Good morning and welcome to Apollo Global Management 2016 Second Quarter 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 will be open for questions. This conference call is being recorded. I would now like to turn the call over to Mr. Gary Stein, Head of Corporate Communications.

Great, thanks operator and welcome everyone. Joining me today from Apollo are Leon Black, Chairman and Chief Executive Officer; Josh Harris, Co-Founder and Senior Managing Director; and Martin Kelly, Chief Financial Officer. I would like to remind you that today's conference call may include forward-looking statements and projections which do not guarantee future events or performance. Please refer to our most recent SEC filings for risk factors related to these statements. We will be discussing certain non-GAAP measures on this call, which management believes are relevant to assess the financial performance of the business and are reconciled to GAAP figures in our second quarter earnings presentation. Earlier this morning, we reported GAAP net income of $0.91 per-share for the second quarter ended June 30, 2016. Economic net income totaled $0.98 per share during the quarter and distributable earnings to common and equivalent holders totaled $0.40 per share, $0.37 of which was declared for the quarter's distribution and will be payable to shareholders later this month. If you have any questions about any information provided within the earnings presentation or on this call please feel free to follow up with me or Noah Gunn. With that I would like to turn the call over to Leon Black, Chairman and Chief Executive Officer of Apollo Global Management.

Thanks Gary and good morning everyone. I am pleased that we have a chance to speak with all of you today. This call provides us with an opportunity to highlight what we have been able to achieve at Apollo through the first half of 2016 punctuated by our strong second quarter results which delivered meaningful asset growth, significant capital deployments, and our most profitable quarter in nearly three years fueled by solid performance across all our businesses. During this call, I will first provide some high level commentary regarding Apollo's investment activities and then Josh will provide you with details regarding our asset growth and investment performance. Martin will conclude our prepared remarks with some brief comments regarding Apollo's financials before we take your questions. Since founding Apollo 26 years ago, we have gone through four economic cycles and we have demonstrated time and again that some of the best investments our funds have ever made have been when markets appear to be at their worst or most volatile. It is during these periods of dislocation when others are often sidelined that we can leverage our integrated platform, deep industry knowledge, and capital markets expertise coupled with the long-dated nature of our funds capital to make attractive investments that we believe will deliver meaningful returns to our investors. We tend to thrive during these periods of volatility and uncertainty and during the second quarter which transpired against the highly unpredictable market backdrop we were extremely active on the investment front and we also generated strong financial results. During the quarter the funds we managed together with new co-investment partnerships deployed or committed more than $7.5 billion in aggregate investments across Apollo's platform. The vast majority of this activity was driven by our private equity business as Fund VIII has been…

Thanks Leon. During my remarks I would like to touch on two important topics, growth and investment performance. First, with respect to asset growth and fundraising, during the second quarter we generated inflows of more than $16 billion which included $8 billion of inflows from a diverse set of investment solutions and mandates across all of our business segment and $8 billion of inflows associated with Apollo Asset Management Europe or AAME which Martin will explain in a moment. Within private equity we generated 2.5 billion of inflows from equity co-investment capital to help finance the ADT transaction. And we also raised an additional 200 million for our second natural resources fund during the second quarter. Just last week we closed on an additional 500 million bringing total commitments for ANRP II, the natural resource fund to 2.7 billion. And fundraising remain underway. This is roughly 50% greater than our last Fund at this point. Within credit we had inflows of 4.6 billion during the quarter excluding the aforementioned AAME assets and notable drivers included $2.3 billion of incremental new assets related to Athene, grew its total assets to 68 billion during the quarter, up from nearly 66 billion as of March. This growth resulted from new flow of business, from new insurance clients, as well as the successful launch of new retail products. Our credit influence also included additional 800 million from mid-cap, our middle market direct origination platform bringing total assets under management to nearly 7 billion there. Based on its current capital base, mid-cap now has the capacity to grow its assets to approximately 10 billion and it originates new middle market loans. New add on managed account commitments totaled 400 million during the quarter and our pipeline remained strong as we are in active dialogues with…

Thanks Joshua and good morning again everyone. Starting with our economic earnings for the quarter, the $395 million or $0.98 per share, a total ENI in the quarter was driven by strong performance in our management business and even stronger performance in our incentive business. In the management business we earned $127 million of economic income, up from $82 million in the prior quarter. The increase was driven by rising management business revenues, principally resulting from fees earned in connection with sizable co-invest activity. The increase in management business revenue offset higher management business expenses which rose sequentially primarily due to an increase in non-compensation related expenses. In the incentive business we earned $322 million of economic income representing a significant rebound from an economic loss in the prior quarter. The sequential increase was driven by two primary factors; first, the positive fund performance across businesses Josh mentioned drove strong carried interest income across several funds which included funding across its preferred returns threshold and earning 80/20 catch up carry. Approximately $87 million or nearly 45% of the quarter's total net carried income was generated by Fund VIII. At the end of June, Fund VIII had the potential to earn approximately $30 million more in net catch up before turning to the conventional 20% carried accrual. Fund VIII is in the somewhat unique position of being carry generating while still deploying a considerable amount of its capital. For this reason and given the dynamics of marching forward in times to keep pace with the preferred return hurdle as well as uncertain future portfolio remarks it is possible that the fund's net IRR could fluctuate within or added catch up carry territory over the coming quarters. The other primary driver of incentive business economic income during the quarter was the increase…

[Operator Instructions]. Your first question comes from the line of Devin Ryan with JMP Securities.

Hey, great, thanks. Good morning everyone. Maybe starting on AAME as you just touched on, just trying to think about your plan to market that strategy, it seems pretty differentiated and maybe if you can, I know it's early days and there's not a big contribution, but can you just help us think about the potential market for that business, or just the market share that you could take from these insurance companies?

Yeah, I mean, I will take a crack at it, it is Josh. It is a huge market. I mean you are talking about the kind of all the existing insurance company liabilities and for that matter non-insurance company liabilities, bank liabilities in Europe. So it is trillions of dollars. So the market share is really small. I mean it is infinitesimal. But it is not really a market share issue. In terms of how we are going to market it, I would say that we continue to sort of study that and think about it. And there are certainly multiple ways we could go, certainly if you look at the theme model, the mid cap model, the permanent capital model, that might be a way that we would orient or we might raise LP capital directly. But we are continuing to work that out. But so far there is a lot of opportunities. The opportunity comes from - there is zero cost liabilities in Europe and so if you know how to manage the assets you can make - that’s a, it’s a great time to try and cumulate those liabilities.

Okay, great, that is helpful. And then just on Fund VIII, great to see it moving the carry generating. If you can give any detail just around were there specific investments that have been driving the performance that you have had, kind of like a couple of nice quarters, and is the fundamentals improving within those businesses that's driving the marks, or are the marks being kind of pulled up by something going on, on the public comparable side?

So, it is Martin. It is a general seasoning of money that is in the ground across the investments that we have made. Across PE more broadly than just Fund VIII we benefited from energy markups during the quarter and that had an effect on Fund VIII as well. But the contribution of energy as it relates to Fund VIII was less pronounced than it was more –broadly across the PE portfolio.

Okay, got it. Okay, I will hop back in the queue.

Yeah, I can hit the business, the underlying business of the companies in the portfolio is sort of trending to what we had planned. Both revenues and EBIT are both up sort of single-digit, low single-digit on an LTM basis, 12 months over 12 months. But it is still early days. The companies - each company has its own situation, each is being managed according to its own plan. It is hard to sort of benchmark marks against the broad index but we feel good about the construction of the portfolio.

Okay, great. Thanks for that color and congrats on a really strong quarter.

Thanks.

Yeah, just to give you EBITDA for the non-energy stuff quarter-on-quarter, year-on-year so is up about 5% across our private equity fund. That gives you the kind of sense of why, kind of on an aggregate we are realizing -- starting to realize the value.

Makes sense, thank you.

The next question comes from the line of Craig Siegenthaler with Credit Suisse.

Thanks guys. Good morning.

Good morning.

So, it was nice to see the 6 billion of capital deployed in the quarter and we saw some fairly sizable transactions with ADT and Fresh Market but Apollo is one of the few key shops we are actually seeing a high level of capital deployment and some of your peers are complaining about high public equity prices and slowing global economy, so how do you guys respond to this contra trend and really that we’ve seen the increase in your pace of investments here in PE?

Well, this is Leon, I think we respond through actions and performance. The proof has been in the pudding but basically we have put a lot of capital to work and we also have a robust pipeline today of deals that we like. There is no assurance that [indiscernible] be executed but right now we are going at a very nice pace. We hope that will continue. What we are most pleased that is the fact that we are doing in an Apollo-esque way. We understand that some of our peers feel it is a high priced environment. We have always felt it was a high priced environment and that is how we have always operated by dealing with complexity, by dealing with distress, by dealing going down roads others don’t and that is why not only have we put a lot of capital to work but we put it to work at four multiples lower than what the average of our peers are doing. So, basically I think our value oriented mantra has worked for us and continues to work. And our whole team and culture here has been attuned to doing deals that are outside of what our peers are doing and what the rest of the market is doing. Just to remind you all, we probably do over our 26 year period about a third of our transactions have been in distress during volatile times. The entry there has been at a five multiple. We do a lot more complex carve outs than anybody else. Our entry there is at about a six multiple and then the nine industries that we cover in depth here with our 360 professional investors across the Apollo platform will all help each other. We are willing to go a little higher, maybe to 7.5 but that is why at the end of the day we have been able to find things and keep to our culture investing at much lower multiples than what our peers are doing.

Got it. Thank you, Leon. And just as my follow-up, so we finally had some clarity in the second quarter on the Department of Labor rule, I am sure you guys probably are disappointed on the one point but the rule ended up including index annuities and I know there are several suites out there and insurers are involved but if the rule is implemented as is in April 2017, how should we think about the impact to Athene which I believe is one of the largest underwriters of index annuities in the U.S.?

Yeah, you are right. In terms of your comments with respect to their presence in the annuities space, generally speaking it is tough for us to comment on Athene's business given the fact that they have got to us [indiscernible] filing, they are in a quiet period. I would note that they did hold an investor update call back in June and in that call they presented a slide talking about the DOL. And you can find that on the AAA website. The one point I would make is that they did show a pie chart there that indicated that only 34% of their new flows in the first quarter of 2016 were subject to the DOL. So I think their exposure there is coming down over time.

I actually like to add to my long-winded list of the last answer because I reflected on the question. I think the other things we have going for us frankly is we have a very large fund with the backing of great supporters which allows us to do larger deals like ADT. It is also great to have all those LPs and supporters, it is not only are we able to commit a lot of capital but we are able to offer co-invest to our LP constituency. Finally just going to our integrated platform, I think we are able to be creative on financing when times are tough in the credit markets. So, those are part of the secret sauce as to why I think we have been able to generate a lot of deal flow and why we have a robust pipeline now.

Thank you.

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

Thanks guys. Martin, first just on the fee related earnings, I guess just the outlook like when I think about the transaction -- level of transaction fees, it seems like, from like a deployment co-investment the outlook is still pretty active. I know it's something that's tough to forecast. And then also just given you guys' comments on Fund VIII at 60%, so when we think about going into 2017, any potential time on how we should be thinking about fundraising heading into next year?

Sure, I will take the first question Mike and I will hand it over to Josh for the second. Yeah, I think on the fee related earnings comment, we have gone through a period of time we had relatively low deployment and not much to invest to moving across deployment environment. And we earned return fees in a couple of different ways when we take in co-invest capital and we do financings that are created when we place the debt. So, in the case of ADT, we earned a transaction fee and we also earned a debt replacement fee. I think it is certainly reasonable to expect that we can expect to enroll that fees. But it is depended on a) getting deals done, b) them being large enough to sort of warrant the use of co-invest capital. So, I think there should be more but it is difficult to predict on a quarter-by-quarter basis.

And on the Fund, I mean, as we noted the Fund was approximately 56% committed at the end of the second quarter and factoring recent deal activity was 60% committed to this presuming those deals closed. We have been funds to invest for about three years so, it is about 20% a year. Typically private equity funds begin the fundraising process for success of Funds when they grow up to 70% threshold. But obviously it is difficult to predict exactly when that will be.

Okay, that is helpful and then just as a follow-up, I guess just on Athene you gain in the quarter, I just wanted to -- and I know you mentioned a couple of things that were more maybe specific to Athene but, when you think about the kind of the DOL aspect, you guys mentioned growth and I think when we look at the comp in a group we didn’t see much of a move, so just wanted to flesh out or understand how we would be thinking about maybe what happened in the quarter but probably more importantly just going forward?

So, I guess the events in the quarter, are the new managements teams in place are doing well. The organic growth in the business across each of the channels is stronger than planned. And the readiness for the IPO is progressing nicely but sort of with the registration choices and in terms of internal readiness. And so, our view is and the view is that a premium to the comp set that we have identified is warranted and that is being supported by advice that we have had from financial advisors. So, when you sort of translate them into numbers it gets us back to 1.2 times multiple on the book and around 15% premium to the comp set. And coming to that with the 1.2 times multiple is where capital was raised too easily.

Okay, thanks a lot.

Your next question comes from the line of Ken Worthington with JP Morgan.

Hi, good morning. First on AAME, I know you have given some description, could you further flush that out, I am still a little uncertain about what AAME is and then maybe in those comments, can you talk about maybe providing a service for a fee or how does it make money, I assume it is not carry fund or maybe it is carry fund, anyway that is sort of number one? Thanks.

Yes, so it is an entity that gave we set up. So we have various insurance companies and banks that are in and around our platform and various funds. And it is an entity that we have set up -- so each of -- when one of the ways we add value to those companies is rather than each of them having their own specific team and certainly it makes sense for them to -- for us to consolidate all of those teams and come over to meet better team that is integrated and centralized. And in doing that both save costs but at the same time allow for and in our opinion better and more thoughtful investment performance versus each smaller entity having a specific team. So, AAME if you will created a the opportunity to manage certain assets of our European investments where it is logical and makes sense. And at the same time so that capability gross benefits our investors but at the same allows us to make more thoughtful acquisitions of other assets as well as possibly our managed incremental capital outside our investor pools. And so that is AAME in a nutshell.

Okay, so then…

And I guess I would say at the outset the thought was that AAME would mostly be servicing our existing portfolio companies and that is why we are seeing repeated cost or at a very low margin. But the hope over time is that we would also engage in incremental activity that could create value on new investments that may or may not be portfolio investments. And on those there could be meaningful fee increments to the entity.

Awesome, what does that mean to the other end, so that was trying to go towards new, you got that perfectly, thank you. And then on -- I don’t know if you can answer this but like on Athene, you mentioned that the assets were up a bunch. There was new business -- material business growth, you mentioned some new products. Could you flush that out again and I know the they are in registration period so it may not be possible but try anyway?

It is tough for us to do Ken as you pointed out given the quiet period and also importantly Athene hasn’t reported their own Q2 results yet. So, I think it certainly do that stuff for us to comment. You can start to look at their Q1 results relative to last year and you will see strong growth at the end of the reinsurance flows and you will see strong growth in new sales driven by new products that they released earlier this year.

In retail?

Yes, if you are jogging on your morning line in front of Bloomberg, you will see a fair amount of the advertising for Athene in their approach to retail which is new for us, which is working so far.

Excellent, okay, thank you. And then maybe just lastly on mid cap raised more capital, based on the business environmental conditions how quickly can they deploy what you raised, I think you said 800 million if I heard correctly, is that an amount of capital given the leverage that can last a year, or two year, or six months, how long until they possibly could work through that capital?

So, I will just try to get down on the first six months of the year. They originate wires and then syndicate down a portion to i.e. what they call a halt level. That has been about $2 million on year-to-date basis and then the run off on the book has been about the plan. So the writing of it, just sort of adding it two times to one off. And if you annualize it that is about 2 billion net growth per year.

Okay, great, that helps. Thank you very much.

Yeah, I think we said that at 7 billion of AUM and we said in the prepared comments that they could go to approximately 10 billion based on current market conditions and so that would be two more years empty years of growth.

Okay, awesome. Thank you.

Your next question comes from the line of Glenn Shorr with Evercore ISI.

Hi, thanks. Just curious, I wanted to flush out your comments on related to the 80 million or so gain -- unrealized gain in credit. I think you mentioned European principle finance, rebound in energy, and liquid performing funds but curious what asset classes maybe underneath, and I am trying to get out how much of it is rebound on energy prices, how much of it is just you brought well and credits improved in the quarter that would be helpful, thanks?

Yeah, I think energy is the deminimus component of that plan. If most of it in dollars, about half of those were coming out of EPS which itself is driven largely by European real estate positions. And then a portion came out of our structured credit funds, SCRF III which actually came into carry this quarter and created some nice Carry. And the rest was sort of sprinkled across through liquid performing parts of the business including the credit fund and all those sort of related credit hedge funds.

Excellent that is good. And then just a follow-up in your capital deployment comments, within credit you mentioned NPLs and longevity assets, just curious if you can give a little more color on each where they are coming from, the types of assets, is it bank balance sheet downsizing and what kind of expected returns there?

Yeah, it is kind of across like, kind of around our platforms. I think it is pretty hard. I would like to answer that question the way you have framed it. I mean it is coming across non-performing loans, it is coming across incremental buys in our performing credit business which is yield. As I think you are aware, the second quarter experienced bunch of volatility. And it is coming across our sort of opportunistic businesses. So, it is sort of -- if you just look at our platform it is pretty broad.

Okay, and you mentioned just the volatility in the quarter provided some great opportunities that you are always ready to jump on, should we keep our expectations at bay borrowing another crazy event in the quarter, would you consider this an exceptional capital deployment environment in the second quarter?

I wouldn’t say it is exceptional. I think that it was strong and we still have a robust pipeline. I think it is real difficult. The problem is it is sort of difficult to predict the ebb and the flow of the investment business. I mean certainly where there is volatility it is helpful. When there is pullback it is helpful. But you know there is not pull back I think we have demonstrated the ability to continue to deploy. Like as Glenn said, in private equity we are 60% invested after three years and what is possibly one of the most aggressively priced environment that I remember I think in my 26 years in the business. And yet our platforms are able to continue to churn out deal flows. Certainly when there is a pull back and the financing market shut that helps but we are just doing it quarter-after-quarter and then in credit certainly it helps when there is a volatility between our structured credit business and a yield business in Total Return. The long-term trends are of the deleveraging of the bags with financial sector. We have positioned ourselves to be in products in which we don’t need volatility to the forray. But it was a great -- it was a good quarter but I wouldn’t say it is an exceptional quarter. I think it is just we are just continuing to chug away.

Okay, I appreciate that thanks.

[Operator Instructions]. Your next question comes from the line of Robert Lee with KBW.

Hey, thanks good morning everyone. Just kind of curious on maybe looking at fundraising a bit, I mean I am interested in maybe trying to get updated on some of the drawdown in PE strategies, you are fundraising for obviously you mentioned FCIIV, you mentioned ANRP is ongoing. I mean if I look at them, those are quite EPS is pretty much fully invested in EPF2, I am not sure if you are raising another credit opportunity front because I know 3 had some performance issues but that is pretty much invested. So, can you maybe update us on some of the fund raising initiatives and draw down in PE land?

Sure, It is Martin, I will start and I will hand it over to Josh. In PE, I am happy to second the natural resources fund and special situations which we -- which is small but we think potentially important at the time for us. And we touched on that last quarter. In credit it is the third generation of some of our sort of what we call flagship funds, SCIIII and which is underway with the first quarters EPFIII is in fundraising. Now, has not had first quarter zing [ph]. We will likely get one done by year-end but unlike for Q3 [ph]. And then it is sort of -- always sort of what you would expect across the platform. So, it is on CLOs continued managed accounts.

Yeah, I mean as that sort of -- I think it might identify the turf flagship and brought out of -- and then you got certainly some of the products that are perpetually open. In the hedge fund it has been performing incredibly well. And we are -- we are starting to see some notwithstanding some of the negative pass towards hedge fund products. Our performance is really setting us apart. We are starting to see some traction there. I would say that the total returns fund where we can add a bunch of returns to BB, BBB cross over type product. And for the duration for a small amount of incremental lock up, quarterly lock up versus the daily lock up for most mutual funds that is also trying to resonate with investors and the performance has been quite good there. And so what we are trying to set up a series of products that allow -- in our yield business starts -- overall yield business where we are just constantly taking in money and growing in our CLO business as well. We are trying to set up a series of products that allow us to not just be depending on the next big drawdown of fund even though there was certainly a drawdown funds. Our flagship funds are quite unique in terms of how they perform and they are big pops if you will. They propel our growth forward but we are trying to have a series of these other lags to allow us to just continually grow assets and I think we are getting some traction there.

Obviously we would be remiss just underscore Fund IX in PE is looming somewhat on the horizon although at 60% committed and would certainly present you can go out and raise it. But we can't predict with any exactitude when that will be, but somewhere.

And I think the last thing I would say, the managed account business also continues to chug along. So, as I think we mentioned in the comments, we are at about 18 billion there, and those comments 400 million are chunks, 200 million are chunks, 700 million there are chunks. And so, again they are a little lumpy but they continue to land those. And we have a nice pipeline there as I mentioned in my remarks.

Great, and I did have a follow-up going back to AAME. I guess there's been a lot of questions on the call today, but I guess it strikes me that's pretty similar to what you do for Athene here in the States, the services, maybe the types of services you're providing. And you do charge -- you know, Athene does pay whatever the number is in basis points as opposed to making it kind of more utility-like, at least at this point, in Europe. I mean is that more because of just the nature of the companies you're servicing being portfolio companies versus something that you helped start up with Athene?

I think you hit it exactly, so it is really starting out with existing portfolio companies. But overtime it should more to hopefully more like in Athene structure.

Great. Thanks for taking my questions.

Your next question comes from the line of Alex Blostein with Goldman Sachs.

Hey, guys good morning. A question, maybe it's a little early, but as we think about the realizations from Fund VIII just given the improved performance and the pretty quick pace of deployment, at what point in time do you guys think you could start to begin to exit some of the positions and I guess crystallizing and monetizing the carry?

Yeah, it is unpredictable and certainly the investments are year-on on average. Having said that we will -- we are always looking -- if the markets continue to be robust and if they continue to mature, you are certainly going to start to see some of that. But it is really hard to be specific there.

Would it be reasonable to assume, if you do start to see faster realizations and the fund is still in an investment period, you guys were just over-deployed as opposed to kind of return it?

Well, the way the funds work is you can't really make that decision in that lag. There is an 18 month recycle provision which sort of more than allows kind of you recycle the capital. If you realize investment within the context of 18 months then you do -- that is when you would realize carrying profit. So, certainly when you sell an investment again, you realize you are carrying profits that get distributed, that gets realized. So, having said that certainly if it is within 18 months or if it is after 18 months it is permanently sold. And it is goes out of the capital base and that is the way it works.

Got you, and then just a quick numbers question around FRE. I'm not sure if I missed it but obviously a very elevated level of kind of transaction advisory fees and expenses a little bit elevated as well. If we were to exclude that activity, and understanding it could repeat itself but probably a little bit more than usual, so what's kind of a run rate FRE that you guys stand at heading into the third quarter?

So, I would just take the transaction. If you simply want to backup transaction fees just backup the difference between Q2…

Got it, okay. But the expense run rate is kind of it is what it is, there's nothing unusual there?

Comp quarter-on-quarter was flat and I would expect that will and obviously subject to your en-composition settle that will be in the area where it is now for the rest of the year. We have not -- we have not many hiring decisions this year. Our headcount is up very modestly and so while we had a bit of stuck up on comp from last year into this year, I think the run rate from here is pretty predictable. And then on non-comp we had a couple of not individually significant that sort of cumulative with increased run rate going into Q2 and so that should step down a bit again next quarter. But all of this sort of underpins our expectations that they dollar shift in the management business.

Well I mean there is, it is certainly transaction fees are unpredictable but they happen, right. And the reality is we paid them out. When we are talking about $1 share we are excluding the ongoing transaction fees, that's all. And so you have upside from those which you are seeing in this quarter. You also have upside certainly from the incentive income which is largely not included, which is largely not included in the dollar share. So, I think all those things are upside but because of the focus on quarterly performance we don’t include them, but having said that I think overtime they certainly have what we would expect them to be.

Awesome, thanks.

Your next question comes from the line of Chris Kotowski with Oppenheimer and Company.

Yeah, I wonder, can you give us the breakdown on ADT, how much came from Fund VIII and how much came from co-invest? And then are your economics on the co-invest primarily the transaction fees, or do you have carry rights retained there too?

So we don’t have carry on that capital. And then the transaction fee, we charge a placement fee on the debt and that was 30% or so. So, that and the rest was the transaction fee charged on the value of the acquired business, a portion to the amount of capital that came into co-invest.

And did you give us a breakdown between what's from Fund VIII and what's from co-invest?

The equity breakdown, yes we said it was 2.5 billion of co-invest that included any inflows this quarter. And you can assume about 1 billion from our funds.

Okay, thanks. That's it for me.

Your next question comes from the line of Brian Bedell with Deutsche Bank.

Hi, good morning folks. A question for maybe Josh, and Leon, but I know it's a bit hard to answer, but just to get your sort of view on sort of where we are in the credit cycle in terms of the deployment in Fund VIII as both of you guys mentioned at a fixed multiple, I mean did you ever think you'd be able to get that type of entry multiple in this type of highly valued environment? And then as we move forward from here and we do deploy more in Fund VIII, can you envision raising another fund ahead of the next credit cycle, or is that just too difficult to assess?

I will start and then Leon can add, look I think it is -- the credit spreads and levels are either not as what you would -- not very exciting. They are at kind of like all time lows but what is driving that is zero interest rates. And what is driving that is quantitative easing around the world. So, the real question you are asking is what is going to happen, when are the central banks going to raise rates. And we don’t really have a crystal ball here but I would say that I always see that happening. As much as I don't like the level of credit spreads, I think we all need to just be accustomed to the fact that we could be in the zero rate environment for a prolonged period of time. I think a lot of that is going to depend on kind of how the economy themselves do and that is unpredictable. But I think you have to go into this kind of being cautious and try to find ways to deploy capital where even if things go wrong and rates go up and the credit cycle time is against you. So, we are okay and make some money but I think that -- I think my personal base is that is to go out for a period of time. And so, that is really what you are asking. In terms of your second question on PE, look I think we have been holding for 25 years now, 26 years we have been working to hone our craft as practitioners of private equity in terms finding deals that other people can't do. And I think certainly we are getting better at it in terms of being able to source transactions that either don’t seem to be consistent with the current valuation environment, whether that be because we are good at arranging financings that other people can't, whether that be buying into distressed debts, whether it be corporate carve outs. And interestingly, more recently as you guys have seen we have found some public companies where we just have a different view than the market and so, I guess my honest answer would be I am actually quite proud of the job the team has done and in a really tough environment. And we are quite differentiated. And you hear it, we looked into the other calls and we are aware that other people are saying we are not finding a lot of deals in there and the market is overvalued. But when someone -- you just look at the multiples we are paying the reality is that's not the case for us. So, we are quite differentiated from what you are seeing out there and I am very proud of the model and the team and platform that we built to be able to do it.

Just to underscore Josh's last point, if you look at the numbers on our last four PE funds going back to 2000, with each fund we have actually widened by one multiple the difference between us and our peers in terms of putting capital. For Fund V we are one multiple better from VI, two multiples from VII, three multiples on the outside of VIII there was the difference of four multiples versus the average in terms of our deployment in capital. I don’t know how long, how we can keep that. Trying to going to V, VI, and VII times but just going to Josh's point that with the evolution of honing the skills that our whole team is imbued with that culture. So, we are gratified. I think our returns have been first in class in PE but what I am more proud of is that we have gotten them by taking less risk and paying lower multiples.

That's great perspective. Maybe just to switch gears, Josh, on the -- you talked about the total return product in the liquid performing credit area. Can you talk about the fundraising market opportunity there, say, over the next intermediate long-term, maybe two to three years in terms of which marketplaces you think you have an opportunity to really gain substantial market share?

I think it is really it is the core pension funds, dollar wealth funds that we are typically in dialogue with and that are supporting most of our products. But I think it is also retail. And again like it is hard to make, making it say six to eight is actually quite -- and taking large risk in this environment when you have the ability. If you buy a BB or BBB or say buying BBB high yield investments you are going to make four and you are going to have duration. And so if you are going to go on so it is okay. So, four I will give you six to eight. I will pull in duration, so in case the central banks do decide to raise rates which we are inevitably worried about and have to think about, you are protecting because you are pulling away. But instead of daily liquidity you need to give me quarterly liquidity, that is quite attractive to our core clients. It is also quite attractive to high net worth individuals and other individuals that still have a lot of places to put their money. So, we think in the long run it is going to be a very large product for us. It is performing quite well. We have now been at it for three year and we have found is that there is lots of boxes to check with the track records and three years of performance and this and that. And we are checking all those boxes and at the tail end of that we are starting to see the potential investor demand open up. Having gone through all that and the performance is quite good. So, it is just a product that we think is better for our investors and better for retail and it is quite differentiated versus what is out there. And we are at a size where we can play and after running credit differently that some of the very large brand of players were just multiples and multiples inside of us. And they just can't play in that area because it is too big. And so this is an area where we think we can take some market share.

And what is your penetration in retail right now? Is there a strategy to get deeper in the warehouses?

Yeah, so I mean I think what we have been saying on pretty much repeatedly, we are investing in the marketing resources we need to attack retail in multiple ways. Certainly the wire house is part of it, certainly issuing in some cases having permitting capital vehicles in public markets. And certainly the non-wire houses, so I think we are doing all of that and it is just -- we have great -- we have always been great manufacturers of return. Increasingly we are just now making those products available and suitable for retail which is different. And then obviously you aware of the advisory stuff that we have done, that we have announced between Opco and Waddell & Reed and things. So, I think we got to another way. But at the end of the day all of these ways, there is not one magic book, it is building up the process, and the people and the systems we have underway, service the retail client base and communicating with them effectively.

Great. Thanks for the color.

Your next question comes from the line of Patrick Davitt with Autonomous.

Hey, good morning, thanks. So Fund VIII clearly is going to be a big driver of ENI while it's in this 80/20 catch up and beyond. When we think about marking that, should we think about any one index or industry concentration or some broad kind of weighted index of credit energy, the MSCI and the S&P, in trying to kind of look at how that moves each quarter?

It is really hard to answer that. I mean the answer is if you look at all of our historic returns, we quashed the indexes. It is not even close, and I have said that so you can look at our historic returns of the ENI and the midpoint in that and in mid 30s to high 30s growth. So, having said that obviously we are not saying you should model that. Certainly we underrate you at 20% gross return. We have exceeded that and then I guess you can look historical private equity advanced market trends but the reality of private equity is that, the top quartile performers do way better than the average performers. That is just the reality of the numbers. So, you got to look at all the data and so forth and if you want to look at indexes, you will look at the top quartile private equity performers but the reality is we have been better than that. So, I don’t know how to really predict it other than to give you all the data that is available as I just did and have you just consult it.

And to just clarify it, sorry we are underwriting the 20% net, 25% gross.

Okay. And I meant more kind of like directionally quarter-to-quarter, like what -- like if oil moves 20% in a quarter, is that going to move it a lot, or if credit moves 5% in a quarter, is that going to move it a lot than over the long run, I understand what you mean over the long run?

First of all we don’t have big, we have a very small -- 5% in energy so, we are underweighted in energy right now. And so it is not really, energy certainly moves it up and down but it is not any different than in any of the other sectors they are in. And if you look at all the investments they are all -- it is pretty broad right. It is pretty bright, it has been coming in a bit less cyclical than in history. So, it is really hard. I mean, what I would do -- you must take a look at the major investments as best you can and try to figure out how that comparable companies are doing. If you want to look at, the reality is the S&P 500 on a quarterly basis it does move up and down in sort of evaluation. It is really hard to get away from that. But that obviously guys in the long run hasn’t been consistent with our performance. We have done way better than that.

Your next question comes from the line of Michael Cyprys with Morgan Stanley.

Good morning, this is Nick Stelzner filling in for Mike Cyprys. Just a quick question on the $10 billion of AUM with future management fee potential, can you elaborate on the funds and strategies those represent and is it just deployment that will turn on the fees? And I guess how are you thinking about the time frame and type of environment needed to put that to work and see those fees turn on?

Sure, it is almost exclusively within our credit business and at least an amount of that is from managed accounts. But the way the money is being raised the money needs to be put to work. I don’t think there is any -- certainly nothing of significance that is sort of a fund that is waiting to switch on. It is really based on deployment. And then you can look at the deployment that we have in credit that we have just made in the last quarter's going back in time. It is challenging as Josh mentioned given the rich current environment and so you just need to come up with a run rate based on what we have done over time. But it is multiple quarters of performance that still runs through that.

Okay, that's helpful. Just one other quick question, Fund VIII now 60% deployed, it sounds like Fund IX is looming. I think you successfully scaled your prior PE funds if you think about the size of the next fund, how should we think about the puts and takes around scaling there?

I don’t think you can ever predict, I think. But the good news is that there has been a lot of realizations last few years so many LPs have good amount of cash to deploy. The good news is they seem to be giving more of that cash to top performers. But when you go out for fundraising you never know what the outcome is going to be. I think we are already a very large fund -- it is really hard to predict how much more that will scale.

We have reached the amount of time for questions. And that concludes the Q&A portion of today's call. I will now return the floor to Mr. Gary Stein for any additional or closing remarks.

Great, thanks operator and thanks everyone for joining us today. As we noted if you have any follow-up questions please feel free to give me or Noah Gunn a call.

This concludes today's conference call. You may now disconnect.