Good day, and thank you for standing by. Welcome to The Carlyle Group Second Quarter Earnings Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Daniel Harris, Head of Investor Relations. Please go ahead.

Thank you, Liz. Good morning, and welcome to Carlyle's Second Quarter 2022 Earnings Call. With me on the call this morning is our Chief Executive Officer, Kewsong Lee; and our Chief Financial Officer, Curt Buser. Earlier this morning, we issued a press release and detailed earnings presentation, both of which are available on our Investor Relations website at ir.carlyle.com. This call is being webcast, and a replay will be available on our website. We will refer to certain non-GAAP financial measures during today's call. These measures should not be considered an isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. We have provided reconciliations of these measures to GAAP in our earnings presentation to the extent reasonably available. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our most recent annual report on Form 10-K that could cause actual results to differ materially from those indicated. Carlyle assumes no obligation to update any forward-looking statements at any time. Turning to our results. For the second quarter, we generated $236 million in fee-related earnings and $529 million in distributable earnings, with DE per common share of $1.17. We produced net realized performance revenues of $271 million, and our accrued carry balance remains at $4.3 billion. We declared a quarterly dividend of $0.325 per common share. [Operator Instructions]. And with that, let me turn the call over to our Chief Executive Officer, Kewsong Lee.

Thanks, Dan. Hello, everyone, and thank you for joining us today. Carlyle once again delivered strong results for the second quarter. We continue to drive growth and diversify the earnings power of our business. And importantly, our investment performance remained strong amidst the volatility and uncertainty in markets around the world. All of this is a result of clear strategic priorities and the hard work of our teams globally. We're in a much different environment as inflation, rising interest rates and uncertainty affect the real economy and financial markets. At Carlyle, we have been preparing for this complex and challenging environment, which is likely to continue in the near term. We are focused on continuously assessing risk, recalibrating valuations and capturing opportunities as we move forward. The strength of our diversified platform, well-constructed portfolios and over $80 billion of dry powder positions us well as we have deliberately built Carlyle into a more resilient firm that is set up to adapt and manage through all types of market conditions. We are a different firm today and better positioned than ever before as we drive forward from a position of strength. Given the environment, we know that questions about our portfolio are top of mind, so allow me to address this topic before we get into the point we'd like to discuss today. Thus far, portfolios across the firm continued to perform exceptionally well. Our focus on investment excellence and the diversification of our platform are supporting the firm's relative outperformance, with Carlyle's aggregate carry fund portfolio appreciating 3% in the second quarter, while various public benchmarks were down 10% to 20%. I'll provide some perspective, and Curt will drill into more specifics. Our global private equity portfolio appreciated 2%, driven by strength in infrastructure and natural resources and real estate…

Thank you, Kew, and good morning, everyone. As Kew highlighted, we delivered strong results this quarter, driven by the solid relative performance of our funds, increasing diversity of our earning streams and the significant impact from our recently closed strategic transactions. I want to focus my remarks on 3 areas: first, fee-related earnings and overall distributable earnings have had a strong start to the year, highlighting an increasingly diverse business mix and better balance between FRE and performance income; second, our global investment platform performed well, and we continue to have a record level of net accrued performance revenues; and third, our global credit business took a major step forward in assets under management and earnings power, and we continue to see opportunities for further growth and performance. Let's begin by discussing the strength of our second quarter results and more broadly, the first half of 2022 by highlighting a few important metrics. First, fee-related earnings were a record $236 million in the second quarter, up 60% year-over-year with substantial growth in Global Credit and global private equity. Our fee-related earnings margin reached a record 40% in the second quarter and 38% in the first half, up from 33% in full year 2021. Distributable earnings of $529 million increased more than 34% from last year, and our earnings stream reflects an improving mix with fee-related earnings contributing 50% of distributable earnings in the first half of this year. Digging into second quarter FRE, total fee revenue of $594 million increased 40% year-over-year, supported by strong organic and inorganic management fee growth as well as higher transaction fees and fee-related performance revenue. Management fees comprised almost 90% of total fee revenue for the first half and increased 24% compared to the first half of 2021. Included in our results this quarter…

[Operator Instructions]. Our first question comes from Alexander Blostein with Goldman Sachs.

Kew, maybe I was hoping to start with digging a little bit more into performance trends you're seeing, particularly within Corporate Private Equity within Carlyle. Obviously, a very impressive mark this quarter in light of macro conditions and I appreciate the portfolio selection comment. But I guess even good companies are facing higher costs and slower economic conditions and obviously, lower multiples for the public market. So just curious how you're thinking about the offsets to these factors that drove positive performance within private equity for you guys this quarter? And as you think about the exit environment and the ability to actually monetize some of these gains, how are you thinking about that for the next couple of quarters?

Sure, Alex. Thanks for the question. Look, it's clearly a complex market, but we're really focused on controlling what we can control, namely our investing in how we manage our portfolios. But I think the right way and the best way to answer your question, as I said in my opening remarks, we're more diversified than ever. And let me spend a few minutes walking through our various businesses and why I think we're so well positioned with respect to our portfolios and portfolio quality, which your question implies. So first of all, in Corporate Private Equity, it's important to understand we've got a world-class dominant business at scale. But what's really important to appreciate is that for the several years now, Alex, we've been running slower growth in our investment cases. And importantly, virtually all of our investment base cases contemplated contraction of exit multiples. So that's what I mean when I say we've been preparing for these types of environments. Now we've always been focused on investing in great companies with a view to create growth and fundamental operating improvements to drive our returns. So when you put all this together, we've got great constructed portfolios across all of our CPE strategies, and they're diversified across sectors, regions, themes and vintages. And it's really why we've been able to avoid the hardest hit sectors, we've avoided the high-flying companies that don't generate any profitability. And so when you take a look at that portfolio that you referred to, -- it's -- our Corporate Private Equity portfolio, at the top line, has been growing at about 14% this year. They've been maintaining their operating margins given all of the operating improvements that I just referred to. And so the value creation is really coming from growth and operating improvements, which has offset the contraction in the valuation multiples that we've seen in the markets. And with respect to the exit part of your question, look, you can't have good exits if you don't have good companies. Great exit starts with great investing. We pride ourselves on being a great investment firm with a great investment ethos. And so when you pick good companies, partner with them to create value in a fundamental way, it sets you up for the exits and it's just a matter of how you decide to exit given what the market and the conditions afford you. So look, taking a step back, we're at scale. We're very well diversified in Corporate Private Equity. We've got superior portfolio construction. Thus far, it's performed relatively well because of the operating performance and the fundamental nature of our value creation. And who knows what the future has in store for everyone moving forward, but I like the way we are positioned as we're heading into this current environment.

Our next question comes from Craig Siegenthaler with Bank of America.

Hope everyone is doing well. So we were looking to get an update on fundraising. So how crowded does the current backdrop feel to you, especially in private equity and especially with U.S. pension plans feeling the dominator effect? And then how much of this is offset by new strength from sovereign wealth funds given their stronger cash flows from higher energy prices?

Craig, I'm going to start and just kind of level set a little bit, and then Kew will add some color. So let's just kind of recall where we were. 2021 was a great year for us. We raised $51 billion. 2/3 of that came in credit, real estate, our solutions business, infrastructure, renewables, so really diverse in terms of our capital raise. And this year is kind of the same. We expect to have 20 or more strategies in the market this year, again, emphasizing the diversity of the platform. And we're off to a good start, $19 billion raised in the first half, $10 billion in this quarter. And what we're seeing from LPs is they're continuing to entrust us with an increasing amount of capital, which is really important in the current environment. Kew?

Thanks, Curt. Look, no doubt the fundraising market is challenging right now, and this could persist for a bit as LPs adjust to market dynamics. And it's most challenging in the corporate private equity segment of the market. But I want to refer you to something that Curt just said. We've got 20 or more strategies in the market. And it's important -- and let me refer you to my opening remarks about the diversity of our platform and the benefits of that. Over half of our fundraising now is coming from Global Credit, infrastructure, renewables and solutions, where we're continuing to see strong and healthy demand. And I want to broaden the conversation to that of capital formation. And you just heard us talk about it. Just this quarter, we added $50 billion in perpetual capital from Fortitude. And so I think the point being that there are multiple ways we raise capital to drive the growth of Carlyle. We are now at about $260 billion of FE AUM, which is a record. And while there are some challenges in the private equity markets, which we expect to continue for a bit, the breadth and the diversity of our platform gives us a lot of fundraising opportunities, especially when you broaden the lens to think about a capital formation across all of our strategies.

Our next question comes from Chris Kotowski with Oppenheimer.

I wanted to get a bit more color on what Curt said about fees in private equity coming down in the second half versus first half or second quarter. Is that a function of just a lower catch-up fees or is that the function of realizations coming from funds? Or what's driving that?

Chris, thanks for the question. So to be specific, what I called out was fee-related performance revenues. So really talking about in Global Private Equity and CPE in particular, I should say, real estate, in particular, is our core+ real estate fund. This has nothing to do with performance. I mean the fund has done really well, continues to do really well, both in terms of size, attractiveness, et cetera. And -- but what we see just based on how it's constructed, that -- it essentially generates incentive fees based upon capital when it was deployed. So 3 years ago, in the second half of the year, 3 years ago, lower amounts of deployment then. And so the incentive fees crystallized off of that are going to be a little bit lower we expect here in the second half. And so I wanted to call that out for everybody. But I think that all solves itself over time. And I would point you to a tiny footnote that's like back on Page 25 of our earnings release, that shows that there's $64 million of net accrued incentive fees related to this strategy. And interestingly, that's about the same number last quarter, even though we had about $12 million or so net of compensation realized here in the current quarter. So it's essentially flat and strong. And so we've got good visibility in terms of how that particular product will perform going forward. With respect to catch-up management fees, yes, they'll dip here probably in the third quarter. Hard to predict exactly kind of how it plays out over the balance of the year, more broadly outside of the GP segment. We do have some transaction fees that were good in this quarter. And though it's hard to predict exactly when they'll come in, but I feel good about our $850 million of FRE for the full year. And that, I think, is the key that you really want to focus on.

Okay. So it's not the base management fees, it's not the catch-up fees? And just as a reminder, how long do you have to raise?

The catch-up management fees do impact. There's $19 million of catch-up management fees, and that will -- based on fundraising, that will play out. But in order to be able to say the $850 million, I'm confident in our growth in core management fees, and management fees make up 90% of our fee revenues. And they're performing really well and incredibly sticky.

Our next question comes from Robert Lee with KBW.

Maybe the first one, just on Fortitude read I think to you called out that have there's about $4 billion of available capital. Could you kind of -- well, maybe 2 things there. Number one, what would that translate into an asset? Should we assume something like 10:1 leverage to that potentially? And then what's the current environment, how is that altering or impacting the reinsurance opportunity with Fortitude to be in the marketplace and maybe there's different businesses that present more opportunities than others? So any color there would be very helpful.

Robert, thanks for the question. Why don't we do this? Curt, why don't you tackle the first part of the question, then I'll try to tackle the second one.

Yes. So Rob, I think you got it right. You picked up on really an important metric. They've got nearly $4 billion of excess capital that Fortitude's going to use to continue to grow its business. And if it does that, you're right, that translates into 10x to 15x from a size standpoint. So as we've previously said, I think Fortitude is in great position to double its business over the next handful of years. So I'd say somewhere over the next 5 years, they're well positioned without really doing a whole lot else to double the business.

Yes. And Robert, let me just add on to that. So first, Fortitude is performing very well. And we are exceptionally happy with how that platform is developed. It's got double-digit ROE at the moment. Reserves are in great shape. And as Curt mentioned and you rightly pointed out, it's got about $4 billion excess capital, which is incredible capital base to support future growth. As you know, as Fortitude grows, because of our aligned strategic advisory's arrangement, as Fortitude grows, Carlyle benefits through our investment platform. With respect to the areas and sources of future growth, the current environment of volatility and higher rates, actually leads us to believe there's going to be more deal activity. Because what that volatility does is it puts pressure on insurance companies to manage their capital more effectively. And as a result, they are going to be much more inclined to want to divest and to sell legacy liabilities, portfolios that are capital consumptive or enter into reinsurance transactions with folks like Fortitude. So at the moment, our pipeline is very busy, very robust. You've seen us announce deals with Prudential, with T&D in Japan. And there are lots of other areas for us to continue to grow via reinsurance, but also scaling up via acquisition. These types of things are not predictable month-to-month or quarter-to-quarter, but as I look out over the next several years, this excess capital and the momentum that Fortitude has leads me to believe you're going to see real scalable growth coming out of Fortitude in the years to come.

Great. And maybe as a quick follow-up, Curt, I think you guys have guided to $850 million of FRE for this year. Can you maybe just update us on your thoughts around that, your comfort level that's still a reasonable goal?

Yes. I mean Kew confirmed that in his prepared remarks, and we feel very comfortable with the $850 million. And again, the business is performing well. And so I think that's a good target and a good expectation for us.

Our next question comes from Ken Worthington with JPMorgan.

Kew, a couple of questions on inorganic growth. Has the environment for inorganic growth changed given market conditions? And then maybe there had been a gap between public and private market valuations, for alternative asset managers presenting a nice arbitrage opportunity for public market buyers and that arbitrage, I think, narrowed. Have private market valuations come down with public market alternative asset manager valuations? And ultimately, what is your outlook here today for the second half of 2022 into '23 for executing the inorganic part of your growth strategy?

Great. Let me take the first part of that question, which is the -- and then maybe Curt can jump in and give some color as well on your fulsome question. With respect to inorganic growth, let me take a step back. Corporate development done very strategically and thoughtfully is absolutely one very important element as we continue to diversify our platform. You've seen us do this, and it has been done to great success thus far. However, we're going to be very disciplined about it. There is no quota or budget or timetable that we're on. We're going to be very measured and deliberate. And this type of environment may create opportunities, and we are very carefully seeing what the environment has to bring, but also doing it from a perspective of where do we want to build out in our platform. And I've told you the areas that most likely would represent areas for continued growth would most likely be in our credit and our solutions and our infrastructure platform. But the bigger theme though that needs to be appreciated is the criteria that we're looking for are strategic adjacencies, FRE intensive, ideally more perpetual capital-oriented, highly scalable, big markets, big strategies, where things can move the needle over time for us. So these are the types of criteria we're looking forward to the extent that something fits that bill. Yes, we would be willing to move forward. But like I said, no quota time pressure or anything imminent that I want to talk about. Curt?

Yes. Thanks. And Ken, thanks for the thoughtful question. From a valuation perspective, we're talking here about alts and possible opportunities from us from an acquisition standpoint, continuing to build inorganically. And similar to what we see kind of in our own portfolio, it really comes down to the quality of the asset that you're looking at and really good quality assets, those valuation demands are still really high. And those things that are lacking in attributes obviously get a lower value and are under more pressure now. And so if you think about it in terms of what we're looking at, we like things that have lots of FRE and with great margins. We like things that have a great growth trajectory. We like to see can they execute this on their own? Or are they deficient in their ability to execute? Are they scaled and what's their infrastructure and technology, et cetera? How does that kind of look? Or are they missing? And if they're missing in those things, they get a lower -- their ability to ask for an amount is lower than if they can execute on all these things. So look, we'll often kind of look at things that only possess some of the attributes. And then the question is, can we supplement it and get an arbitrage advantage on that kind of as you pointed out, in our own analysis? So look, it's the whole scale. I mean -- but it's a continuous discovery process between buyer and seller.

Our next question comes from Michael Cyprys with Morgan Stanley.

I just wanted to come back to some of your early commentary on the call here, maybe just for some on the fundraising commentary just around a more challenging backdrop for raising in private equity. Just curious how you see that potentially impacting Carlyle's own outlook for raising and Corporate Private Equity just in terms of magnitude and timing? Does it have an impact there at all? And then to your comments on the strong portfolio appreciation in the quarter, but just given the tougher macro backdrop here, just curious how you see that impacting the realization outlook into the second half of the year as compared to the $390 million that you generated in net realizations in the first half?

Mike, it's Kew. Why don't we try this? Curt, do you want to take the first part, and I'll take the second?

Sure. So Michael, on fundraising, again, there's good momentum as we start this year. For all the things I've already said $19 billion raised, 20 different strategies and having very good success on a multitude of fronts. You're absolutely right that the world has changed, in particular around some of the traditional private equity strategies. And that's fundamentally going to result in some of those raises taking longer in general and maybe not raising the same amounts as they would have otherwise in a different environment. All of that said, I still like our play. I still like what we're doing, and I still like our momentum.

Yes. And with respect to your second question on exits, look, I mean the general M&A environment today, the state of the equity capital markets, one -- it would lead one to think that realizations would drop down significantly. But you got to keep in mind how big our portfolio is, how broad it is, how diversified it is. And we've had $4.3 billion of accrued carry in place for several quarters now. And there are lots of transactions that were signed up several quarters ago, 3 quarters ago, that continued to close as we play out the rest of this year. So number one, that gives us a lot of line of sight, which is why Curt, in his comments, was fairly comfortable that year-to-year, it will be about $1 billion worth of net realized performance fees give or take for market conditions and timing and the vague reason and then whatnot. But the size and breadth of our portfolio gives us that comfort to say that. I'd also state -- and just I want to reaffirm what I said earlier to Alex's question. We have great portfolios that have been constructed and our investment approach is always to pick out what we believe are great companies with real differentiated plans for value creation driven by fundamental -- in fundamental ways, growth and operating improvements. I just want to point out, 80% of the IRRs in Carlyle's Corporate Private Equity portfolio, historically, are driven by growth and operating improvements, not by leverage and multiple expansion. This gives you a sense for the nature of our value creation. Because of the way we do things in our investment ethos, we feel very good about the quality of the companies that we have in portfolio, which, of course, then leads to good exit outcomes. Thus far this year, despite the challenging markets -- and the market and the valuation multiple contraction that you've referred to, the sales of our private assets have been at very good prices, which reflects the nature of these companies and the quality of these assets. So we feel pretty good about the construction of our portfolio. The realizations to date indicate good breadth and good quality and good portfolio construction. And longer term, if we can keep this up, I think we are pretty confident in what Curt said, which is about $1 billion a year in terms of net realized performance fees coming out of our very substantial $4.3 billion of accrued carry.

And just to add on to that, Mike. I mean, you heard the confidence in what Kew was saying about the portfolio. And we've been seeing a lot of activity, a lot of discussions, so good exits here in the quarter. We've got a good pipeline of exits. And sitting here today, my bet is the second half is actually stronger than the first half. Not to the same level it was last year, of course, but I think the second half from a carrier production perspective, and I don't have a perfect crystal ball, but I think the second half will be better than the first half.

Great. That's super helpful. So I'm hearing a lot of confidence in the pipeline, the portfolio, the receivable. I guess would you be surprised if you hit the $1 billion this year on the net carry -- realized carry?

Look, I mean, the portfolio is incredibly well set up. I told you kind of that -- I think the second half is going to be better than the first half. So -- can we do really well? Sure. Can we miss it a little? That's always possible. So it's hard to give you an exact number.

Our next question comes from Glenn Schorr with Evercore ISI.

So just came out, obviously, but we've been talking about this for a year. So a quick question on management consumer seems like they struck a clean energy deal, and part of the pay for is carried interest. I'm sure I'm not alone when I got a ton of questions already this morning. I know we've talked about in the past, I think it would be good for people to hear from you. Two-parter, a, what does it mean for your portfolios? And then most importantly, for your stocks right now, what does it mean, if anything, for the shareholder? Like who's issuing is it assuming higher carrier interest taxes goes through?

Glenn, thanks for the question. Look, I mean, this news kind of just came out last night. There's a long way still to go on it. All of the details aren't yet. Our teams are on it, looking at it and researching it just like you would expect, but it's really premature for us to comment on it. And look, generally, in terms of how our people -- our tax, we got people all over the world, subject to all kinds of different tax rates, that's not kind of changes in local taxation doesn't affect kind of our corporate play. And we're already at a full C-corp with a fully loaded corporate tax provision.

Maybe I want to -- I know it's a came out, but I know we've also talked about it for years. I think that shareholders want to know one thing. No matter what the rules are, is the public shareholder on the hook for a higher carried interest cost? Or is that the employee getting paid and carried? That's what I'm getting over.

Yes. I mean, we're already -- our carry is already fully taxed on the corporate side. So it weren't -- capital gains rates aren't -- it's not kind of -- we're paying essentially a fully loaded ordinary income tax rate on our carry.

I appreciate that. That's the point I wanted to get across. Last quickie is you see these hung deals, some of us cover all the big banks, too. And forget that they took marks as music stopped. They're still holding on to a lot of inventory. There's a lot of leverage loans hung out there. It coincides with the wider bid asks. I'm just curious just what does that mean to you? Is that fully incorporated in your comments so far on the deployment and monetization? Is there any other circumstances that, that leads to good or bad things for you?

Glenn, it's Kew. I'll handle that question. I think it's important to take a step back and put the current situation in perspective and compare that to maybe what we're all remembering with what happened right after the great financial crisis set in. And right now, I think my best guess is there's probably $80 billion of hung loans or backlog today in the system. But that compares to, if you go back a bit, $325 billion, which is the comparable number back at the time of the great financial crisis. But I think what's really important to appreciate is that the entire leveraged finance market is 3 to 4x bigger. So not only is the absolute amount much smaller, but the total market is much bigger. And on top of that, my view is that our banks and our partners at all of our banks, If they're well capitalized, they're well run. So yes, there is a backlog today that they're trying to move off their books. I have no doubt that's going to happen in time. It is a much smaller issue and headache now than it was at the GFC. And it's just a matter of time before this clears out, and hopefully, activity resumes.

Our next question comes from Rufus Hone with Bank of Montreal.

I was hoping you could provide an update on the solutions business. And how do you see activity there developing in the coming quarters? And whether the dislocation you're seeing in the markets translates into potential upside for that business? And can you also update us on potential fundraising opportunities in solutions and the pipeline for new products?

Rufus, let me start, and maybe Kew will add in. So look, the solutions business, we remain optimistic and bullish there. Lots of good things happening. As I said, probably last quarter, there's a couple of things to keep in mind. It is still a little bit of a stair-step business. So as it's -- cycles of funds come back to market, it grows a little bit more in stair-step. Second, that business has made real progress in terms of improving its performance and margin. It got hurt a little bit this quarter in terms of FX. It's one of the places where we're probably a little bit more exposed to FX because most of that business -- a lot of it is denominated in euros and the like. And so as the dollar strengthens, it's hurt us a little bit on some of that. But overall trajectory is good. There's also a white space there that they're taking advantage of and the potential to add new products that they're very much focused on. And so looking forward to some of that, that will take some time to really play out. But it gives me a lot of confidence in long-term growth. And I think that's where this business can go. And then last, I'll simply say that the secondary market -- I mean now it's a great time for it. And so they're continuing to take advantage of that and play well. They're a very well-known player. AlpInvest has done a great job. Their knowledge of data and of the market is fabulous. Their performance here in the quarter aided a little bit -- I hear it helps us. It aided a little bit by FX, but still remains very strong and their knowledge of what's happening is very good. So we're well set up there, especially for the long term.

Yes. I don't have much to add, Curt, other than if you string together a few of these questions, the volatility, the denominator effect that somebody mentioned on a previous question, all of this leads our LPs to want to optimize, reconstruct and tailor their very large alternatives portfolios and that need, that necessity for the LPs to do that really runs right into the sweet spot of what AlpInvest is designed to help our LPs do. So whether it's secondaries, whether it's single asset strategies, whether it's co-investment strategies, AlpInvest is very well positioned as a market leader to take advantage of this more broad secular trend that all this volatility, all of the multiple contractions and the swings you're seeing, our LPs need to optimize and tinker with their portfolio at large levels. And that, I think, is going to continue for several years to the benefit of our AlpInvest platform.

We have a follow-up question from the line of Alexander Blostein.

I wanted to go back to the FRE dynamics you described for this year, and it's really nice to hear, obviously, the reaffirmation of the $850 million of FRE for 2022. But as you think about Carlyle's growth algorithm for FRE beyond this year, obviously, you're going to get the benefit from annualization from some of the deals and kind of the big flagship fundraising. So that will help. But curious how you would think about growth and FRE besides these tailwinds for 2023? I understand it's kind of early. I don't expect you guys to have full guidance out. But just as a framework of how to think about beyond some of these annualization dynamics?

Alex, I'll start and Kew may add in here. So look, we've done really well in terms of growing the business, especially over the last several years. We've taken FRE and if you think about over the last 5 years, we've more than tripled fee-related earnings. If you do the math, and that's about a 30% CAGR over that time period. At the 8 50, we'll end the year up about 40% over last year. Big market picture. If markets -- everything we're reading and what we've experienced, I would say that the private markets will go from about a $10 trillion size to about double that over 4 or 5 years, which would imply about a 15% CAGR. If that all happens, we'll be right there with it. I mean our brand, our diversity, our strength of performance really sets us up to really benefit from all of those tailwinds. And I think that we can do better, especially as we use our balance sheet and grow new products. There's more things that we can do. But to be determined in terms of kind of how all those things shape up over time, and we'll see how it plays. But I like where we've been and what we've been able to do, and we remain focused on growing the business.

Yes, Alex, let me give you a few thoughts, and it ties into the fact that we have deliberately diversified our platform to create meaningful platforms that can continue to scale growth and give us many avenues to drive growth and earnings over time. So just taking a step back, I just want to remind you, obviously, we have a world-class dominant Corporate Private Equity business. It's global in scale. It cuts across all industries. And I've got no doubt that business will continue to motor along. In addition to that, we've now supplemented it by organically and with some inorganic help, we've built a great credit business. It's now the fastest-growing part of our business. It is a more scalable asset class than private equity. And even within credit, we see white space in areas like infrastructure credit, real estate credit to continue growing. And just want to remind you, we've had great success in our opportunistic strategy, which we started from scratch. And our aviation platform has more than doubled since we bought it. So credit is a great platform that we believe still has real secular tailwinds, especially, as I've noticed, our LPs continue to allocate away from traditional public fixed income into private credit and especially since we continue to see inroads of private credit solutions from that of the banking system. The third major business we have set up is now our infrastructure and renewables business, which I believe will really benefit from the secular tailwinds of energy transition, but also the significant investment dollars that around the world that have to go to improving infrastructure, whether it's digital infrastructure, hard infrastructure, countries are going to have to be rebuilt. You are talking about significant amounts of capital that's going to be required in infrastructure…

We have a follow-up question from the line of Craig Siegenthaler.

I'm assuming this is not an issue just given your commentary on the resilient credit quality in your Global Credit business. But I'm curious in terms of how your CLO managed fee deferrals work? And can you help us frame the risk that you might have a decline in management fees if we enter a severe U.S. economic recession?

Craig, thanks for the question. Look, we're now the largest player in the CLO space, and that gives us a lot of opportunity and strength. The portfolio is exceptionally well positioned. And the team has been incredibly active in terms of how to position the portfolio for these challenging times. So they traded about $9 billion and that was all buys and sells across the platform here in the second quarter. And with the goal of reducing exposure to industries that had higher commodity costs or little pricing power. So it was all about making sure that we really kind of positioned it well for some potential rough waters. As a result, the risk metrics look really good. Our exposures on CCCs are below industry averages in the index. The quality of the portfolios and all of the basic indexes have scored well and are rating really well from a quality perspective. Our defaults continue to be below market averages. Look, we expect some kind of increase in that. But the underlying cushion in the overcollateralization test is strong. So we feel like really well positioned. And as long as that remains so, which we currently expect it to be, there's not really the risk in terms of any of the sub fees shutting off. The portfolio is well positioned and hence the confidence you've heard in our tone.

That concludes today's question-and-answer session. I'd like to turn the call back now for closing remarks.

Yes. Thank you, everyone, for listening on what I know is a very busy day. If you have any other follow-up questions, feel free to reach out to Investor Relations. Otherwise, we look forward to talking with you again in the fall. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.