Good day everyone and welcome to Ares Management LP's First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Monday, May 8, 2017. I’d now like to turn the conference call over to Carl Drake, Head of Ares Management Public Investor Relations. Sir, please go ahead.

Thank you, Jamie. Good afternoon and thank you for joining today for our first quarter 2017 conference call. I'm joined today by Michael Arougheti, our President; and Michael McFerran, our Chief Financial Officer. In addition, David Kaplan, Co-Head of our Private Equity Group; and Kipp deVeer, Head of our Credit Group will also be available for Q&A session. Before we begin, I want to remind you that comments made during the course of this conference call and webcast contain forward-looking statements and are subject to risks and uncertainties. Our actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. We assume no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results. Moreover, please note that performance of and investment in our funds is discrete from performance of and investment in Ares Management LP. During this conference call, we will refer to certain non-GAAP financial measures such as economic net income, fee-related earnings, performance-related earnings, and distributable earnings. We use these as measures of operating performance not as measures of liquidity. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with Generally Accepted Accounting Principles. These measures may not be comparable to like-titled measures used by other companies. In addition, note that our management fees include ARCC Part 1 fees. Please refer to our first quarter 2017 earnings presentation we filed this morning for definitions and reconciliations of these measures to the most directly comparable GAAP measures. This presentation is also available under the investor resources section of our website at www.aresmgmt.com, and can be used as a reference for today's call. I'd like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase an interest in any securities of Ares, or any other person, including any interest in any fund. Now, I'll turn the call over to Michael.

Great thanks, Carl. Good afternoon everyone. Before I begin with the discussion of our first quarter financial results, I'd like to take a moment to reflect upon our growth as a firm as we just crossed our three year anniversary as a public company this past week. Looking back, there have been several industry trends that supported our growth namely the growing global investor demand for alternative investments and the consolidation of assets into larger and more diversified global asset managers as investors search for economies of scale, unique investment solutions and more consistent performance. The increasing investor demand for alternative strategies is illustrated by the growth in the number of our investors, our assets under management and the increasing diversity of our revenues. Three years ago we went public with approximately 77 billion in AUM and approximately 525 direct institutional investors across 146 funds. Today, we are at approximately 100 billion of AUM and have approximately 720 investors in over 200 funds. The trend of consolidating investor assets into fewer broader alternative asset managers has also supported our growth. First, we've developed new or expanding product offerings that leverage our core strategies within areas such as structured credit, asset base lending and power and energy infrastructure, and we've expanded the geographic reach of our existing products as exemplified by the growth of our direct lending strategy in Europe. At the end of the first quarter, over 40% of our institutional investors are invested in more than one product on our platform. Secondly, over the past three years more than 80% of our total capital raise has come from existing investors. At the same time, the composition of our AUM has shifted towards larger institutional investors as direct investors now account for 65% of total AUM compared to 55% three…

Thanks Mike. Let me start by highlighting few things about our financial results then I will walk you through our results in detail. Over the last 12 months, our AUM increased by about 6.3 billion to approximately 100 billion. A year-over-year net increase of approximately 7% and our fee paying AUM increased by 19% to 69.2 billion, which includes the ACOF V fee activation and ARCC's acquisition of ACAS. Overall, we generate respectable first quarter core earnings with management fees and other income increasing 11% year-over-year and fee-related earnings increasing 20% year-over-year to 46.7%. Performance related earnings totaled 29.1 million for the quarter as compared to our prior year loss of 14.9 million. Our economic net income more than double from the week first quarter 2016 supported by the fee-related earnings growth and a healthy rebound in performance related earnings. For the first quarter, we reported economic net income of 75.9 million, which translated into $0.30 on an after tax per unit basis after preferred distributions. With that overview, I will take you through our results in greater detail starting with revenue. Management and other fee income for the first quarter totaled 181.6 million. This reflected approximately one month of revenue from ACOF V net of the step down of ACOF IV management fees, which on a net basis contributed just over $5 million to management fees for the quarter. Accordingly on a full quarter basis based on ACOF IV's invested capital quarter end, the quarterly run rate would be over 15 million versus a 5 million for that first quarter. The first quarter's management fees also reflect a closing of the ACOF acquisition by ARCC from which we're in 50% of a full quarters incremental base management fees on the acquired assets or approximately 5 million. In addition to…

Great thanks, Mike. So in closing, we feel really good about our business performance over the past three years and are enthusiastic about the firm strong industry position, the support of macro trends and the opportunities for value creation going forward. We focused on continuing our disciplined investing, expanding products and distribution opportunistically and pursuing inorganic strategic opportunities when they fit our criteria. Mike mentioned, we have significant dry powder, flexible fund mandates and long-dated capital poised to take advantage of opportunities as we navigate through this changing market conditions. Thanks to everybody for taking the time today and with that operator, if you could open up the line for questions.

[Operator Instructions] Our first question today comes from Craig Siegenthaler from Credit Suisse. Please go ahead with your question.

Just coming right actually the 275 million of financial support that you provided with the ACAS acquisition. What is the difference between how you could potential account for this benefit on an ENI and DE basis. I just wasn’t sure, if ENI was roughly the payment of which you just actually provided us?

Sure. For purposes of CNI, Craig, we exclude acquisition cost. So, the 275 million reflected in GAAP income or loss or actually loss for the quarter that is not included in ENI. And if you take a look, you'll see in the reconciliation of GAAP to ENI in the earnings presentation.

Got it. And then with the fees turning on with ACOF V and stepping down with ACOF IV, I know we had a month that in 1Q. Is it 2Q step up in management fees on a net basis in the neighborhood of 40 million that which we're looking for in the second quarter?

No, we said it would have been 15 million -- a little over $15 million and it was on for a full quarter in Q1, which we are in just over 5. So, the incremental will be closer to 10.

Our next question comes from Mike Carrier from Bank of America Merrill Lynch. Please go ahead with your question.

Hi, this is actually Mike Needham for Mike Carrier. The first one on fee-related earnings, you've covered somewhere around the prepared remarks. I also just hoping can you just give us a sense for the timing of that FRE trajectory you're talking about some of your gas field. How long it takes to make changes to that portfolio, the fee rate waivers coming on, and then expenses I think there maybe some temporary expenses that were in there for 1Q that you expect to come down?

So, I'll take the first part on expenses and I'll hand it over to Kipp on ACAS. So, our expenses for G&A for the quarter were 34 million. I think we mentioned in our prepared remarks that are included 2.5 million of a one-time tax expense, so if you back that out, you would have seen G&A for the quarter of about $31.8 million, which I think was in line with what you saw or slightly on what we reported for the fourth quarter last year.

Hi, this is Kipp deVeer. I think what we laid out for folks on the ARCC call last week was, we structured in a 10 quarter fee waiver to give us cushion. We are well ahead of sort of that 10 quarter expectation. We’ve been actively selling assets acquired during the ACAS transaction and repositioning them on the call last week. We’ve identified roughly $1.1 billion of assets remaining, which were either low yielding or equity oriented that we continue to reposition. So, our best guess is maybe 18 months to 24 months, but less than the 10 quarters.

Okay. Thanks. And then just second, it sounds like the consolidation of managers continues to happen I guess how much more of a trend -- how much more you're encouraged to go and then on fees as you're clients are getting better or consulting the managers. Are you seeing any changes in fee discussion or any fee pressure? Thanks.

Sure. So, the consolidation trend is ongoing and I think you’ve seen transaction announcements in the market in and around the all space that are good indication of the continuation of that trend. Obviously, in the traditional space, some of the catalysts for consolidation are different than we’ve seen in the all space, right. Traditional space to move towards passive investing, significant fee pressure and weak capital flows. In the all space, we’re actually not seeing dramatic fee pressure. We’re seeing positive flows. So, the consolidation story is a little bit different, but it's real and it's continuing, and it all centers around some of the teams that we highlighted in the prepared remarks most of the large global investors are trying to reduce the number of GP relationship that they have. And I think they’re trying to do with first and foremost to make their businesses as more efficient and less complicated. I think they’re also realizing that large global managers like us, who have broad geography, multi-asset class capabilities that they can access different market much quicker with much less friction, particularly in markets where volatilities is popping up more frequently. And so, I do believe that a lot of that is being driven by people’s views that risk adjusted returns or actually better for the larger managers in many cases that predict as you navigate changing markets. And then lastly the fees, clearly if you are coming to a platform like ours with significant amounts of strategic capital in the form of SMAs to get at some of these synergies, there is always a conversation around fees and economics for that relationship. I will say, if you look at our fee rate blended across the platform, you'll actually see that's been going up pretty consistently based on mix, number one. And then we look at the marginal profit on those types of relationships, it’s very, very high. So, the consolidation of LPs putting more money with pure GPs obviously translates into an opportunity for us to continue to consolidate on the asset manager side to be able to offer those products in a very cost effective way, but fee pressures really not a big part of the conversation. As we talk about in the past, we have seen some fee pressure in the more liquid part to our credit business. Historically, I would say both of that pressure is behind us in the market that settled out at a fee level where it makes sense to the market. But in the true what we call 2 and 20 type structures commingled fund, asset classes require significant origination, infrastructure and investments and sourcing in research and portfolio management. Fee pressure is a very small part of that conversation.

Our next question comes from Alex Blostein from Goldman Sachs. Please go ahead with your question.

Question on outlook for management fee growth and I guess just broader investment environment. So, I guess, given that the latest private equity fund is generally in the run rate the bulk of the growth and management fee is likely to be, I guess, coming from deployment of some of the kind of shadow AUM that you guys highlighted over $100 million in management fees. When you take that with looking through the lens that you highlighted on direct lending team essentially it’s fairly cautious on the investment environment. Help us understand, I guess where you guys funding incremental opportunities, the pace of that capital deployment? And ultimately how are you sizing new money that's coming it right now just potential given some of the capacity constraints given value issues?

I’ll make one high level comment and then I’ll let David or Greg chime in specific to private equity and the credit market. I think it’s important that people reorient around why these asset management businesses are attractive and one of the business is they are cycle durable and they can actually make money throughout the cycle because of the balance approached to the business. And as I talk about in the prepared remarks when you're in a market where you had significant liquidity that may manifest itself in slower or more cautious deployment, but the total value proposition and reorient itself towards harvesting gains, and so whether you’re talking direct lending where you saw modest reduction in deployment, you’re also seeing harvesting of gains in order to drive attractive returns to the investors And similarly in private equity where we’re probably being a little bit more selective in targeted and what we’re looking at, as highlighted in the prepared remarks, the opportunity to monetize existing assets is quite good right now. So, the balanced approach of being able to monetize investments when there is a lot of liquidity to offset the potential reduction and deployment, I think is a key hallmark to how these businesses work. And obviously when you have long life locked up funds structure with flexible asset mandates, you can do that. And I think you’re seeing that across the board that we do have levers to pull to drive deployment, but generally when deployment is low, you should see it made up for in net gains.

Okay.

I don't know David, if you have anything specific on PE with regard to the deployment environment?

I think, it's David, environment is very competitive right now or as you've heard us use the words a few times in this call of being selective. So being very selective is obviously important from a individual asset standpoint where we're deploying, that’s through across all the asset that we managed at Ares management. That being said, I think our strategy of flexible capital within our corporate private equity business allows us to try to find idiosyncratic favorable reward. I think if you look at the $0.5 billion commitment we made out of fund V, in Gastar recently which is a public company, you will see the highly structured investment where we feel really good about downside protection as well as having traditional private equity upside associated with it. So, we just need to remain flexible. I'd like to say in this environment, we have to work harder to find good investments and we're certainly doing that.

Okay thanks and my second question was back to Mike's earlier point around, you guys have been a potential consolidator in the space. Any indication of kind where you still finding gaps in your offering whether on the product side or the distribution side where you might be little bit more active on the M&A sort of things?

There is nothing really in front of us that would say is actionable, but as you can imagine we look at a number of opportunities. Our real estate business continues to see a meaningful amount of opportunities to build out our strategies as well as to look parts of the market that we're not currently in around core and core plus real estate and the permanent capital space. In and around direct lending obvious the ACOF acquisition is still freshen our minds, but there has been a number of opportunities to look at in that space. PE a little bit harder obviously as you see us do with EIF to the extent that we can bring on, what we believe is a unique investment capability on the platform we will do it, but I'm not seeing a ton of opportunity in what I would call regular way PE. And then broadly defined liquid credit along the spectrum from below investment grade to high grade, there is a number of things we've looked at that we've found interesting. As we talked about before anytime we’re looking at these we've have to approach with a view that we can make the business better by bringing it to Ares and supporting it with resources and we have to have a view that they can make us better, it brings something differentiated and unique to the table that don’t currently have. Obviously, the economics of the deal make sense and the cultural fits needs to work. And we’ve said this before it's hard to check off three of those boxes particularly in this environment where valuations are elevated across the board the financial is a little bit harder. So, we are seeing I’d say more opportunities for consolidation we’ve seen before, but making of three of those things work together is probably a little bit more difficult particularly around valuation. But I'm encouraged by the pipeline and the amount of conversations we’ve been able to have over the last 12 months and I’d expect that to continue.

Our next question comes from Robert Lee from KBW. Please go ahead with your question.

Great, thanks. Good morning everyone. Mike, I apologize, I know you went through someone on the call, I missed some of it, but I'm just trying to get I guess a better handle on the next generation funds you're currently raising. I know you mentioned the power and I think the U.S. value-add. But could you maybe just also go through that again quickly I think there was also one year large credit funds I think you mentioned you're in the Mark to right now kind of the next generation raise?

Yes. So in the earnings presentation you'll see a summary of the capital that’s raised and some of the funds listed there you will see all the funds that we referenced are still in process. But in terms of the large commingled funds that we’re in the market whether we talked about our first junior capital private debt fund in the U.S. that had raised about $1.1 billion in capital in the quarter against the $2.5 billion target, that’s actually going very well, the strategy is being net with enthusiasm for the market and obviously is that’s into the direct landing franchise we’ve developed here. We are as I’ve said raising our ninth value add U.S. real estate fund, we highlight at the post quarter end last Friday we close $400 million to that fund and we would expect that fund when all set and done to be larger than its prior fund. We talked about having visibility based on deployment and execution to being in the market with our next European direct landing or private credit funds towards the back half of this year into early 2018. And similar through our European real estate private equity fund again based on deployment in execution there. And we’d expect to be in the market towards the back half of the year if not early 2018 as well. As we highlighted, we would expect to finish up fund raising likely through our Fifth Power and Energy infrastructure fund in the second quarter as we highlighted since we acquired EIF, we’ve raised that $800 million into that strategy. And then lastly, which is hard to really quantify for you guys is the real I mean the story for fund raising going forward is the importance of the strategic manage to count relationships that we’ve been able to develop given the breadth of the products that we have on platform. And if you actually look at the assets that we’ve raised over the last 12 months that 50% of those direct funds are actually being raised through SMA structures. And so, speaking to this consolidation theme of LPs reducing number GPs were actually seeing more SMAs coming to the platform than we have before which is a nice complement to the success or communal fundraises.

Great that’s helpful. And then maybe just a follow-up in that to meet the acquisition M&A of course too much, with the ARCC absorbing ACAS and pretty busy with that and revamping their portfolio. Does that impact at least over the near and to immediate term you're taking in about the types of M&A you'd be interested in additive to Ares and in terms of new strategies versus what I'd call more pure consolidating transaction?

Kipp can chime in, if he feels differently. I think as we talked about on the ARCC call, the good news is the ACAS integration could not be going better. We have brought on some people but not a significant amount of people, pretty straightforward systems integration and as Kipp just highlighted earlier in the call, given the nature of the markets we are probably ahead of schedule on the location of that portfolio and the reposition of that portfolio, and I think all early indications are -- that’s going better than we could have hope for. But to your point there is limited bandwidth here, so I think that the bars and make an acquisition in direct lending is probably higher than in other parts of business, both because of bandwidth constrains, but frankly when we have an origination machine that can originate assets at $0.96 or $0.97 on the dollar paying par or par plus to acquire assets is not a great way for to create return for investors. So, there is always a balance between where can we manufacture our own product versus where can we buy it in the market. And given what we have in direct lending in particular on the hills of the ACAS trade the bar is probably pretty high there. That said as you know the platform infrastructure here to evaluate and integrate M&A opportunities is quite substantial. And so in all parts of our business as we see opportunities obviously are strategy group and corporate financings help the business has thinks through potential acquisitions within their groups. And as I said the pipeline has been quite active.

And our next question comes from Ken Worthington from JPMorgan. Please go ahead with your question.

I guess maybe just modeling question on the ACAS acquisition, are the Credit Equity Groups and expenses at extended the run rate or their parts of the income statement that flexes re-migrate to 2Q in the second half of the year? I think you mentioned that the fee waivers went in 1Q so be one in G&A the 2.5 tax benefit that would be two are there other variations we would expect as we migrate to the end of the year?

Yes, it’s a big one, one that we might be helpful though to go back and the same we mentioned in our prepared remarks which was if you look at the management fees related ACAS. We said we only receiving a half quarters management fees in Q1. So, I see the way that we look at it is we think about ARCC with respect to help impact by ACAS. There is really three moving pieces you have got the management fees, which we said was -- this was the half quarter, we earned about $5 million in acquisition this quarter so similar to be 10 million next quarter incremental from ACAS. The Part 1 fee that we earned is the second LIBOR and the third is the waiver of up 10 million. When you look at our Part 1 fees, the average we earn on a quarterly basis in 2016 was about 30 million a quarter in Q1 we are little over 33 million. You’re going to have the $10 million our way for coming to effect was going to be offsetting that is to be extent the portfolio, they’re transitioning, so we’d expect I will just use round numbers, let’s say the Part I fee pre-waiver was call it 35 million and in 25 million next quarter that is a waiver. So, I think all-in-all second quarter’s income from ARCC would be slightly lighter than Q1, but then probably as you see Q3 and Q4 progress kind of hitting that breakeven and then have been additive to when we saw this number, this quarter’s numbers maybe..

Okay, great. And then I’m going to keep digging here. On the 10 million waiver, are there anything that can drive that waiver lower in any given quarter. You’ve mentioned couple of times or repositioning in the portfolio. Does that somehow effect to fee waiver or is it really going to be 10 million bucks a quarter for more or less next 10 quarters?

Yes. So this is straight waiver for 10 million bucks a quarter. But as Mike highlighted, when you think about the economic value coming off of ARCC, there is a management fee and then there is a Part 1 income base fee. And ARCC right now, as Kipp talked about on ARCC’s last week is running lower leverage and harvesting gains. So, as ARCC relievers and the book increases in size, or actually see both management fee unlikely that income base Part I fee increasing. So the brand of the fee waiver in this quarter, particularly this is the first quarter out of the gate, probably feels more impactful than it will by explain as we get into the back half of the year and into 2018. But there is nothing variable about it, just a straight $10 million waiver.

Okay. Great, thanks much more clear to me now. And then, Michael, I think you brought up potential for BDC reform. Anything you’d report there? Or was a reference just we’ve got political change and so as possible that new regulators it’s kind of, we handle the reform process with regard to this rules?

Well, again, I have long been out of the political prediction game. But I will, we’re encourage just based on the tone in Washington around job creation and search for bipartisan financial services regulation that everybody can get behind and I think that the BDC legislation check that box. What encourages us even further is, I don’t know, if folks saw, but the financial choice act actually passed the high financial services committee better week and half ago. And embedded within that piece of legislation is the proposed BDC legislation. So that build starting to make its way through the house and the BDC legislation, at least for the time being is attach to that, so that is a step in the legislative process that we view as a meaningful positive as we continue to watch for it’s going to over to BDC ranks.

Our next question comes from Chris Harris from Wells Fargo. Please go ahead with your question.

Thanks. I believe that derivation of this question came up on the ARCC call, but I was hoping to get a little bit more clarity out of you guys. Evaluations in direct lending remain pretty elevated, and ARCC had some difficulties finding attractive investment opportunities, could there be a scenario, where there but actually might be further see waivers, out of ARES to help ARCC supported dividend?

So, I think there was a discussion, it was a question to came up on the call and the recollection of the answer was as managers clearly anything is always on the table, but there was a emphatic response that the environment that we’re in, given the games that are getting generated and given the growth in that book that the dividend is stable, if not position to grow overtime as we continue to execute on the ACAS strategy. So, I would no, not because we would never consider it, I would say no in fact because we just don’t see any rational for that given what we think is very strong fundamental performance at that company. And as we highlighted and came up on the ARCC I just mentioned it around the fee waiver, it will take a little bit of time to transition that book, re-elaborate and the gains we offer but we feel again that everything is one track post the acquisition to realize on the value that people will realize on.

Okay great and just one question on the AUM growth you guys have been experiencing. I mean getting close to this a $100 billion mile stone, you highlighted that. As you continue to grow, how do you feel about the scalability of the platform at this point?

In terms of investment functions, non-investment functions or both?

All the above.

I think we're just getting started. We’ve talked a lot about the non-investment groups and I'll let Mike highlight that, but when you look at what we bring to our investors in terms of investment solutions and access to non-correlated risk adjusted returns around the globe, we're still really-really bullish about the prospects for growth both in our existing businesses and new businesses that we're not in yet. And reason for the optimization is driven by lot of thing that we talk about in the prepared remarks, but first and foremost, we operate in very, very significant addressable markets. Our addressable markets are large and they are growing and we as a market leader are one of the handful of market leaders while we continue to take share still have very, very share. And so as students of financial markets, when we markets that are consolidating and large addressable market where we have competitive advantages, we just view that as a natural opportunity for organic growth. The flows as we've talked about are significant and they are broad based and they are coming from all quarters of the world and all types of investors both institutional and retail. And we don’t expect that to stop. And then importantly, there are whole sections of the globe that either has not come online yet for investment by folks like us, like China, like India, like part of Latin America. And similarly there are large regions that haven’t come online yet as meaningful allocators to alternative asset classes, places like China and Japan to name a few. So when we look at the macro tailwinds, it's hard not to see consistent organic growth, and what we're seeing you will see this in the fundraising number, you'll also see in the deployment numbers. The larger platforms are taking a disproportionate share of the AUM and a disproportionate share of the deployment. And I think that’s speaks a little bit to this, this underlying trend that we keep referring to, and again I don’t see anything that would take us of course on that.

Our next question comes from Doug Mewhirter with SunTrust. Please go ahead with your question.

First question, looking at the real estate segments, it looks like you're raising some funds and you maybe have your eye on successor fund although one of your bigger funds looks like it's starting to wine down. How do you feel about actually being able to grow on a net basis, the AUM or the fee paying AUM this year for that segment overall?

Very, very good actually. Our real estate business is what I would call an inflection point, both in terms of where we are in the fund raising cycle and the deployment cycle, as we highlighted we’re in the market now with our night value-add fund that will be larger than our eight funds. Our expectation is that we’ll be in the market with our fifth opportunistic fund in Europe that should be larger than its predecessor fund. We believe that we have made some very meaningful adjustments to our real estate lending business that should position at part of our real estate capability for meaningful growth. And we’ve done a lot to restructure and continue to further integrate and consolidate that business from a process standpoint both investment and on investment. So, I actually look at that as a real bright spot for us, I think that given the increasing size of our funds and some of the everything I mentioned that we’re actually poised to see margins continue expand and not to see a net reduction.

Okay. Thanks, guys. That’s very helpful. My second and final question it's again more of a big picture question. Obviously, there's sort of cause-and-effect issue, especially on the credit side and to lesser extent or an also on the private equity side really with spreads or evaluations, how we're going to characterize it are really being driven by these flows, which are benefiting you so much. But, obviously the with the variety of valuations that impacts your ability to deploy, but I guess what I'm more curious about is your view on how that would have actually provide feedback to the allocators, the all the allocators staring to take a second look and say we’ll -- why do we want to jump in other $100 million into private credit when spreads are real tight for example. Or they use more or like okay, we’ll give you the money now and if you have to sit on for a while that’s fine, but we’re not going to cut our budget, you just figure when the best time is to deploy it?

It's really the later. If you back to the structure of our funds, the typical commingled fund putting aside the SMA conversation, which is probably even pushing us more towards this. But in the commingled fund structure, typical fund will have somewhere between three and four year investment period against the 7 year to 12 year fund life. And the conversations with our investors is less about them anxious around deployment and more around them feeling like they actually have measured than level set deployment throughout that fund investment period. And just as an example and David can comment on this, if you look at ACOF V, we had a fairly light deployment year in 2016, the capital that we raise there I think was raised with a view on the part of our investors obviously based on feedback from us that a distressed opportunity would present itself to us and better to be well capitalized with the right type of capital and right amount of capital going into that environment rather than scrambling to play catch up. So, I actually think it's the opposite. Most of the sophisticated institutional investors who can accept illiquidity and recognize that the way that they get paid outsized returns over cycle is to capture a liquidity premium are looking more for us to help them understand when they should be deploying where they should be deploying, but not how quickly for per se they should be deploying. So, I think what we have to do obviously is both on the front end when we're raising capital and as we continue to manage capital as we have to be very transparent with our investors about what the return opportunity is, what the expected deployment is and then continue to be transparent much of things where we are with the folks on this phone about where the markets and how we are navigating. But David maybe you want to just quickly comment on the PE dynamics I think is pretty tail end.

Sure, I would like to say that the cash and dry powder give you resilience and optionality and I think that given the size market which Mike just commented on that we addressed and everything that we do across the Ares management platform and of course within private equity specifically a cross market cycle who are able to find interest risk reward, but having this flexible capital approach where we can end up distressed or discounted that market environment, find attractive opportunities to deploy capital on private equity. We are waiting to deploy capital, but it is a distinct possibility over the course of investment period of ACOF V, specifically, there will be some form of correction which will be in a position to take advantage of.

And ladies and gentlemen, our final question today comes from Michael Cyprys from Morgan Stanley. Please go ahead with your question.

Just wanted to circle back to the fee-related earnings margin, as the management fees ramp over the next couple of quarters just wanted to get a sense of the incremental margin on that revenue coming on the door? And then just on the fee related earning to margin itself, what sort of FRE margins realistic? Would you say later this year into next year versus the longer term in terms of what you think get over time?

We have said before that we believed during the course of 2017, achieving a 30% run rate go forward FRE margin was achievable, we still believe that. As I do think, we will see that especially as we talk about some of timing around the part one fee related to the ACAS transaction, as that trends up in the second half of this year, we think that will probably cross the that 30% selection points. Looking ahead, Mike said earlier as we use scalability as a firm, I think in years to come if we achieve a 30% run rate in the course of this year, we'd expect that we can improve upon that going into 2018 and beyond.

And ladies and gentlemen, at this time we will conclude today's question-and-answer session. Now, I'd like to turn the conference call back over to Mike Arougheti for any closing remarks.

Great, thanks so much. I think we covered a lot. So only thing left to say is thank you for all of your time today and we look forward to speaking again next quarter. Have a great day.