Ladies and gentlemen, thank you for standing by, and welcome to the KKR Q1 2020 Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today to Mr. Craig Larson, Head of Investor Relations for KKR. Thank you. Please go ahead, sir.

Thank you, Operator. Welcome to our first quarter 2020 earnings call. As usual, I'm joined this morning by Scott Nuttall, our Co-President and Co-COO; and by Rob Lewin, our CFO. We'd like to remind everyone that we'll refer to non-GAAP measures on the call which are reconciled to GAAP figures in our press release, which is available on the Investor Center section at kkr.com. The call will contain forward-looking statements, which do not guarantee future events or performance, so please refer to our SEC filings for cautionary factors related to these statements. And like previous quarters, we've also posted a supplementary presentation on our website that we'll be referring to over the course of the call. Before we get into the results, we want to start by recognizing the extremely challenging times that we're all experiencing, and we hope that everyone on the call are safe and healthy. And our thoughts, of course, are with those most affected by COVID-19, particularly those on the front line. As a firm, our priority during the pandemic has been the health and safety of our employees, while at the same time, continuing to provide best-in-class investment services. Like many of you, we've largely been working remotely over the last several weeks. Thanks to the tremendous efforts of our technology and operations teams. It's felt like connectivity across the firm has actually increased. And similarly, the dialogue we've been having across our LP base has also increased as we've looked, if anything, to overcommunicate given volatility. And in terms of helping those in need during the pandemic, we established KKR's global relief fund, and we're also incredibly proud of all that our portfolio companies are doing in support of COVID-19. Now turning to our results. We're going to begin on Page 2 of our…

Thanks a lot, Craig, and hello, everyone. Really glad to be speaking with all of you today and hope that you and your families are safe and healthy. Beginning with the quarter's financial performance. We've reported solid results, especially when you consider how challenged the operating and monetization environment was from mid-February time. Looking at our distributable earnings P&L on Page 3 of the supplement and starting with our operating revenue. Total fees came in at $426 million for the quarter. Of those fees, approximately 75% are management fees, which are up 14% versus last year. Our management fees are largely driven by commitments to our funds, and the invested cost of our assets as opposed to the NAVs of our funds, which is a real financial benefit that our industry affords during periods of market dislocation. Our realized performance income came in at just over $370 million for the quarter, driven by the sale of PURE Group and in South Korea, the sale of KCF Technologies. In total, carry generating exits in Q1 on a blended basis, were done at 3.5x our investment costs. And finally, realized investment income for the quarter totaled $145 million. In aggregate, our revenues grew by 11% this quarter compared to a year ago. Moving to expenses. Compensation and benefits totaled $377 million, while noncompensation expenses totaled $94 million. One thing to note here. Our total compensation ratio, including equity based comp, came in at 40% for the quarter. As you think about your go-forward models, you should continue to expect our total compensation ratio to remain variable and in the low 40% range for the remainder of 2020. And finally, our operating margin came in at 50% for the quarter, with an increase in our after-tax distributable earnings per share of 11%. Looking…

Thank you, Rob. Hello, everybody. Thanks for joining our call today. I hope you and your families are safe and healthy, and that you're doing as well as can be expected during this strange time. The first thing I want to do is acknowledge how much the world has changed since our last call with you. It's pretty remarkable. I'm sure you're all working to process it just like we are. So I thought today, I would spend some time telling you how we are approaching the crisis as a firm and what we think it means for us. Before I do that, let me go back to the global financial crisis because it was formative for our firms. At the time of the GFC, KKR was a smaller, more narrowly focused firm. We had a private equity franchise alongside a young U.S.-centric credit business. Our capital markets business was nascent, and we did not have a balance sheet. As we went through that crisis, we focused first on defense in our portfolio companies. We repositioned companies where we had to, and we were laser-focused on capital structures and debt maturity profiles. We were not forced sellers. And on balance, our teams did a very good job during that period. We also made some good new investments, largely in PE, and we raised our first third-party capital in credit. During this time, we also took advantage of market dislocation and merged our then private asset management business into one of our public permanent capital vehicles, creating KKR as you think of it today. However, we found during and immediately after the GFC, that our businesses and footprint were not relevant to many of the very interesting investment opportunities we were seeing. We became frustrated by that, and that frustration helped…

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

So first, wanted to start with the outlook on fundraising. The path taking a little bit longer makes sense, given, obviously, lots of near term uncertainty. But I wonder if you guys can talk a little bit about how the composition of that fundraising pipeline may change relative to your original expectations. Which products could be smaller, which products could be larger, where you could continue to be pretty active versus the areas that could actually take a little bit longer?

Alex, it's Craig. Why don't I begin with that, and I'll let Scott add on at the end. Just to give you a sense of where we're fundraising currently because it -- the breadth is something that I think you'll see in this. So in Asia, we're fundraising for our private equity strategy, also outside of private equity and real assets. In Europe, that includes fundraising for opportunistic real estate and direct lending. Also fundraising across our dislocation, Americas opportunistic real estate, real estate credit and core plus real estate strategies, and at the same time, that's going to continue areas that you're going to see on a more continuous basis, including our CLO business. We had issued a new CLO actually a few weeks ago as well as areas like our BDCs and the hedge fund partnerships. So I think it's a -- it continues to be a very active list of areas where we're fundraising. Scott, anything you'd add on top of that?

Yes. Thanks for the question, Alex. A couple of things. One, I'd just overall say we remain very optimistic on the go-forward when it comes to fundraising. So in terms of your question about composition, no material change to the composition in terms of where we see ourselves accessing capital. Maybe just a little bit of color for you. There's just been a lot of dialogue and engagement with our clients, easily 2 to 3x the usual. And it's everything from comparing notes on the environment, explaining what we're seeing through our portfolio, especially in Asia, given our large Asia portfolio, where we started to see recovery ahead of the rest of the world. A lot of questions on that. We're talking to them about their portfolios. But basically, every conversation then pivots to offense and where to lean in. I think we have a lot of clients around the world that invested into the recovery post GFC and are looking for ways to play offense. And we hit a couple of these in the prepared remarks, about 40 new LPs since year-end, $10 billion raised in the last 2 months. And in particular, we're seeing high net worth and retail lean in, in addition to institutional capital. So there's no change in expectation for our outcomes. The commentary around it may just take additional few quarters is our best guess. But as the markets continue to recover, we may shorten that over time, but it's highly path dependent, but no change in composition.

Great. Of course. That makes sense. My follow-up question just around the $10 billion number that Rob and Scott, you both just mentioned. So $10 billion over the last 2 months. Can you give us what was in May? And then again, what kind of strategies drove that fundraising over the course of May? And give us maybe a sense on the sort of timing when that actually is going to come in into management fees?

Great. Thanks, Alex. So what we were trying to do with the $10 billion, we'll not guide it quarter-to-quarter in terms of where our fundraising is, but instead to give a good sense to the investor community that we're still raising capital despite the volatility in the markets. And the best example we could give is the $10 billion of closed commitments or commitments that we have in legal documentation that we expect to close, as opposed to trying to parse it, whether that's going to be Q1 or Q2 or Q3 fee paying AUM or AUM.

Our next question comes from Bill Katz from Citigroup.

Okay. I hope everyone is doing okay during this crisis, and thanks for the really well thought out prepared commentary. A couple of hot button topics that seem to be going through the alt space through this earning season is some of the composition of CLOs as well as potential clawback risk just given performance metrics in the quarter. I was wondering if you could address both maybe on the CLOs, how much of your revenues come from base management fees versus maybe subordinated or performance fees? And then how we should we thinking about any clawback risk, if at all, against the carry?

Bill, it's Rob. I'll handle both questions. On our CLOs, I'll just put it into context, we do about $17 million a quarter of management fees across our CLO complex. A little more than $10 million of the $17 million are subordinated management fees are more at risk. Across that $17 million, we see de minimis impact in Q2, where compliance today or at the end of 3/31 with all of our OC tests. Based on what we see today, with downgrades coming through our portfolio as well as where we are in the market, we could see some impact in Q3 and Q4. Right now, we don't think that, that's a material impact. But as that -- as things change over the course of the quarter, we'll make sure to update everybody on our Q2 call. And then on the second part of that question, Bill was around clawbacks. Today, we've got roughly $90 million of clawback exposure through KKR. And that's a few small clawbacks in a number of different funds globally. It's not something that's an irregular part of our business. And what we shoot for is to have our accrued carry, certainly be north of any clawback liabilities in a material way, and that's really how we present our numbers. So the $1.26 billion of accrued carry that we have on our balance sheet is net of the $90 million of claw backed liabilities that we have spread across the firm in a bunch of different and smaller ways. But again, that's pretty normal course for us to have some form of clawback liability in our business. And as of now, it's relatively contained.

Great. And if I could get in my follow-up, even though the first one was a 2 parter. Just Scott, you had mentioned using your capital for both investments as well as potential M&A. I just sort of wonder, was that a generic comment? Or is there an opportunity here to potentially pick up some distressed assets at the strategic level? And if so, excuse me, where might you be thinking?

Thanks for the question, Bill. As you know, we're always looking for opportunities, and we continue to look in this environment may provide some strategic opportunities that we find interesting. We're going to have a really high bar just like we always do. In terms of areas where we may be looking, I would point you to some of the younger areas for us, whether it's real assets, which is a place that we've been building businesses around the world as one potential opportunity. We're also thinking about opportunities on the distribution front. But nothing specific that I would point you to right now, just an observation that when you get in periods like this, sometimes opportunities come our way that we find especially interesting.

And operator, if we could just ask everyone to please limit themselves actually to 1 question, that would just be really helpful as we look to work our way through the queue. And if you have a follow-up, feel free, of course, to then get back in and we can circle back around. We appreciate it.

Our next question comes from Chris Kotowski from Oppenheimer.

Yes. Scott, I thought the color you gave on the investments that you're making, it was really interesting. Just a couple of things around that. One is when you said the $5 billion of credit investments, does that include investments made by your portfolio companies themselves to retire debt at a discount? And I'm curious, is there a lot of that kind of activity or was the window where they were distressed too short? And then secondly, you mentioned you did an investment in U.S. Foods. And I was curious, was that, since it's a publicly traded company, was that equity or debt? And I guess, why would you invest in a publicly traded company in a private equity portfolio?

Thanks for the question, Chris. First, on the $5 billion, no that does not include activity by our portfolio companies themselves in terms of buying their own debt at a discount. There was some of that activity but not extensive activity. So that $5 billion I mentioned was just for the firm's account specifically. In terms of the U.S. Foods investment, that was a convert. So it was a convert in a company we know well.

Our next question comes from Craig Siegenthaler from Crédit Suisse.

I wanted your updated thoughts on FRE stability in 2020 from current levels, just given your previous comments, to Bill's question on CLO subordinated fees and also some other sources of risk, including mark-to-market on NAV based funds, which I think is a small component for you guys, capital markets transaction fees, which are actually already quite low. And I'm forgetting if you include any FRE performance fees, including from like your BDC business Franklin Square, and FRA 2. So maybe just unpack other sources of risk that could maybe develop throughout the year. And of course, that would be offset by shadow AUM deployment and fundraising, too. But just I wanted to unpack those sources of risk there.

Great. Thanks, Craig. It's Rob. And maybe the best way to do this is to take our FRE in component parts. The first and most important are our management fees, as you know, which are roughly 75% of our total fees this quarter. Even with the potential impact of the CLO subordinate fees, it's a fairly minor part of our overall business. And as you said, our NAV based funds is also pretty minor. And so as we look at our management fee component, we think it's both stable and has significant growth in front of it. The best example of that is being up 14% year-over-year this quarter. On top of that, we've also guided that we expect to grow our management fees by greater than 50% over the next 3 and change years. The other 25% of our fees today are made up of a combination of transaction and monitoring fees that I think, over time, are probably biased to go up based on the overall size of KKR and how it grows as well as our capital markets business, which we think is a long-term growth engine for us. And a normalized environment really should be able to take some additional share with the business model we set up and the people that we have. And maybe the last component is the margin piece of it. What we've indicated in the past is that if we're able to achieve the management fee growth trajectory that we think we can do over the next few years, that we would expect to see some margin expansion flow through our business. And so while we haven't guided to a specific FRE number, we do think that when you break out all of the component parts that would suggest 2 things: one, a meaningful amount of stability; and two, some real upside from here.

Our next question comes from Devin Ryan from JMP Securities.

I guess just would love to maybe dig in a little bit more about kind of the investing playbook from here. I heard the comments about kind of moving the distressed team closer to the PE team. And just trying to think about whether you guys are going to be looking at maybe opportunities in areas that you've shied away from because valuations weren't interesting, but now we're getting to some maybe pretty severe distress, and so that could be more attractive? Or is it more kind of focusing on the same, I guess, maybe areas that you have been focused on but just potentially getting a little bit more attractive valuation. Just trying to think about what the stress kind of defined might look like to you guys and just kind of the investment playbook in that.

Devin, thanks for the question. It's Scott. I would say, we're kind of seeing this rolling out in a few different waves, and there's probably 4 big themes as we kind of see how this unfolds from an investment opportunity standpoint. I'd say the first wave was investing in dislocated traded credit and equities, and that we were particularly busy on that front over the last couple of months. And the commentary we gave around the target lists that we had created were very helpful in that regard. So there were a number of companies that we were tracking both credit and equity, where, frankly, the prices were too high, but we had a target price. We've done the work, and we were able to buy on the back of that work when the dislocation first showed up. And some of those opportunities were very short lived, so we were able to move quickly by virtue of that. That was kind of wave one. We continue to see opportunities there. Spreads are still wide, and we continue to deploy capital into that opportunity set. So the second wave we've seen is providing liquidity to companies that are in need. And those tend to take the form of either structured equity or credit, and we've got the firm working very well together across both PE credit, real estate infrastructure where appropriate, basically making sure that all hands are on deck. And when we have companies that we know and like, they are looking for liquidity, we can move quickly. And U.S. Foods is one example of that, but we have several other opportunities like that, that we're working on to the firm right now. The third big theme would be around portfolio companies making acquisitions. We're starting to see opportunities of…

Our next question comes from Patrick Davitt from Autonomous Research.

Thanks for the industry exposure breakout detail there. A lot of the other firms have also been giving us more color around what percentage of the portfolio they view as particularly stressed or exposed to this recession. So if I believe you have 1 high profile, 1 that's been in the press that doesn't fit into the 3 buckets you gave. Could you maybe frame your view of the portfolio from that standpoint, the percent of exposed companies that you maybe have bucketed into a meaningful stress category? And then conversely, perhaps the percent that has been categoried as more okay or maybe even benefiting from this environment?

Sure. Thanks, Patrick. It's Rob, and I'll take that question. So we're not going to disclose how we break companies out into different buckets. But what we could tell you and it's what Scott mentioned on the call, and I'll expand on a little bit more, is we feel really good about our relative portfolio of construction, and it's going to be a combination of our limited exposure in energy, retail, travel, hospitality and leisure through our portfolio. On the upside, I think we've become overweight over the last number of years in online and e-commerce businesses, which have held up quite well over the last couple of months. And then the last point around portfolio construction for us is we obviously have a fair bit of weighting towards Asia as a firm. North of 30% of our private equity portfolio today is exposed to Asia or directly exposed to the Asian market, which has held up on a relative basis, better than the U.S. and Europe. And so overall, we feel good about our portfolio. Scott mentioned on the call, we certainly have our companies that are going to need some additional support through this period of time. But we think the overall construction of our portfolio and the health of our companies is part of the reason why you would have seen our investment performance hold up pretty good in our private equity businesses over the last quarter, and especially, if you look over the last 12 months.

Our next question comes from Glenn Schorr from Evercore.

That's a good lead-in to the question. I want to talk a little bit more about the Asia franchise. I would ask both the short-term and the long term, short term, meaning, besides holding up better, what can you use in terms of those markets being ahead of us and opening up? And what can you learn from that across the franchise, where the opportunities are? And then longer term, is a little tougher because right now, there's a little more China related friction and nationalism everywhere in the world. And I just -- I don't know if that has any implications on your thought process about the Asia franchise because it's such an important part of who you are.

Thanks for the question, Glenn. It's Scott. So I'd say, first, on the short term, it's been hugely helpful having such a broad platform in Asia and such a big portfolio in Asia. Because obviously, we were able to see several of those countries and markets be impacted by the crisis ahead of Europe and the U.S., and we've started to see those -- a lot of those markets now bottom and start to see some improvement. And so just to give you a little bit of color, when the crisis started, we moved to kind of a daily call with the top people in the firm from all around the world, including in Asia. And the Asia team is sharing its insights from what they're seeing with our portfolio and on the ground, very early. And so we've been able to kind of learn from that as we adjust our approach in Europe and the U.S. and on the back of those learnings. And we are seeing slow improvement across a number of our portfolio companies. We started to see it in Asia. Most manufacturing facilities are kind of now operating at 70% to 100% of capacity. We're starting to see that also occur in parts of Europe. And we're actually in some markets, even in the U.S., starting to see a bit of bottoming. Now to be clear, it's not of the -- it's more like an elevator down escalator up type set of charts that we're seeing across the portfolio. But we started to see that happen in Asia over the last few weeks, and now it's showing up in the rest of the world. So it's been very helpful to us as we've navigated all this. In terms of the longer term, we feel great about our Asia franchise and the opportunity we have in front of us. As a reminder, we have 8 of our 22 offices there, two of those are in China, 6 outside. We see a big opportunity to grow our business. As you know from prior discussions, we started in Asia in private equity and have now really been bringing the rest of KKR's businesses to Asia across real estate infrastructure credit, just to name some examples, growth technology, we're also bringing to Asia. And so we continue to see a big opportunity to expand our platform in that part of the world. And regardless of what happens with the China dialogue, we still feel quite good about the opportunity ahead for the firm.

Glenn, one additional point, I'll just -- it's worth mentioning when we're talking about our Asia franchise, that's relevant. We've talked a lot about Japan carve-outs over the last number of quarters and how that's been a real strategy for us there. We actually had our first exit of 1 of our carve-outs that we announced in March, the sale of alpha beta, and that closed in April, around 3x multiple of money for us, and you'll see that flow through our Q2 financials. But that was a nice win for that strategy for us in Japan.

Our next question comes from Mike Carrier from Bank of America.

I just have a question on performance fees and investment income. So your level of carry eligible AUM seemed to dip less in some firms. Your ratio of paying carries above 60%, I mean, likely hire post April rally. I mean you mentioned the $400 million pipeline. So curious on the outlook of performance fees, maybe a bit further out and realize tough to predict. But on one hand, it still seems like a fairly challenging backdrop, depending on the type of coverage but some of these stats make it look a bit better than period. So any additional color you can provide, including the stability of interest income and dividends from the balance sheet?

Sure. I'll cover both of those. Listen, there's a lot about the environment that's difficult to predict right now and carry -- realized carried interest, that would certainly be at the top of that list, I think, for all of us. But as you said, there's some encouraging statistics we have that 60% of our total carry eligible AUM. Today would be in carry paying mode on a liquidation value basis. And our accrued carry still stands at north of $1 billion. I think the most critical thing and what we try and do every quarter is to give you visibility in terms of what we actually do know on our carried interest and our realized balance sheet earnings, which is the $400 million plus million number that I mentioned in the prepared remarks. As it relates to our interest and dividends, those have been elevated over much of the last three quarters for largely the same reason. We have a margin loan against our Pfizer shares and we've used that margin loan -- fairly low LTV margin loan to take a dividend in Q3, Q4 and Q1. And so that represented about 2/3 of our interest and dividends this quarter. And I think the other 1/3 of that is relatively stable, albeit with interest rates now near 0, we'll probably take a little bit of a hit on our cash balance on our interest line item. But the overall line should be reasonably stable going forward.

Our next question comes from Robert Lee from KBW.

Great, and I hope everyone is doing well in this crazy environment. I have a question on the capital markets business. So I guess, thinking about it, it would make sense that at least in the near term, that business would slow, but by the same token to the extent maybe investment activity or opportunities kind of maybe pick up or remain healthy. There's actually some near-term opportunity for that business to be more resilient. So how should we think about kind of the capital markets business over the coming quarters?

So, it's Rob, and I'll take that question. Q1 was an interesting quarter for us, $60 million of revenue, sort of in line with the $50 million to $70 million of baseline revenue that we had suggested in our last call. About half of our business in Q1 was from third-party business. It's pretty meaningful, especially in a quarter where KKR didn't have a lot of deployment across our organization. Listen, we continue to feel that in capital markets environments that are stable, that we should be able in ordinary course to generate $50 million to $70 million a quarter and then have the upside potential from some large transactions that have been a regular occurrence as part of that business, which is exactly why we've averaged in that business over the last few years. As it relates to the near term, I'm not sure we're yet in normalized capital market type environment. And so for Q2, we might be on the lower end of that $50 million to $70 million range, it's certainly too early to say, and there's a lot of the quarter left to go. But we do think that business in market opportunities when capital is scarce is where that business can really shine around some of the larger transactions that continue to come through our pipeline.

Our next question comes from Brian Bedell from Deutsche Bank.

Actually, a good follow-on right to Rob's question. In this environment, maybe you just got it Rob, if you can characterize the deployment capabilities in terms of anything getting delayed with the COVID-19 crisis and how that might sort of -- how you're thinking that might project out for the rest of the year, certainly if we get more contagion in the second wave? And then the -- how you see your -- both your capital markets business and your balance sheet, being used to help get deals done that a lot of other firms can't do to that extent?

Thanks for the question, Brian. It's Scott. I'll take that. In terms of deployment opportunities being delayed, I'd say there's probably a bit of a pause that went on, especially during the first several weeks of the crisis as people were trying to process what was happening. But we've actually started to see our pipelines pick up around the world. Some of it was in the areas that I mentioned in terms of some of the providing capital to companies in need of liquidity, the rescue type opportunities. But we are also seeing some larger scale private markets opportunities begin to reemerge. As an example, our pipeline in Asia is very active right now. So I don't think it's going to have a big impact over the long-term. It's all path dependent, obviously, but we are starting to see pipelines pick up on the back of some improvement maybe in the visibility in terms of timing. So we'll keep you posted on that, but no big long-term change. Just a few things may get bumped into the back half that might have been in the first half. In terms of KCM in the balance sheet, it's a great question. We really view our model is providing us with a real advantage in times like this. And some of the deals that we've been able to get done during periods of dislocation have been because we have been able to use the balance sheet and our capital markets business to access financing, both equity and debt when others couldn't. So we've had several situations over time, including recently, where we're not necessarily the highest bidder, but we were the only bidder that could actually access the capital and have financing certainty. And so we, as in prior periods like this are viewing KCM and the balance sheet is providing us with a real strategic tool to be able to do that again. And so good question and we are focused on making sure that we've got liquidity on the balance sheet and the capital markets team is really well connected with our deal teams to make sure that we can do that well in a time like this.

And Brian, it's Craig. Just one tangential point as it relates to capital markets in this value-add and certainly a strategic value is greater in periods like this. Sometimes people ask that question in the framework of our own portfolio companies. So one thing that I think it is helpful just to understand is how active the capital markets team has been to position us and allow us to be in a position of strength entering this volatility. So when we look across the private equity portfolio in whole, we really have very few near-term maturities. So when we look at the maturities of our portfolio companies and what we see in 2020 and 2021, that represents only about 4% of the quantum of that long-term debt that we have. So I think we've -- given the strength of capital markets, it does help us allow us to be front footed when there is periods of volatility, I think it's also been very helpful in positioning us well as we entered this period.

Our next question comes from Chris Harris from Wells Fargo.

Can you give us an update on where things stand with respect to the ownership of your stock by index and long-only investors? And related to that, what do you anticipate the potential Russell index might do to that number?

Chris, it's Craig. So I think we've seen a nice increase as it relates to not only index buying in that index ownership, but also as it relates to mutual funds who do look at those benchmark indices as they make their investment decisions. And it's really been our experience there that has really influenced our decision as it relates to Russell. So in terms of the -- when we look at ETFs in that passive amount, that's been in the mid-60s, between 60 million and 70 million shares that have been owned by those index providers. And as it relates to Russell, first, there are those ETFs and strategies that are directly linked to those indices like the Russell 1000 and 3000 and I think that math is pretty straightforward. A lot of you have done that math. Again, I think it would suggest to teens, million in the teens as it relates to those more formulaic strategies. And really the second piece that has really most interested us are those mutual funds that are benchmarked against those industries -- indices and our ability to market ourselves through to those institutions and increase our mind share. And as we looked at it, we think that second piece should even be more powerful than the first. And so recognizing that we've spent a fair amount of time, as you'd expect, looking at Russell, they publish a pretty detailed construction and methodology document. And within that, they review a whole series of considerations for public equity, domicile, market cap, float structure, a whole series of items. So of course, we've reviewed that document pretty closely and alongside of that, as we mentioned earlier, have meaningfully engaged directly with FTSE Russell over the last couple of months. So as we stated earlier, while any decision on index inclusion is obviously their decision and not ours, we believe we meet Russell's requirement.

Our last question comes from Michael Cyprys from Morgan Stanley.

Just wanted to ask around LP demand. I certainly heard you on the $10 billion of new commitments coming in the door. But I just hope you could talk a little bit more around how you see LP demand for the private markets evolving in this backdrop. On one hand, you have the denominator effect that drives the allocations higher and lower distributions from the asset class for all these so that means LP have to fund the commitments in the allocations from elsewhere in their portfolio, which could be a challenge, but then you have low rates. And so maybe there's more demand. I just curious how you see these sort of pieces and LPs navigating through these dynamics and the impact it could have on the asset class? Do we see more secondary activity? And is that a part of the marketplace that you'd like to have more presence in?

Thanks, Michael. It's Scott. I'll take those. It's a great question. And it is a bit early, honestly, to be able to give you a definitive answer on it. I think you're right. There's going to be a little -- there's going to be some puts and takes, right? There's going to be questions for some of the institutional investors around the denominator effect and what happens with the rest of their portfolio and their allocations to alternatives. But frankly, we've started to see the public markets rebound. And so I think what were initial questions about that, now there's a little bit of uncertainty as to whether the denominator effect will be a big consideration or not. I think we're just going to have to give that a bit of time to see how that settles out. The last time that happened, what we saw was not a big reduction in allocation to alternatives, but actually an increase in the allocation alternatives so that institutional investors could actually keep investing in the asset class. So we'll see what happens here, but it's pretty path dependent. I think on the flip side of that, you're entirely right. I think even the conversation in the last handful of weeks with CIOs around the world, there is a real recognition that a low rate environment went to a virtually no rate environment, and they need to keep looking for ways to generate returns. And so the dialogue around alternatives continues, which is why those conversations, I think, pivot pretty quickly from defense to offense. And so we take that as encouraging. We think investors around the world are going to continue to look to the private markets for returns as they're expecting less and less out of their traditional fixed income and…

This concludes our Q&A session. At this time, I'd like to turn the call back over to Mr. Craig Larson for closing remarks. Please go ahead.

Thank you, operator, for your help. And thank you, everybody, for joining our call. We look forward to giving you an update next quarter. And for any follow-up items, of course, please feel free to reach out to [indiscernible] or me directly. Thank you once again.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.