very successfully, both before and after Apollo’s acquisition. And you know kind of $700 million or $800 million of new capital. So that’s kind of the way I would add answer it. I think Leon was just adding quietly over there, he keeps on talking to himself that we have several hundred investment professionals in credit that have been doing this for a long time.

This has been by far the fastest growing area of Apollo for five years. And we have added geometrically to the professional staff as we grow out new products and go into different sectors. And clearly, it’s all part of the secular opportunity, one of there being low interest rates during this period. So that you have an awful lot of pension funds out there that can’t meet their 8% bogey and they need to start expanding into other alternative credits instruments and trading, I guess liquidity for yield we would say and the others as you know the regulatory environment that is provided very strong secular tailwinds to those - the build-up that we been doing. So this is just one more piece of an overall tapestry that’s being woven over a five-year period and clearly origination is a large and potentially profitable piece of that tapestry that makes a lot of sense for given the infrastructure that we’ve broke up.

Okay, great. And a quick follow-up question maybe for Martin. Any read into realization so far in the first quarter, and what that might mean for the dividend?

Sure, so we don’t have any meaningful PE realizations to date in the first quarter. So may be let me just hit that little bit more broadly. We are a cyclical business, and we are moving from a heavy harvesting size into more of the deployment phase. And I think about that in couple of different ways. Firstly, underpinning the distribution is our management business. And as we talked about our emphasis on growing fee paying AUM and expense management, that sort of anchors our cash distribution, which is around about $1 a share. And then on the incentive company side, we spoke to the unrealized carry on balance sheet which is around $1.30 per share year which will probably take some years to be realized. But we have about $31 billion across the platform of carry earning assets today. We have another $18 billion of assets that are invested but not any carry. And we have dry powder of $29 billion. So, we have in the close to $80 billion of carry eligible assets and then just looking at that by business, in PE, we are actively deploying into Fund VIII, which we spoke to. That’s not in carry yet but will get there, and natural resources as well. So we have about $20 billion of dry powder in that segment. Fund VII is active. It’s about a third public, and there some private companies in there that are sort of maturing to an exit. And then Fund VI is in escrow, which we will continue to sell out of. But when and how that fund comes out of escrow really depends first on future value as well as the sequencing in which remaining investments are sold. And then credit we spoke to earlier on the call in terms of the carry potential there.

Helpful. Thank you.

Your next question comes from Ken Worthington of JP Morgan.

Hi. Good morning. First, in terms of Athene and the announced acquisition of Delta Lloyd, is it likely or possible that Apollo will be retained to provide some sort of services similar to what Athene does for the annuity – or what Apollo does for its ingenuity business today? Or is it just a big enough difference where it’s unlikely that Apollo can provide services to help out that business?

Yes, thanks, Ken. I would say at this point the deal was just announced a couple of weeks ago. It’s got to go through regulatory approval process in Germany. That will take a couple of quarters to get it closed. They expect it to get closed in the third quarter. As part of the review process, the regulators will review the business plan. So I would say it’s too early to say what the economics will look like, but we do expect that there will be an arrangement in place probably with different economics than what we have in place here in the US, presumably a bit lower, but too early to say definitively at this point. Overall, just to emphasize there is a lot of enthusiasm for Athene and what they are doing, both in the US and in Germany this acquisition in Germany provides potentially a really exciting platform to potentially replicate what Athene has been able to do in the US and Germany, which has a lot of similarities to the US market.

Interesting, thank you. And then Josh, you spoke fast, so I could’ve completely misheard this, so I apologize. Did you say that you expect Athene to sub-advise or maybe Athene did sub-advise another $5 billion in January? And if so, that’s a big step up. Why now? Where does the money go? Any flavor about that? But I’m not sure if I heard it right to begin with.

No, just to clarify what Josh said was during 2014 there was an incremental $5 billion of assets from Athene that were some advice in Apollo funds.

Got it. Okay, I knew it was too good to be true. Okay, good. And then maybe separately since I blew that question, $14 billion in credit below the hurdle, you said 56% less than 2% below the hurdle. Of the remaining, what’s the situation there? What’s the outlook for recovery? And is this common, like this could just be part of normal business? But how common is this kind of situation for Apollo in credit? Thanks.

Sure. Let me address that. So to earn carry, you have to earn the press. So a lot of the issue we had was we earned money but not enough to keep up with the press.

In the preferred return.

And the preferred return and the passage of time. So there’s a spectrum of – there is a lot of funds within credit that are carry-generating or have great potential. And there’s a spectrum of sort of the appreciation that’s necessary to get into carry. But I would say we spoke to 50%. One other data point is if you sort of go up another 100 basis points, you get to 65%, meaning if there’s appreciation of 3%, 65% of that AUM fund by fund gets into carry.

Yes, I mean, I’ll take the second one. Ultimately, when you have volatility and you are buying into debts, and in this case we were buying into - obviously we are buying a bunch of energy into debt, amongst other things, it’s pretty typical. Like in other words, if you go back and look at the marks, even on our PE fund, our most wildly successful PE fund, during the financial crisis, they were well south of cost, $0.50, $0.60 on the dollar. And so this is actually a little bit how you do it. And so I don’t think we are giving - I mean, I don’t know - I can’t give you the specific numbers. I haven’t studied that specific question enough. But the reality is I don’t we are giving up on getting back to kind of incentive fee on very many of those funds. And so I really do think this is kind of just how it works when you want to create enormous value.

Okay, cool. Why the question was asked, so your value investors, you buy on the way down. This is typical of the way you invest, so not uncommon. Cool. Thank you very much.

Thanks Ken.

Your next question comes from Patrick Davitt of Autonomous.

Thanks. In the vein of your answer to the QE question around it slowing the investment opportunity somewhat, I’m wondering to what extent it has been a boon to the money that’s already in the ground, investments already on the books, so to speak.

That’s the way it works. And there’s no question that some of the nonperforming loan portfolios are going quite well. Again, you kind of buy low, sell high, I hate to really oversimplify, but when yes, things are - if you look at kind of where some things are priced, QE does affect asset prices and stock and financial assets in particular, but yes. So it’s definitely buoying it.

Okay, great. And then there’s been some press around your difficulty in placing the debt of one of your deals, and that’s come amid a lot of negative press around the Fuser’s restructuring. Is there a connection there, or is it just more about stress on the yield markets? And should we be concerned that as you try to do more private equity like deals in the future, that some of your bond investors may be shutting down to Apollo type deals?

Yes, I mean, again, this is not the first time we’ve been through something like that. And clearly, we always work as hard as we can to serve our investors and protect our capital and maximize the value of our fund investments. Sometimes that leads to difficult negotiations with counterparties. In choppy markets like this one, there’s constantly speculation as to why deals may be more difficult to finance, most of which isn’t true. So only thing I would say is that I don’t think the situation have a long-term impact on our ability to finance transactions. I think we will be fine. That one did get finance. And this is not our first rodeo. People do as much as they can to put pressure on you, but I am personally and I don’t think we are worried about the long-term impact on our franchise.

Great, thanks.

Your next question comes from Brian Bedell of Deutsche Bank.

Hi, good morning and thanks. Thanks. Maybe just on the capital deployment outlook, you had given, I think Josh talked about some of the overall compression in energy and how that’s definitely creating opportunities. If we think about 20% of Fund VIII already deployed, do you see, say, over the near term, perhaps this year, as sort of an accelerated opportunity to deploy Fund VIII? And then how, in terms of an allocation perspective, how high would you be willing to go in that fund in terms of like energy exposure?

Yes. So, I would say that, right now the private equity markets generally driven by the leveraged finance market. The leveraged finance markets have been a bit choppy. But in the last kind of month or two, last quarter even, they backed up a bit. But they are still pretty robust relative to historical standards. And that is sort of driven by the easy money monetary policies and the strong economy we have here in the US. So, that’s driven private equity multiples up to double-digit. And as Leon said, we are creating our portfolio at kind of six times, so we are creating our portfolio at really a massive discount to the existing multiples. But it’s not an easy backdrop to put money out. And so therefore, unless things change, we will continue to have to in essence fight a relatively fully valued private equity market. Having said that, my own outlook is that – and sort of the consensus out there is that kind of come the second part of this year, the Fed is going to start raising rates, and that will take liquidity. That will put pressure on the markets a bit, particularly the fixed income markets, or traditionally it has. And so no one knows the future, but I think the environment will start to come towards our private equity funds, but we are able to navigate in either good environments or bad environments. Clearly choppy environments are better for us. Leon, I don’t know if you want to add anything.

Yes, just sort of putting that in different words, look, we are very proud of the fact that we have produced best-in class results for many, many years in many funds. But what I think we are most proud of is that we have done that by keeping our value orientation. And it is really dramatic to have put 20% of the fund to work in a 10 multiple environment for the industry of EBITDA and to have done it at a six multiple. I mean that’s four multiples. That’s not one multiple; that’s four multiples under. So we’ve put 20% of the fund to work on our value-oriented – at a six times. Clearly, to answer your question, I mean if we wanted to stretch that and have done that at a seven average multiple, we could’ve put a lot more money to work. So the trick is with our over 100 professionals in PE covering nine or 10 industries who have a great network of relationships working with the environments that are operative for each of those industries is to find that best risk-reward state of our value orientation but yet be able to find things and pull the trigger on it. And so I am feeling very sanguine about our ability to maintain our discipline but also be able to find good investment opportunities to put to work.

That’s really helpful color. Thanks. And then just the one follow-up, on the Oppenheimer strategic income fund, can you talk a little bit about, what your sub-advisory role is there? Are you taking a slice of sub-advising like a mandated or awarded slice of that fund or is it more about new investments coming in? And then will that be an illiquid portion of the fund or will it largely be liquid securities?

Thanks for the question. Unfortunately, given that the board just approve this relationship, it still needs to go to shareholder votes, which won happen for couple of months and so we are in a quite period there and really can talk more about the specifics Southern states focused on our credit business, which is obviously area of strength where we can really provide a lot of value and exposure to number of areas within the credit spectrum.

Okay that’s fair enough thank you.

Your next question comes from Michael Cyprys of Morgan Stanley.

Hi, good morning. Thanks for taking the question. So, I understand you can’t talk specifics about the Oppenheimer relationship right now, but I was just hoping you could comment just maybe more generally about how you are seeing the retail opportunity in the sub-advisory relationships just more broadly in terms of what’s sort of the sizing that you could potentially see and any color around the types of returns that you would be targeting for this type of investor base, and how you’re also thinking about the liquidity provisions for retail in these types of structures. And any color on the fees would also be helpful too. Thanks.

I think its early days in terms of being able to give specifics. Josh is going to have some additional color as well, but early days, do have other dialogs underway in terms of the liquidity. Clearly, it’s going to be focused on the more liquid part of what we do in credit. And Josh wants to add something.

Yes, I think there’s an enormous appetite for yield - in a low - again - I’m going to - unfortunately I have to stay big picture here because just what we are doing - just confidentiality and the like. There’s an enormous opportunity for 8% to 10% yields, or 6% to 10% yields. You can’t - 6% to 10% yields. So the retail investor is likely to be interested in sort of a lower return part of our business, not our traditional, not as much our traditional opportunistic business, but we are giving the breadth of our platform where we’re able to create 6% to 10% yields for double-D kind of credit which they have trouble accessing. If you go out and buy double-D high yield, which is - or if you go to a typical mutual fund, you are not going to be making 6% to 10% you are going to be making 3% to 4.5% for the same risk. And so proportion of your yield dollar that you are targeting yield is you are going to want that our yield, even if it means a little less liquidity, which is kind of the trade. So we can create a big arbitrage for investors and that’s not to say we are going to get all the dollars, but right now, we have almost the alternative segment almost none of it. And so everyone is shifting towards that opportunity. And like I said earlier, it’s coming directly from private channels, it’s coming through mutual fund complex there, that’s coming through high network channels, it’s coming through traditional brokerage channels. So there is all kinds of ways to do it and we are adding literally kind of a lot of different approaches, that a lot of different channels to sell our products. So more to come, we said it like to act first and talk after. And this Oppenheimer thing was something we could give you a little color on, we’ll try to put a little more color on some of the other stuff we are doing in the next couple of quarterly calls we’ve said that we are able to.

Okay, thank you.

Okay, thanks.

Your final question comes from Brennan Hawken of UBS.

Thanks, most of my question has been answered. Just I guess a quick one, have you seen any recent changes in a level of discussion in the M&A market, just given some of the volatility we see in the last couple of quarters in public markets.

I don’t no, I mean, not really, I mean I think the U.S. GDP is strong and increasing like the oil price volatility which is sort of impacted some of the market has - is actually good for the U.S. economy and good for the global economy in that. And so there are some technical choppiness, my own view is that as we shift from a monetarily driven, technically driven market to more of an earnings driven market there’ll be a little more volatility, because there is a little more uncertainty around earnings as that had a lot of flexibility during last number of years in QE, but the overall economic future in the U.S. quite positive. So if you’re a corporation you looked at that, saying hey that pull back is actually pretty good, my business still good, consumer still spending, fundamentals is still good, like I’m going to keep buying. So I think rates are low, I can borrow cheaply. I can issue stock at a relatively good price. So I think it’s actually a pretty good time for the M&A market right now.

Thanks for the color.

Thank you.

This concludes the question-and-answer session on today’s conference. I would now like to turn the floor back over to management for any additional or closing remarks.

Thanks again everyone for joining us on the call today. As we said earlier, if you have any follow-up questions, please feel free to reach to me or Noah Gunn.

Thank you. This does conclude today’s teleconference. Please disconnect your lines at this time and have a wonderful day.