Welcome to Ares Management Corporation's Fourth Quarter and Full Year 2019 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on Thursday, February 13, 2020. I will now turn the call over to Veronica Mayer from Investor Relations for Ares Management.

Thank you, Sarah. Good afternoon, and thank you for joining us today for our fourth quarter and full year 2019 conference call. I am joined today by Michael Arougheti, our Chief Executive Officer; and Michael McFerran, our Chief Operating Officer and Chief Financial Officer. In addition, Bennett Rosenthal, co-Chairman of our Private Equity Group is with us and available for questions. 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 Corporation. During this conference call, we will refer to certain non-GAAP financial measures such as fee-related earnings and realized income. 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, please note that our management fees include ARCC Part I fees. Please refer to our fourth quarter and full year earnings presentation that we filed this morning for definitions and reconciliations of the 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 would like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any securities of Ares or any other person, including any interest in any fund. This morning, we announced that we declared our first quarter common dividend of $0.40 per share, representing an increase of 25% over our prior year's quarterly dividend. This dividend will be paid on March 31, 2020, to holders of record on March 17, 2020. This dividend level represents a 3.9% annualized yield based on yesterday's closing price. We also declared our quarterly preferred dividend of $0.4375 per Series A preferred share, which is payable on March 31, 2020, to holders of record on March 13, 2020. Now I will turn the call over to Michael Arougheti, who will start with some quarterly and full year financial and business highlights.

Thank you, Veronica. Good afternoon, everyone. Our fourth quarter's results capped off a record year for Ares with top line management fee growth in excess of 20% and fee-related earnings growth in excess of 25%. Our strong management fee-related earnings also supported realized income growth in excess of 25% in the year as an active year of modernization supplemented our base core earnings. 2019 was yet another solid year for AUM growth as we raised $24 billion, representing year-over-year growth of 14%. We continue to benefit from a broad consolidation trend as limited partners shrink their number of GP relationships to achieve economies of scale and invest more with their preferred managers. To illustrate this point, our existing LPs represented more than 80% of our gross capital raised as they re-upped into successor funds or invest in other strategies across the platform at an impressive rate. During 2019, over 150 LPs invested with us directly, including 100 existing and 51 new to Ares. Interestingly, existing LPs invested more than 4 times the capital than our new investors. Growth of wallet share from our existing clients continues to be a great opportunity for us. We continue to broaden and deepen our relationships with our investors. Today, 80% of our AUM from direct investors is invested in more than one Ares fund, and over 50% is invested in two or more of our investment groups. With all that said, we believe that we're just scratching the surface, and we're growing in all of our major investor categories, particularly with global pension funds, insurance companies, sovereign wealth funds and private banks. Heading into 2020, we're embarking on a meaningful period of capital raising with several of our largest flagship funds either in the market or soon to be launched. We currently believe that…

Thanks, Mike. I'll start with a review of our fourth quarter and full year results. 2019 capped off another year of impressive growth across our key financial metrics. The fourth quarter represented our 11th consecutive quarter of growth in fee-related earnings, which totaled $88.7 million. This represents an increase of 30% over the fourth quarter of 2018. 2019 full year fee-related earnings totaled $323.7 million, an increase of 27% over 2018. Our fourth quarter results translate into a 32% fee-related earnings margin for the quarter, which is an increase from 30% for the fourth quarter of 2018 but slightly down from 33% for the third quarter of 2019 due to an elevated level of general and administrative expenses. The increase was primarily attributable to approximately $6.5 million of costs pertaining to an SEC matter related to certain of our compliance policies and procedures. We believe this matter is nearing resolution and that the bulk of the expenses are behind us. Looking ahead to 2020, while there may be some fluctuations on a quarter-to-quarter basis for G&A expenses, we expect that full year G&A expenses in 2020 would increase more moderately between 5% and 10% over 2019 levels. With respect to margins, we estimate full year 2020 FRE margins will be approximately 34%, which is more aligned with what they would have been for the fourth quarter after the absent the aforementioned SEC matter costs. In addition, we expect to achieve a higher run rate margin of 35% at some point during 2020. Realized income for the quarter totaled $206.1 million, which represents an increase of $82.3 million or 66% as compared to the fourth quarter of 2018. For the full year, 2019 realized income totaled $503.5 million, an increase of $108.1 million or 27% from 2018. After-tax realized income per…

Thanks, Mike. Looking ahead to 2020, our business is extremely well positioned to grow with significant momentum and visibility in our core business. We believe our future is bright as we embark on a new fundraising cycle of flagship funds and prudently invest the significant levels of Shadow AUM that we've already raised. Our clients continue to trust us with a greater share of their capital, and with our expanding product suite, we're continually taking additional market share in a rapidly growing global industry. In addition, we're investing significantly for the future. We believe that our recent strategic initiatives have meaningfully diversified our company and improved our growth prospects in future years. We're looking forward to reporting progress on all of these new initiatives in the coming quarters and years ahead. As we've highlighted in the past, our business is structured and well positioned to outperform in any market environment. 2020 may or may not be the year where markets slow or turn, but to be clear, our capabilities are most evident during volatile times. Our world-class investment, capital raising and business ops teams, our available capital of close to $35 billion and our firm's strong liquidity position have us very well positioned to capitalize on changing markets when and if they occur. I want to close by thanking the entire Ares team for all the hard work and effort in delivering outstanding results in 2019. It really was a wonderful year all around. And as always, we appreciate your time and support for our company. And with that, operator, we'd like to open up the line for questions.

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

Thanks. First, just looking for an update on the real estate business really a year after David Roth joined from Blackstone. And can you remind us how you're thinking of expanding outside your opportunistic business, including maybe a core vertical?

Sure. We could not be more pleased with the progress that we've been making in real estate, not only since David's joined but since Bryan has joined and supplemented our already strong leadership and our debt business. On the fundraising side, we had very great success on our fifth European fund that closed out last year, hitting the hard cap. This year, we are now in the market with our third opportunistic fund under David and his partner's leadership and our next series of European value-add fund in Europe. Both of those funds have significant momentum. Early indication is that they will meet or exceed the cover. And not surprisingly, all of that is on the backs of very strong performance across all of our strategies, and you can see that in the published information around some of our core flagship fund returns in the real estate business. Importantly, ACRE has really found its footing and has great momentum. That stock has been trading consistently above book value for the better part of two years, continues to raise its dividend and beat dividend expectations, and we've now put that company back on a meaningful path to growth with a recent stock offering last month. Our real estate debt business away from the public company continues to scale as we grow our open-end fund around our mortgage lending business. And I think there's now a meaningful opportunity to take that franchise into Europe, leveraging our market-leading franchise on the equity side to replicate some of the success that we've had on the debt side. When you go through the segment reporting, what you'll see is significant margin expansion on the real estate side. And as we've talked historically about the consolidated margin, the real estate business has brought down the margin still not quite where we want it to be, but you'll see meaningful improvement, given the scaling of funds. So we're really, really happy. Everything is going as well as we could hope. With regard to core, we do have a very significant development capability. As we've talked about before, I think we have two opportunities specifically around your question, Craig. I think core plus and developed core is clearly something that fits strategically for us. I think the big question for us is whether that's a buy versus a build and that conversation is ongoing.

Thanks, Michael. Just as a follow-up, I actually thought it was a pretty big deal that ARCC raised equity capital for the first time in, I think, about five years just in the fourth quarter. So I know you plan to grow ARCC assets and fees via leverage, but could we see additional common equity raises in the BDC vehicle this year?

Could you? Yes. I think as Kipp talked about on yesterday's earnings call, the capital management policy there is really balancing deployment with getting into the target leverage range and expanding the equity base. So just to put it in perspective, ARCC raised about $66 million of equity on a $7.5 billion equity base through an ATM program. I think thinking about the ATM program as a tool for ARCC to manage its balance sheet and leverage profile is the best way to think about it. But if deployment continues to be strong and on the historical trajectory, I think we could expect that the equity base at ARCC will continue to grow. Thanks, Craig. And I'm also happy, it sounds like we have someone on the call whose last name may be harder to pronounce than mine.

Thank you.

Thanks, Greg. And I'm also happy it sounds like we have someone on the call whose last name may be harder to pronounce than mine.

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

Might be easier to pronounce, but still incorrectly pronounced. It's all good. So thanks. So a question for you guys around the my favorite topic, FRE margins. So look, I appreciate your comments around G&A growth moderating to, sounds like, 5% to 10% but the 34% FRE margin for 2020 implies quite significant acceleration in compensation despite the fact that a lot of the management fee growth that you guys are talking about is coming from either deployment of Shadow AUM that's already been raised, the next vintage funds, where again, teams are kind of in place and recovery of Part I fees, etcetera. So, all of these feel like there should be much higher incremental margins. So what's driving acceleration and compensation for 2020? Maybe help us think through the timing of some of these revenues coming through, and that's what the difference could be between the full year margin and the exits. Maybe talk a little bit about the exit FRE margin as we're thinking through this next fundraising cycle.

Absolutely, Alex. A couple of thoughts. Why don't we put this in context? For 2019, our margin was 31%. So in our view, guiding that we expect to achieve a 34% margin in 2020, I think on a year-over-year basis is actually pretty good. And while we totally expect to have a lot of growth over the coming year, a lot of the revenue from that growth hits in 2020, but a lot of that hits as we raise capital, especially in the credit funds and have a full year run rate off of funds and real estate or private equity that would be reflected in 2021. So I think, again, with all that in mind, 31% to 34% is great. Second, I did clearly highlight for you that we expect to hit 35% during the year. So could we do better than 34%? Possibly. It was two or three quarters ago that I said we'd be 18 months out from hitting something in the mid-30s. And a couple of quarters later, we were in the mid-30s. So as you appreciate, we don't we have forecast about expectations of timing of capital raising, timing of deployment. We think we have a very good visibility on this. But just specific dates, obviously a little harder to predict, and we're very conscious of not wanting to message something we don't think we can deliver. And we're very confident we can deliver a 34% margin and set and at some point that you have a run rate above it. And if it ends up above 34%, it ends up being 35% for the year, that wouldn't surprise us either. On compensation, I'm not expecting growth over and above our historical growth rates.

Okay, got it. Thanks for that. Other question for you, again, maybe a little bit more specific. So I saw you guys signed an agreement with SS&C as your, I guess, core provider going forward. What kind of when does that phase in? What kind of benefits is that going to create for the expense base over time? Kind of how should we think about that new relationship?

Sure. It's not a new relationship. We have SS&C as a fund administrator for us. We've had a contract with them, I think, back to 2013. That contract was getting closer to maturity. We renewed the contract with them, they announced it in the press release. As far as the benefits, look, the longer we're with them, the more we're able to optimize the service delivery model, and they continue to invest in technology and the like. We reap benefits. The contract renewal effect January 1. As we grow and have scale and able to leverage technology on what the economics become increasingly more favorable to us, that is reflected in what I would call decelerating G&A growth we expect for the year. But overall, I wouldn't say there's anything new, new about this. This is just kind of continuation of an existing relationship.

Got it? Thanks so much.

Our next question comes from Gerry O'Hara with Jefferies. Please go ahead.

Great. Thanks for taking my questions this morning. Maybe just one on fundraising. There's obviously a number of products that are in the pipeline, but perhaps you could help us just sort of understand or think about the staging of how some of that might be coming online in terms of fee-paying AUM throughout the course of the year and quite possibly into next year as well.

Sure. Just to remind folks that as a general rule, our PE-oriented strategies, both corporate and real estate, will pay on committed assets and the bulk of our credit funds will pay on invested. And so obviously, when we raise a larger successor PE fund regardless of the strategy, we see a meaningful step-up in the base management fee and FRE rate within that family funds even as we're stepping down the fee rate on historical funds. On the credit side, obviously, the embedded value of the capital raising momentum that we have shown up most dramatically in the Shadow AUM numbers. And when you look through the investor presentation, you see where the composition of the Shadow AUM lies, you'll see that it's predominantly within the credit business. If you were to look at the FRE growth in 2020, what we're most proud of is we were actually able to deliver that without any meaningful flagship fundraises over the course of the year. Now not to say that $24 billion is not a great year, it's actually meaningfully in excess of our historical average, but 2019 was really about deployment across the platform and monetizing the management fee base within the Shadow AUM. I think looking into 2020, it's going to be a little bit more of a balanced picture of continued deployment, the turning on some of these larger flagship PE funds, both corporate and real estate and then an acceleration of the growth rate into 2021 as the credit Shadow AUM continues to build on the back of our fifth European fund, our second junior debt fund and continued growth across the liquid credit platform.

Okay. That's helpful. And maybe one for Mike McFerran. If I heard correctly, G&A, we should sort of anticipate a 5% to 6% increase. And if you just wouldn't mind clarifying over the full year 2019 number. And then just sort of what some of the incremental investment in the business might consist of perhaps as it relates to some of the initiatives that you laid out or just other investments? That would be helpful. Thank you,

Sure. So just to clarify, I said it was 5% to 10% in my prepared remarks. As far as the growth of G&A, but some of it's just frankly a function as the firm has grown, meaningfully. So I think for us to show the type of growth rates we've had with G&A growth well inside of that, demonstrating scale of our business. Again 5% to 10%, considering the amount of all that we're doing next year, I think, is a reflection of our discipline on expense management, which we've been very effective at. And we Mike in his prepared remarks talked about, there are a lot of initiatives of growth avenues on the go in addition to all the organic growth we're focused on. So that's all that's baked into that. Hopefully, that answers your question.

Yes, absolutely. Thanks for taking my questions this morning.

Absolutely, thanks. Sure.

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

All right, great. Thanks for taking the question. First question. You guys did multiple, like, strategic transactions. You've got the speed on the insurance side. You mentioned the SSG, the Australia JV and then I think the CLO, the Crestline Denali new transaction. Just how should all these like impact maybe the earnings ahead and probably more importantly, the growth profile in some of those areas relative to the past?

Sure. Each one is different and it's interesting because of all the things that you highlighted, I think it's a good indication of the types of things that we can do strategically, given how the business is positioned and where we see either gaps in product or new addressable markets. Crestline Denali, fairly small transaction as we you saw in the press release, acquired some management contracts. The good news is when we do things like that, which is really a bulk-up trade for our liquid credit team, we can drop down any acquired management fee revenue at a very high marginal profit rate. So if we're in that business acquiring CLO management contracts, they're going to really drop down at close to 100% marginal profit. So a really nice way to generate earnings accretion, but I would say that, that's a tuck-in, not a new strategic avenue of growth, obviously, given our current leadership position in the CLO market. Australia and SSG, I think, are two really good indications of how we can take existing capability and track record and existing product and open up new geographies. AAM, obviously a little bit more on the distribution side, given what we see as a long-term opportunity to satisfy demand for fixed income product in the superannuation market. And SSG, as I said, really a gateway into the pan-Asia region. That team, their approach to market, their approach to investing is so in line with the way that we approach our business. And culturally, they're so aligned with our approach. We just have very, very high expectations for what we can do with that platform going forward. Today, it's predominantly focused, as we mentioned, on direct lending and special situations. Given the capability of that team and given the capabilities of our platform, our expectation over time is that the entirety of our business will be in Asia, i.e., not just credit but private equity and real estate. So we're excited about that. And then Aspida, it's early days but we think that we have a wonderful platform to build from. We have a high conviction on a high growth rate there. We've committed significant resources and capital to make sure that, that grows according to plan. And as we've articulated on prior calls, we're already in the market, lining up third-party capital partners to help make sure that we can scale that business the way that we want to across the plan. So other than Crestline, I actually think that each of those three is opening up new markets and new geographies for us that are going to be very meaningful contributors to the profit picture over the next three to five years.

Okay. All right, thanks a lot. And then Mike McFerran, maybe just on the G&A item, just one more question. Just on the 5% to 10% for 2020, makes sense given all you guys are doing. But I just want to make sure, is that on the stated, like 2019, like G&A expense? Or is that adjusting like the elevated level that you had in the fourth quarter? And then just on the SEC matter. I don't know if you can provide any more color if it was operational or something else. And then do you feel like most of the cost related to that are behind you?

Sure. So starting with the G&A, it is off the stated 2019 number. On the SEC matter, we really can't say anything more than we've already said because it's as I mentioned, it's nearing resolution, but it's not resolved so we can't say anything further until it is. But as I highlighted in my prepared remarks, Mike, it is we believe the bulk of the costs are behind us and reflect in the Q4 numbers on this.

Got it. Okay, thanks a lot.

Absolutely.

Our next question comes from Kenneth Lee with RBC Capital Markets. Please go ahead.

Thanks for taking my question. Just a follow-up on SSG Capital. You remarked upon the direct lending opportunities within the Asia region. Just wanted to see if you could just, at a very high level, comment on the market dynamics and relative environment for generating returns within direct lending in Asia versus what you're seeing in the U.S. and Europe.

Sure. Look, one of the reasons why we were attracted to the platform other than the cultural affinity is that this team has been investing across the region as a partnership with demonstrated results for over 15 years, which actually quite rare to see, given where some of those markets are just in their own life cycles. We've looked for years at organic and inorganic growth opportunities in the region, and it became abundantly clear to us that we really needed to acquire a beachhead there with people that we trust that actually had local presence, local relationships and a deep local track record. Direct lending in Asia is a little tricky, and it depends on jurisdiction. Obviously, the rule of law, depending on which country you're in, is different than we're used to operating in here, which means that the product positioning needs to be different. We're generally taking a different set of risks for a different set of returns. And we and our soon-to-be partners at SSG, do that eyes wide open. But similar to what we saw in Europe and the playbook that we executed there, growing that business from 0 to $25-plus billion over the last eight or nine years, these markets develop very quickly. Even in markets where we see banks dominating or lending money at what we would think are irrational risk-adjusted returns for policy reasons. As these markets develop, mature and scale, the opportunity for non-bank credit products accelerates with it. And so we actually think we're entering the market at a really interesting time. The nonbank markets in India and China and Indonesia are actually fairly well developed, fairly fragmented. In certain markets, the rule of law is improving, the capital markets ecosystem alongside the private credit markets are growing and improving. So I think one of the big opportunities here is to actually continue to move the SSG platform into lower-risk, lower return lending, similar to what we've done in both our U.S. and European franchises. If you look at the product set early on in U.S., it was predominantly a higher-risk, higher return mezz type business. Same for Europe. And now when you look at what we've built globally across the direct lending franchise, it's really capturing the full risk return opportunity in the capital stack, and we'd expect Asia to develop in a similar manner.

Great. Very helpful. And just one follow-up, if I may. You touched upon this in the prepared remarks in terms of how you view dividend growth as being tied to expected FRE growth. And certainly, there was a meaningful increase in dividends for this year. In terms of what it signals to us in terms of potential FRE growth, would you say that most of the potential FRE growth is going to be driven largely in terms of the fundraising they expect this year coupled with ARCC? And just wondering whether there's any other key factors that we should keep in mind.

Sure. I think Mike touched on this a little bit, but just to elaborate, we if you look at 2020 with the expected growth in FRE and expected AUM growth, I know Mike, in his prepared remarks, mentioned within 2020 if all that we have coming, could exceed our prior record year in capital raising, which was 2018 where we had $36 billion. But not all funds are raised Day one and not all revenues turned on when those funds are raised. So I think 2020 is reflecting a year where there will be revenue growth coming from incremental capital raised. But similar to 2019, a lot of revenue coming online is a function of capital we already have that's not yet deployed. And as we continue to deploy, that adds to revenue every day with every investment we make from our credit business, specifically. And as the annualization of revenue we deployed during capital we deployed during 2019 that's now online for a full year in 2020. So I do expect a lot of our growth to come from things that have already happened. Hence, the deployment of stuff in 2019, continued deployment in 2020 as well as capital raising during the course of 2020. And I think in addition to what we think is going to obviously be a very good year for 2020, that really sets us up with a strong run rate heading into 2021 and beyond.

One thing I'd just highlight, we're obviously trying our best to peg our dividend to our expected FRE. We when you look at where we set the dividend in 2019 and how that developed over the course of 2019 year, I think we now are having a pretty good demonstrated track record on our ability to tighten the range on the peg and feel pretty confident about the growth going forward into 2020.

Very helpful. Thank you.

Thanks.

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

Great, thanks. A question on deployment. I think you guys are sitting on a near-record level of dry powder. 2020 sounds like it's going to be a great fundraising year, perhaps another record. So if the economy continues on the current path, do you feel confident about really deploying all that capital? I mean, are you guys seeing enough opportunities out there today to be able to kind of execute on that?

Yes, we do. Maybe telling people what they know, the and I mentioned this in the prepared remarks, the firm is structured and set up to outperform in down markets. When you look at as an example, at our private equity franchise, our private equity funds that we already manage and those that we're raising now, are flexible in structure that allow us to invest in both regular rate buyouts, growth investments and distressed for control. Our special opportunities fund, which as I mentioned, is approaching its cover is specifically focused on companies and industries in transition with a lot of dry powder, frankly, looking for a little bit more volatility in the market. Across our credit platform, and you've seen this in the BDC and in our ACE funds, the ability to navigate the cycle and continue to deploy regardless of the market environment. So the way I would think about it is given the amount of dry powder that we have, you may see a shift in deployment from self-originated assets and primary market activity to secondary market purchases or portfolio purchases and restructurings. But when we look at the embedded addressable opportunity, we're pretty confident that if the market turned, we may actually even see deployment accelerate.

Great. Thank you.

Our next question comes from Michael Cyprys with Morgan Stanley. Please go ahead.

Hey, morning. Thanks for taking the question. Just on coming back on the deployment side, I'm just curious how you guys would kind of characterize the $27 billion in 2019 in terms of what you put to work. And what environment could you see that slowing? And just curious to hear an update on where you're finding some of the most attractive areas, situations for deployment as you're looking ahead into 2020.

Sure. Look, the good news is, and we said this in the prepared remarks, the deployment was good and consistent across all of our strategies. It was balanced and it grew year-over-year as we grew our capital base and grew our headcount and capability set. If you look at the $27 billion, roughly $20 billion of it was in our credit business. That $5 billion of it was in our private equity business and about $2 billion of it, $2.5 billion, was in our real estate business. That matches kind of nicely with the AUM composition of the business. And in credit, we were active in a pretty balanced way across the liquid and illiquid markets. In terms of where we're seeing opportunity, like I said, the U.S. economy is fundamentally sound. We're finding plenty of things to do here. Certain of our strategies, I think we'd like to see a little bit more volatility to capitalize on some market inefficiencies. But I think our base case for 2020 looks a lot like what our base case was for 2019, which is fairly benign environment, fundamental growth, healthy capital markets, accommodative central banks, which will support asset values and funds flow. And we'll be able to deploy into that market, albeit with a little bit more caution and a little bit more conservatism. Like I said, I think there's an argument to be made, given the nature of our capital that if the markets become more volatile or we actually see the long-awaited downturn, that we could accelerate deployment but that's not what we're underwriting this year.

So would you characterize it as a sustainable pace of deployment that you guys can continue to put that to work, that level as you look forward? And what scenario would that actually slow?

Yes. I think it's sustainable. I can't really come up with a scenario where it would slow for a sustained amount of time. If you look at generally how our markets function, if you see significant volatility, you may see a slowdown as the market resets and re-rates but then transaction activity picks up. And while that pause in the primary market is occurring, you see us get very active in the secondary market on secondary purchases and portfolio trades. So again, I think if you think of deployment both in terms of origination but also being in the secondary market, we have every confidence that this level is sustainable.

Okay. And then just as a follow-up, I think when you started 2019, you had about $28 billion of AUM that was not yet earning fees at that point. I'm just curious how much was kind of pulled through where you activated fees. I think the fee-paying AUM grew, what, $15 billion in the year? So I guess, trying to figure out like how much of that $28 billion was pulled through and activated then you kind of replenished it with fundraising elsewhere. And then the question would be, if that's $10 billion, if it's $8 billion or if that was activated, how to think about that sort of pacing into 2020?

It's a great question. I apologize, Mike, I don't have the roll forward in front of me but the way you're thinking about it is spot on. I would look at the majority of our fundraising this year would have added to I'm not saying all of it, but the majority would have added to Shadow AUM. So I think to start, Mike, and again, I'll give you the contrast slide in a second for 2020, but most of the fundraising would have gone to shadow. So when you think about the growth fee-paying AUM, I'd say the lion's share of that came from what was the available capital that was undeployed at the end of 2018, entering this year. As Mike mentioned, the really and you have to look at our capital raising, the distinction is in a year where we would raise larger private equity and real estate funds, and we did have a couple of meaningful real estate funds this year, that is becomes automatically fee-paying when those funds are activated. So when we activate our next private equity fund, that will immediately become fee-paying upon activation unlike our credit funds, where you raise it and then it enters its deployment life cycle. But I think, again, looking at the growth in fee-paying AUM and deducting that or let's say 75% of that from the Shadow AUM should be a pretty good indicator.

But I'm just I'm looking at some of the numbers, we're probably if you look at the gross fundraising in 2019, probably $20 billion of the $24 billion was AUM that pays on investment. And if you look at the $27 billion of deployment, you're probably looking at $20 billion-ish of that deployment in pools of capital to pay on deployment. So most of that pull-through was on the credit side on new AUM getting raised and then old AUM getting deployed.

Great, thank you.

[Operator Instructions] Our next question comes from Chris Kotowski with Oppenheimer. Please go ahead.

Yes. Good morning. Thanks for taking my question. I just wanted to get back to the $0.40 dividend bump, which was kind of more than we are looking for and just to make sure that we don't get out over our skis on FRE assumptions. But I mean, $0.40 times just under 250 million shares is about $100 million in big round numbers, tax-affected for an 8% to 11% tax rate. It tells you the pretax free should be somewhere around $110 million. And obviously, that's quite a distance from the $89 million that we saw in the fourth quarter. And it's kind of easy to get to a number in that $110 million zip code if you assume ACOF VI turns on. But I mean, am I right in thinking that, that's probably $110 million a quarter pretax free is kind of a very aggressive number for the first part of the year?

Well, keep in mind, if we thought the first part of the year, we'd be, again covering $0.40. And again, we don't do a coverage payout analysis, but hence the peg concept. But if we thought that it was going to be $0.40 in Q1, growing $0.41, $0.42, $0.43, the dividend would have been set higher. So $0.40 is looking at the full year of 2020. As far as your math goes, thinking about that on an annualized basis, again, we don't give FRE guidance but I think the growth of the dividend is probably the best indicator of how we think about the growth of the business. And you appropriately highlight the tax rates. On an after-tax basis, your math doesn't sound like you're doing anything wrong.

Okay, that's it for me. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Arougheti for any closing remarks.

We have none. Again, thanks for spending time with us today and for your continued support, and I wish everybody a Happy Valentine's Day. We'll speak to you next quarter.

Ladies and gentlemen, this concludes our question -- our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available through March 12, 2020, by dialing 877-344-7529, and to international callers by dialing 1-412-317-0088. For all replays, please reference conference number 10137611. An archived replay will also be available on a webcast link located on the home page of the Investor Resources section of our website. [Call ends abruptly]