Good day and welcome to Ares Management Corporation’s First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on Wednesday, May 6, 2020. I will now turn the conference over to Mr. Carl Drake, Head of Public Company Investor Relations for Ares Management.

Good afternoon and thank you for joining us today for our first quarter 2020 conference call. We hope everyone is safe and healthy. 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; Kipp Deveer, Head of our Credit Group; Bill Benjamin, Head of our Real Estate Group; Scott Graves, Co-Head of our Private Equity Group and Head of Special Opportunities; and Joel Holsinger, Co-Head of Alternative Credit will be available for the question-and-answer session. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties including those identified in our risk factors ad our SEC filings. Our actual results could differ materially and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results. During this conference call, we will refer to certain non-GAAP financial measures which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. In addition, please note that our management fees include ARCC Part I fees. Please refer to our first quarter earnings presentation available on the Investor Resources section of our website for reconciliations of the measures to the most directly comparable GAAP measures. Please note nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Ares Fund. This morning, we announced that we declared our second quarter common dividend of $0.40 per share, representing an increase of 25% over our prior year’s quarterly dividend. The dividend will be paid on June 30, 2020 to holders of record on June 16, 2020. We also declared our quarterly preferred dividend of $0.4375 per Series A preferred share, which is payable on June 30, 2020 to holders of record on June 15. Now, I will turn the call over to Michael Arougheti who will start with some quarterly financial and business highlights.

Thank you, Carl and good afternoon everyone. We wish everyone well during these unprecedented and difficult times and our thoughts are with those who have been affected by this crisis. We want to thank the first responders, healthcare professionals and those on the frontlines risking their lives for our communities across the globe. I also want to thank all of our employees here at Ares who are working harder than ever to drive our company forward through this challenge. It’s really been remarkable to see the seamless transition our entire firm has made to working remotely and we are functioning at full capacity. I could not be more proud of the team. It’s also nice to see so many of our portfolio companies directly supporting our communities whether it’s DuPage Medical, which is running the clinical operations for COVID Triage Center in Chicago’s McCormick Convention Center and delivering high-quality and safe care for non-COVID patients throughout the shelter-in-place period or convergent technologies, as an example, delivering solutions to enhance health security through thermal cameras, contactless access controls and identity management and tracking software. With respect to Ares, I am going to spend a few minutes on why we believe that we are uniquely positioned to navigate this period both offensively and defensively. Our team at Ares is broad, deep and has worked together for a long time, including through past economic cycles. And as we have demonstrated consistently during our tenure, we are very experienced at navigating different and challenging economic environments. As many of you know, we grew faster through the GFC than in any 2 year period since then with AUM and management fees increasing at compounded annual growth rates of 39% and 28% respectively from 2007 to 2009. So, what we are all witnessing now is unique…

Thank you, Mike. Hello, everyone and thank you for joining our call today. No words can do justice to explain the extraordinary and tragic nature of what’s transpired in recent months and I hope all of you are safe and well. While we are doing this call from our respective offsite locations and I miss the in-person interaction with my colleagues. I will echo Mike’s comments by saying that the power of our platform with a culture deeply rooted in collaboration has never been more evident or valuable than it is right now. While our global team continues to work remotely, our culture combined with our truly incredible technology and operations teams have a highly – operating highly effectively from our various locations. I will start my remarks with some key points in the quarter and then provide a more comprehensive review of our results and financial position. As Mike highlighted, the first quarter represented our 12th consecutive quarter of fee-related earnings growth and reflected some key first time milestones with fee-related earnings, exceeding $90 million, our margin growing to a new high of 34% and our fee-paying assets under management exceeding $100 billion. Valuations across most if not all asset classes globally have been negatively impacted our portfolios were not immune to the broad market dislocation as reduced valuations decreased our net accrued carry from yearend levels and reduce the value of our balance sheet portfolio. Although valuations were down as Mike stated our funds exceeded their public benchmark indices across our credit private equity and real estate strategies. Notwithstanding the challenging market backdrop realization stemming primarily from our private equity and real estate businesses enabled us to report $134.1 million of a realized income for the quarter which is our second highest quarter reported realized income since our…

Thanks Mike. So in conclusion, we believe that our business model not only resilient, but also well positioned to thrive in what we expect will be a continued volatile market environment. Our management fee centric model rooted in credit and flexible strategies coupled with our balance sheet light model and strong balance sheet puts us in a strong position to navigate these times. It is during these volatile periods that we believe our organization and the power of our platform rise to the occasion and shine through. We don’t view this as being an economic cycle, where we will simply snapback to yesterday anytime soon, rather we project a long U shaped recovery and with that an unusual and interesting period ahead with its share of challenges, but also ensured unique investment opportunities. It’s in times like these that having investment sourcing, underwriting and portfolio management capabilities are critical and having brought access to capital is key. And to survive, but not just survive, but to succeed you need to be well positioned with both and we believe that we are. I echo Mike's comments and wishing everyone safety and health. I look forward to updating you on our progress on next quarter's call and I'd also like to end by thanking the entire team one last time for all their hard work and dedication these last couple of weeks as always we appreciate your time and support for the company and your time today. And with that operator, we would like to open up a lot of questions.

Thank you. [Operator Instructions] Our first question today will come from Robert Lee with KBW. Please go ahead.

Great. Thanks guys. I hope everyone is doing well in this challenging environment.

Good. How are you Rob?

Yes thank you maybe just Mike, appreciate all the comments on fundraising, but maybe going back to that a little bit you have a lot of things still in process but could you may be give a little more granular color just on how maybe the timing or pace may be impacted versus kind of what you would have thought on the fourth quarter call may be particularly around kind of some of the larger funds, the funds? Does it feel like it going to take an extra couple of quarters or feels like given your flexible mandate, it could happen as quickly as you originally thought?

Yes. As of now everything is closing kind of as originally scheduled at target size and as you heard in the prepared remarks we've actually been pleased in certain situations like our special opportunities fund and our alternative credit fund where we have actually seen accelerated fund raising just given that those strategies are particularly well suited for the current environment and so as we sit here today we are not actually seeing any change in terms of the pacing obviously that could change as we get deeper into this as investors are doing with things like denominator fact and challenges of working remotely but as of now we're not we're not forecasting that.

Needed a follow-up on that, I mean, you did touch on with kind of re-ups being a focal point or do you get a sense that investors are re-upping at may be higher levels than you originally thought just given the environment on your strategies?

Yes I mean as we said we had 8 funds that are in the market are soon to come to market totaling over $25 billion that all can invest well into distress. And so I think our investors have a pretty nice selection of strategies to choose from to try to take advantage of the current dislocation I think the reupps and we talked about this on prior calls pre crisis there was an over arching trend of larger managers taking more wallet share I think that's accelerating now. Obviously, it's easier for an LP to underwrite an existing manager. There are also some nuances where certain investors actually need face to face meetings by our regs and so I think if you are an existing manager with a good track record and a deep relationship with just a lot easier particularly remotely to focus on a reupp so we are actually seeing some of that getting reflecting in larger commitments on reup which I think is just a reflection of people maybe allocating more to some of the larger existing managers than the new funds.

Great. Thank you for taking my questions.

Thanks Rob.

Our next question will come from Ken Worthington with JPMorgan. Please go ahead.

Hi good morning or good afternoon depending on where you are on. In the discussion of the three phases of investments opportunities you indicated less competition in Phase 3, can you flush out those comments on the competitive landscapes competitive landscape with regard to the banks to what extent maybe where you were seeing banks as a bigger competitor and how you think or what makes you think the pull back in the banks as competitors will last here and to what extent of any other government programs actually accelerating or might accelerate the bank sort of return as competitors? Thanks.

Sure. Thanks for the question. Ken. So, just to clarify the comment, it wasn’t really geared just towards competition from banks, I think there is more broader comment just about what the competitors set will look like on the back end of this and what we have seen in every cycle that we have managed through as a consolidation of market share and market position coming through financial crisis. So, we would expect to see reduced competition and reduced liquidity in the hands of competitors across the entire competitive set. That would be consistent with our past experience and consistent with what we are seeing in the market now. With regard to the banks, obviously, we don’t compete directly with them, but for in certain segments of our direct lending business, particularly the higher end of size range of potential borrowers needless to say in this environment while we are still active, the banks are not active underwriting and syndicating leveraged finance product. I think as importantly you saw this world through some corners of the market before the stimulus was put forward and it’s actually still happening in certain segments of the market, where there are margin facilities or repo lines or swap facilities that banks have been moving to get liquid as I think most investors are. And we have seen a reduced appetite to commit new capital across the board from the banks. So, I would characterize the bank behavior more as what we are seeing in terms of lending liquidity providers into the market versus lending head-to-head competitors with us. And so for the last 20 years I think people have been asking us about bank competition returning in the potential impact on our business. We historically have not really competed head-to-head and I don’t expect that to change. With regard to the government programs, oops sorry go ahead.

No, no I was going to thank you for that, but please continue.

Sure. I think the question was around government programs and whether that would catalyze increased competition from the banks and I think just similar comment is no. I think the banks are obviously very busy managing their existing exposures the same way that we and others are and then obviously busy from policy mandate executing on the government loan program. But we don’t expect their purchase patient in those programs to somehow change their competitive position relative to us.

Okay, thank you. It makes sense. And then in the deck, assets in intensive generating AUM fell for obvious reasons, what sort of returns do you need on the credit side for those assets to fall back into that incentive generating territory? Is it could be a basis point, could be 10%, is there a more narrow range that we could see a lot of those assets return back to incentive generating?

So, on the asset side, declining credit or fell out of incentive generating, most of that were consisted of pretty much separate accounts or more strategic separate accounts that are for lack of a better term earlier in their lifecycles, these are all accounts that start deploying capital. So, while they fell below the pref returns, they not far underneath them and again they are also deploying capital and they are all European style waterfront. We don’t think it changes the overall outlook for those. We think its bit of a function especially again when you think about IRR math earlier days of funds. It’s little more volatile to cash activity valuations.

Great.

I would say, Ken, as a general rule and it depends on the strategy, it’s probably somewhere between 2.5% and 4% on the high end in terms of math build. So to Mike’s point of view, you wanted to put a number behind it. It’s very, very low single digit.

Great. Thank you for the color.

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

Hey, this is Dean Stephan on for Mike Carrier. Just in terms of portfolio of companies and investments, can you just provide an update on maybe your energy exposure and other sectors most impacted for just travel and leisure? Maybe what you guys are doing to support these companies and any other areas of the portfolio you actually view as more defensive in this type of environment?

Sure. You have to – we kind of look at AUM across the entire platform as we talked about, firm-wide AUM is kind of the best way that we can think about exposures and are waiting. In terms of retail exposures broadly, about 1.5% – 1.7% of the firm’s AUM is invested in some part of the retail landscape, travel and leisure, broadly speaking, which includes things like gaming and may include some aerospace that’s probably an inflated representation, because they are not all directly impacted, it’s about 3.5% of our AUM and energy is in and around 3%, but of that, only about 1% is actually in oil and gas exploration with the remainder being in renewable energy and midstream infrastructure. So will I leave it to you to decide how you want to differentiate between kind of the upstream and midstream? But if you were to look at those exposures, relative to public indices, they are meaningfully underweight. And when you look at those exposures relative to any specific funds, they are underweight as well. So, as an example, in our real estate business, we have no hotel exposure in any of our significant real estate funds. In fact, we have actually sold a big portfolio of hotel investments over the last 18 months. So, I think it’s hard to be completely un-invested in these parts of the market, but we are underweight and where we are invested, it’s pretty well distributed across the platform. So, it’s not going to impact any single fund.

Okay, great. That’s helpful. And then just as a follow-up given the active deployment in the quarter, can you just touch on maybe a little more detail areas of the market, where you are seeing the most attractive opportunities? And then if and how those opportunities are involving kind of given the recent market rally?

Sure. And we have got a bunch of our senior PMs on the line. So I may ask them to provide a little bit of color, but going back to the framework of the different phases we are obviously quite busy in the first phase in the liquid markets before the stimulus came and provided a backdrop of support. So, when you look at our deployment through March, it was largely buying assets in the secondary markets as we are now transitioning into Phase 2. We pivoted into the private markets. And as we said in the prepared remarks, the bulk of what we are doing there is providing rescue capital to companies that need a liquidity bridge or want to buy “insurance” to play offense in this market similar to the way that we have thought about running our own company, but maybe just to give it a little bit of color, I will ask Scott Graves who runs our special ops business and then maybe Joel on AltCredit just to give a little bit of a flavor for how they are playing it. So, I think it will help you better understand where the opportunities are.

Sure. Thanks Mike. This is Scott Graves. We look at the world on a relative value basis across Ares and compare what we can achieve in the public market versus the opportunities available in the private market. And to give a little bit of color to what Mike said, you know March traded down faster than any cycle that we have seen or invested in. It traded down faster than ‘08, it traded down faster than ‘01, it traded down faster than the early 90s cycle. It was on pace with the Great Depression of the late 1920s and beginning of the 30s. That shock in the market presented terrific opportunities, significant liquidity, significant opportunity to buy marketable securities what we thought were very attractive prices generally focused on the top of the capital structure through the stimulus plan that came the week of March 23 and right around April 9. We have seen a bounce in the public markets. And certainly with the view toward almost 2,000 portfolio companies at Ares, it feels like the opportunity set in the public markets has been muted and we are shifting to the private market. What’s different about this cycle is that this is going to be a liquidity driven cycle. Companies are seeing a significant shock to both their revenue line, as well as their cost structure and they will need access to incremental forms of capital in order to get through and the strongest companies and more attractive companies, we are focusing on will also find ways to put capital to work offense to take share, consolidate, make high return on invested capital based decisions. And that’s where we are focused. Our backlog of private opportunities across the firm is as rich as it’s ever been and we really look forward to partnering with companies and management teams to provide them capital to get through this troubling time and to also strengthen their business as they think about how to improve coming out of the back end.

Yes, Scott. It’s Mike. I think it’s a good point maybe just about the sourcing, because we mentioned in the prepared remarks, but having an embedded portfolio close to 2,000 companies putting aside the number of marketable securities that we track puts us in a unique position to offer these types of solutions either into the existing portfolio or into companies that we have diligence before, but not invested in. So, it does allow us to pivot very quickly into the private markets like few people can. Joel, one – do want to maybe Joel, quickly on the Alternative Credit side, which I think is probably what we are seeing some of the most acute liquidity shock just a quick overview to some of things that we are focusing on there.

Sure. Thanks, Mike. This is Joel Holsinger. Yes, I think there were small windows across alternative credit in the liquid markets. And if you think of what we do in Alternative Credit, a lot of tools, there is loans, receivables and underlying leases and we do lending on the basics as well as rescue as well as asset opportunity and then the liquid markets. And what we are seeing similar to what Scott saw was there was short windows where there was opportunities to buy stuff in the secondary market in the liquid, but where we are seeing the biggest opportunity or the lack of a better term semi-liquid opportunities. Their opportunities were created by the liquidity shock from mark-to-market and repo financing where with the downdraft that 3 or 4 weeks ago, they have created a lot of longer lasting pain across both other credit type funds as well as some of the mortgage rates you have seen in the news. And we have been very active in those opportunities and what you will see is the opportunities we are seeing there are large. So, there is a short lift of people that they can go to be able to solve some of their issues and we just closed on the deal couple of weeks ago, it was $350 million that was effectively taking out a mark-to-market repo financing where they had it advanced at a much higher advance rate in the very low cost to capital, 2% to 3% cost of capital, so something from our standpoint, where we brought them a private solution and where 15% to 20% type IRRs but on a more term permanent type basis. And I think it’s reflective of the opportunity set where you have to have the ability in the power of the platform to be able to do size and bring the solution to the table. So they are still directly sourced and bilateral type transactions, but lot of it is coming out of the pain that’s occurring from the swift downturn of the liquidity of liquid markets.

Thanks, Joel.

Dean, probably maybe more color than you have argued for, but I always think it helps bring the opportunity into life. So, thanks guys.

Our next call or question will come from Craig Siegenthaler with Credit Suisse. Please go ahead.

Thanks for taking my question. Hope you are all doing well.

Thank you, Craig.

I have a two-parter on fee related earnings. First the CLO subordinated fees can you explain how they are calculated and what could trigger Ares to defer these fees like we saw from Carlyle in the first quarter? And the second part, can you remind us how ARCC or BDC calculate its incentive fees Part 1s and what could cause these fees to be deferred too? Thank you.

I will start with the first part of that, Craig. Hope you are well. On the CLOs, the sub fees if you think about a CLO waterfall, you have – really, there is two fee components on the recurring management fees. There is a senior fee, which literally sits at top and is actually senior to the AAA bonds. And then you have a subordinate fee which depending on the deal is somewhere closer to the bottom. Our deals are structured similar but a little different and a little more conservative than others in the market in so much as our blend of fees is approximately 50-50 between senior fees and the sub fees in CLO’s so a higher percentage of our CLO management fees comes from the senior fees than you usually expect used to seeing. And second, our sub fees, for I'd say, almost three quarters of our deals are usually senior to at least one of the OC tests or an interest diversion test. As far as what it means from an FRE perspective, maybe just kind of compartmentalize is the size of it to us. CLO sub fees again represent about half our fees from CLO’s and that amount was I think about 3 just maybe just over 3% this quarter call it 3.3%. So just over $9 million so when we think about the diversion risk as we ended the quarter all of our CLO’s were passing all their OC tests again we don’t want to comment another managers I think CLO’s are different as far as structure to some extent and how they manage are different some CLO’s are managed ROE 2 rating and picking the highest return points with invading spectrums whereas we similar to everything else we do at Ares have a…

I can take it, Mike. I think it was just about the structure of the ARCC Part 1 fee and the deferral mechanism I think it's important to be separate the two because they're two separate calculations around earning and deferring I think it's important that we differentiate between the fee getting earned and the fee getting paid. So the way that the part 1 fee works is it's calculated quarterly against the 7% hurdle pre incentive fee and then we compare that to the extent that it's above the 7% hurdle for the quarter we get a 20% part 1 incentive fee said by way of reference this quarter was about 9% against the 7%. There is also a kind of a nuanced deferral mechanism which frankly we inherited when the DDC went public in 2004 that is designed I think to be theoretically protect liquidity in that portfolio to the extent that you are seeing credit deterioration and income deterioration. And basically what it does is to the extent that it is earned, it then looks at your return of payments to shareholders and NAV as to whether or not to pay it. And so there could be situations and we saw this in 2009 where even though the book is performing and paying cash interest and therefore able to support the payment of the incentive fee and the payment of the dividend, it traps the fee. But the fee is earned and then gets paid out at a later date. What’s unique about the calculation is it’s a four quarter look back and then it resets on the new NAV. So basically what happens is if you were to trap that fee, it would likely pay out starting a year later when you were in that new, that new NAV hurdle. So if you look at our history, the Part 1 incentive fee has been earned every quarter since ARCC went public. And then the deferral mechanism obviously is just a function of unrealized losses, which either come back or resets your NAV and then it pays. So I don’t know if that was too complicated or not, Craig, but it’s a little bit of a nuanced.

And our next…

Just to reiterate, Craig, I think you saw ARCC announced earnings yesterday and obviously we are not in a deferral situation. Sorry operator.

No, not a problem. And our next question will come from Gerry O'Hara with Jeffries. Please go ahead.

Okay. Thanks for taking my question this morning. Actually similar questions to follow-up, I think to Ken’s question earlier with respect to incentive generation required for eligibility, I think his question is credit, I am not sure if the private equity side was touched on, but perhaps if you could comment on that, that would are helpful?

Sure. The funds that I think fell out of incentive generating this quarter were there is only three what I would call our flagship funds across all of our businesses, two in private equity, one in real estate and all three of those funds are funds still in their investment period. They fell below the pref returns, but again, where they were in their lifecycle. There were funds, I would call, in carry harvesting mode. If you look at where our crude carry was at year end than it is today, it’s mostly concentrated with funds are still generating and past their investment period with most of those being in both private equity and real estate.

Hey, Gerry. I think I want to reiterate what Mike talked about in the prepared remarks just for a second, which is obviously incentive-related earnings are an important part of our business model, but it’s not the predominant part of our business model. And as we have talked about on prior calls, we switch to capital management plan, where we were pegging our dividend to our FRE and using our performance-related earnings to effectively retain earnings compounded for lower tax rate and invest back into the core earnings engine. And so I think it’s important to contextualize those types of moves against the framework of how we manage the P&L in the balance sheet. And so were you to look at the net accrued carry while we are not immune to the downdraft, we basically saw it go from $340 million to $235 million. But what that’s not accounting for is the wave of new funds that sit behind it that will obviously replenish and continue to grow that. So I think it’s worth paying attention to it. But I just want to remind everybody that it’s not actually a significant driver of the profit picture at Ares or it doesn’t factor into the support of the dividend.

Okay, that’s a helpful reminder. And this is perhaps a broader question, but Ares managed business very well through the financial crisis, are there any one or two I guess if you will from that time period or perhaps actually better stated and changes that were made to the investment process that have really shone through or shown to be advantageous as we have kind of moved into and wherever we are at the stage of this current crisis?

I will say couple of things and we talked about it in the prepared remarks but each crisis is different but the crisis response tends to be similar. If not familiar and I think the good news is the senior management team has been together along time and navigated all the crisis. And so there is a lot of institutional muscle memory and a lot of learning. I think what’s unique about this one is, it is very heavily, it’s a liquidity driven crisis and so I think now more than ever we are focused on liquidity whether that’s liquidity at Ares liquidity with in our funds and liquidity when the portfolio companies and I think people who mismanage their liquidity position going into to this or feeling the pain and those that are not taking the liquidity short falls seriously enough and allowing for an extended period of dislocation, I think we are also going to suffer. So maybe differently here we are being a little bit more judicious in terms of how we are thinking about liquidity and how we are investing and then I think the big lesson learned is you can never time the bottom so you have to be investing through the crisis. And that’s why these phases even though there are uncertain in terms of how long they are going to be, and whether or not we get to test the lows that we saw in March in the future is unclear but you have to be investing all along the way to make sure that you are capturing the opportunity. So I think what you will see from us which is what you are seeing from us before is we are going to measured in our deployment at each of these phases and obviously how we access the market is going to be change depending on the phase that we are in. but we are also a much larger, much broader, much more diversified company than we were 12 years ago. And I think that, that serves us well we just have more data points more information, more count of people, more access to capital. And so we did very well in 08, and 09 and subsequent years but when you look at where we're positioned now, and where our funds are positioned relative to where we were then we are obviously just in much better place.

Great. Thanks for taking my questions this afternoon.

Thanks.

Now our next question will come from Chris Harris with Wells Fargo. Please go ahead.

Yes, thanks. So piling on to that last question there. One other things it seems a bit different in this recession is the severe impacts on the small and mid-size businesses. First maybe to larger ones that have perhaps more access to capital. Ares’s core being the middle market that’s creating really good investment opportunities for you but at the same time could present some elevated risks. So how should we be thinking about the risk of being middle market investor and lender in this environment?

Yes. I will give you my two cents and then Kipp or others -- if you want to pile on feel free but we have been trying over the last couple of years to help people understand the value of being senior secured lender at the top of the balance sheet in a controlled position versus the risks have being an equity owner below. So we would agree one of the challenges today is a lot of the money that has found it’s way at least into the healing of the market is going to companies that frankly don’t need it and the small business and consumer probably still liquidity challenge and feeling that the strain. But if you look at our middle market lending books they are predominantly senior secured. They are predominantly in situations where we are the control lender. They are predominantly in situations where there is a large well capitalized institutional equity owner below us and maybe echoing what I just talked about in terms of how we are positioned. The size and quality of the companies that we lending to and our private credit books as just much different than it was 12-years ago. In terms of the institutional quality and franchise nature of those businesses. So as Kipp and the team talked about on ARCC’s call and you can see it in the credit metrics. There is obviously a modest pick up but we had almost 100%. I think there is 100% payment we are close to it in the quarter slight tick up in the non-accruals and I think that’s a function of the quality of the underlying book but also the fact that there we are facing off against institutional equity owners which is in and of itself a risk mitigant So as long as you're going into it liquid and as long as you have the capability to actually own a company to the extent that you need to foreclose on it through the senior loan I actually think there's money to be made and when all of a sudden done this will wind up having been an equity issue more than it is a credit issue at least for a well underwritten book like I think we have.

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

Great hi, thanks for taking the question thanks for all the color as well I wanted to ask you guys around some of the strategic M&A priorities I think Mike both Mike’s actually I think highlighted that in your prepared remarks with respect to flexibility on the balance sheet and obviously there is historically more causative nature of some of the growth initiatives you guys put into place so anything in particular comes to mind either in some of the more dislocated areas for kind of corporate M&A or accelerating some of the initiatives that you've been trying to build whether it's real estate or other things some color there would be helpful thanks.

Sure so we've been pretty explicit on prior calls as to where we are focusing and obviously there were insurance. Asia and real assets and obviously you're seeing us execute well against that strategic framework with SSG the SNBC. tie up and the continued development of these Aspida platform so obviously we will continue to use our balance sheet to advance those initiatives real estate infrastructure and real assets broadly defined continues to be a big focus for us it is becoming a bigger focus as telling you something that you probably know real estate is there's just a significant amount of distress and transformational change happening in the real estate markets as a result of the health and economic crisis and so we would expect through M&A a new product development to be able to actually accelerate the growth of our real estate business organically and in organically coming out of this crisis and so it's always been a priority but I actually think it's probably moved up the list a little bit just given the size of the opportunity set the other thing I would highlight we've talked about this a lot of what we use the balance sheet for is not just strategic M&A but strategic product development and joint ventures and so in a market like this using the balance sheet to acquire assets and teams and then reposition those assets and teams into new business lines is something that we have a lot of experience doing. And we are already having some pretty interesting conversations on some new product development where we can modestly use the balance sheet to launch a new product that sits adjacent to something that we already doing so I would expect that we'll be doing a fair amount of that over the next couple quarters as well.

Great. Thank you much.

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

Hi thanks for taking my question I'm just wondering if you could help us frame the relative strength of the liquidity position of the firm talk about any liquidity needs or perhaps any kind of unfunded commitments in the near term thanks.

Michael you want to take that one

Yes happy to I think we talked about in our prepared remarks. Clearly the balance sheets flush with cash that combined with undrawn access on a revolver 1.4 billion plus of liquidity so feel great about our liquidity position we have no mark to market leverage which I highlighted which is important because there's no exposed flank where we have to worry about funding margin calls or similar types of repayments under. We have no near term debt maturities you probably would have seen we amended each year we usually roll our revolver so our corporate credit facility is now through 2025 so I think from our end from a full balance sheet standpoint where years out from our next bond maturity and have a lot of capital so I think we feel really, really good about that. As far as commitments, we do have GP commitments to our funds, a fairly decent amount of those are held by our employees that invests side-by-side with Ares Management in our funds. We fairly have the settlement of closing of SSG which we have previously disclosed primarily stock and [indiscernible] closed of that transaction with [indiscernible] previously described the amounts. Outside of that, there is other real what I would call contractual liquidity requirements. It’s going to be really more about we have access to a lot of capital for opportunities.

Yes. And just to frame that, Ken, I actually think if you looked it to Mike’s point, the balance sheet light model has actually got lighter over time as the employees are taking up more and more of the GP commitments, but if you aggregated future funding potential in our existing investment book, I think it’s about $400 million, which obviously doesn’t get deployed quickly.

Many years across our funds?

Yes. So if you would try to think about the demands on the balance sheet from the actual book of GP investments, it’s actually quite small.

Great. Very helpful. That’s all I have. Thank you very much and hope everyone stays safe.

Thank you.

And our final question will come from Michael Cyprys with Morgan Stanley. Please go ahead.

Hi, thanks for squeezing me in here. Just a question on the direct lending opportunity set, just hoping you could elaborate a little bit more there in direct lending, which has been largely sponsored finance I think for you guys like 80:20, just how your direct lending funds are adapting against an evolving opportunity set, that’s not seeing as much LBO activity, how much of the deployment would you say is focused on existing portfolio companies versus making newer investments and maybe you could talk about how you are sourcing some of those newer investments?

Sure. So, you are right, new buyout activity is somewhat muted although it is happening. So we are closing new transactions in both Europe and the U.S., particularly in industries that are obviously not affected by COVID. So, there is a segment of the economy that can’t be underwritten around technology and certain segments of the healthcare landscape etcetera. So there is stuff to do there, but it is slower. There is an opportunity as we mentioned, I think we will accelerate to provide capital into our existing books. I thought it was interesting on the ARCC call yesterday, Mitch talked about capital deployment into the existing portfolio it was about 14.7% return against an 8% return on loans that came out of the book. That was a pretty good indicator at the title return opportunity that we are seeing bringing capital into that portfolio and about 50% of the deployment in the quarter I think went to existing borrowers. So, where the direct lending teams are spending most of their time is we are underwriting the existing book using their capital to invest to support those companies, but where they are making investments tightening up documents, de-leveraging through equity infusion below us, increasing spreads, fees and all that. So there is a re-underwriting, but then there is also kind a re-rating of the book which we should see come through in higher returns on the embedded loans. Second thing we are doing is in partnership with the Alternative Credit Group and the opportunities funds is leveraging the combined platform on the rescue lending side and that’s been very, very fruitful. There is opportunity for us to provide liquidity into certain companies that have incremental baskets that allow them to actually bring new capital into companies without reopening docks that’s been pretty fruitful for us. So, it's actually been quite active and then needless to say all of our direct lending funds have the ability to actively invest in the secondary market as well. And as you would expect, there is a very long list of names that we are tracking actively as potential secondary opportunities. We would expect that as this volatility extends that as we have done in the past we will start seeing portfolios and single assets are actually coming – coming back to us as a secondary opportunity as well.

Mike, I will just jump in. It’s Kipp Deveer. I will just say – I think as this extends as the key point we are going to emerge much stronger. I mean, we definitely see competition in that space significantly weakened for the most part. We see a lot of competition that’s having difficulty dealing with outstanding commitments, providing liquidity to existing portfolio of companies and when the concept of the new deal comes forward, it’s kind of a non-starter. We are in exactly the opposite position and then we have deployed in the U.S. and Europe north of $2 billion since March 1 in a lot of the opportunity sets that Mike outlined. So we are very much in business for new deals although there are fewer of them. I mean, there are lot of other things to do in the current environment that are pretty exciting.

Great, thank you.

Ladies and gentlemen, this concludes 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 June 12, 2020 by dialing 877-344-7529 and to international callers by dialing 1-412-317-0088. For all replays, please reference conference number 10140271. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website.