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I'm Shanali bask I'm sitting here at the Goldman Sachs Financial Services Conference. Welcome to our Bloomberg television and radio audiences. I'm standing by now with Michael Araghetti, the CEO of Aris Management, and you broke records, record after record, really nothing for record, nothing but records. So how do you even begin to set up for twenty twenty five when it was a record breaking fundraising year for you.
In many ways?
Yeah, well, the year's not over, so hopefully we'll have a good, good push to the end of the year.
This will be a record fundraising year.
But what's nice about the way that our business has evolved and developed Ten fifteen years ago, we and others like us were very dependent on the traditional institutional market for fundraising. If you look at twenty twenty four, about thirty percent of our capital raising is actually coming from that traditional institutional part of the market.
The other two thirds.
Just coming from places like wealth and retail, our publicly traded permanent capital vehicles, our insurance business, our COLO franchise. So there's been a broadening out and deepening of our products set and our fundraising capability, which means that when we're going into a new year, we're doing it from a much higher base, so we're equally as optimistic for what next year.
Holds as well.
Fascinating, what is the look on the other side.
If you're raising all that.
Money, you need to put it somewhere. Are you finding enough investment opportunities? You know, even with the record breaking fund that you just had, did you find a way to put a lot of that to work yet?
Yeah?
It's actually it's the as we grow, we keep investing in our deployment, which is the big driver of our business. If you look at the last couple of years, as our dry powder has grown, so has our deployment, almost one for one. So we need to keep investing in new products, new markets, people, et cetera, which we're doing organically and inorganically. So my expectation is deployment will pick up in twenty twenty five m and a market feels
like it's picking back up. Transaction volumes are accelerating. So we had a really good year, but I think twenty twenty five is setting up to be another big.
What role is em and A going to play?
There's an expectation of this big return, but of course you have a lot of concerns from private acute sponsors still out there. There's also a lot of uncertainty around interest rates, particularly if those Trump tariffs come to play.
I think that is the big question in my mind for twenty five is the trajectory for rates and the impact of tariffs. We have believed and now continue believe that rates will stay higher for longer. That's actually really good for our private credit businesses just because we capture all of that excess return. It's not so good for the M and A market, and so I think twenty twenty five will have to strike that balance. That said, there's a lot of pent up demand to transact, right.
You have people that have largely been sitting on the sidelines for twenty four months plus. The capital that they manage has you know, a timestamp on it. It needs to get invested, It needs to get returned to their investors. So I think it's more important that we have rate stability at this point as opposed to needing to see rates come down dramatically in order to see the transaction values.
But do investors have it totally wrong? You look at the expectations for rate cuts.
You get to as low as.
Three point five percent, and do we get there or do you think that there's actually a risk that rates go higher next year.
I don't know if there's a risk that they go higher. I think that there's a real possibility that they stay high. A lot needs to go right or wrong, depending on which side of the market you're in to see them actually move back up. But I think that there's a real strong case roumit that they will stay higher for longer, and probably higher than the forward curve is predicting. But again, we've lived in a three and a half and four percent based rate environment before, and so it's not as
though the markets can't function well there. The key is how do we transition, And we're already beginning to see the markets transitioning to the new cost of But that's really all you need to see volumes.
Pick up now.
Mike, a week ago, the big elephant in the room, HPS sells to Blackrock, huge, huge deal.
In the industry. What did you make of it? From where you're sitting.
Do you think that it changes the competitive landscape in a significant way?
Yeah, So, first, I'm super happy for all of them. I think it's a great partnership, two great companies coming together. I don't know if it necessarily changes the competitive landscape. Right If I look at we've been in this business for thirty years, and we've seen our competitors get bought before. We've seen Okill get bought by TIRA, we saw an Terry's get bought by CPP, we saw Churchill get bought by Neuvene. Right, that doesn't necessarily change the competitive dynamic.
I think the.
Competitors are the competitors more importantly. From my lens, and maybe it's self serving, I view it as a real validation of the competitive advantages that you create through scale in private credit. Right, So when a company as well positioned as black Rock chooses to buy HPS for thirty times, it's really for me a validation of the private credit investment thesis. And so, viewed through that lens, I think it's a great thing.
What does this make of consolidation across the industry? You yourself have been a significant consolidator, but you have looked really outside that traditional private credit business of late. You went into real estate in a much bigger way.
For example.
Does that mean that the direct lending businesses as we know it is kind of at its peak and you need to look elsewhere to consolidate in order for the real growth in private market.
So from the areas perspective, I don't think so.
We are capturing a growing share of a growing market in the core corporate lending business, but we're also seeing the opening up of new markets real estate lending, asset based lending, infrastructure lending. We're globalizing the business, so we have a significant runway in Europe and Asia. So even if people believe that there's a maturation in the core US direct lending business, that's really just a small fraction of the investable market and we've already set ourselves up
to grow in other parts of the world. I do think though, that consolidation in asset management will continue. We have learned over the last ten or twenty years.
Size matters in this business.
You need to be able to invest in growth, origination, portfolio management, technology, fundraising, and that's a sizable investment, and.
So the big will get bigger.
They'll do it organically, but they'll also fill in gaps in their products, set in capability by making.
Acquisitions as well well.
Speaking of those other capabilities, you're talking about real estate for a moment here. I mean, what is the biggest opportunity, particularly when people are looking around some of the parts of the industry and still seeing some pain, either pain on the office side or maybe you could argue over exuberance on the AI data center side in some ways, how do you feel about the opportunity?
Real estate is always talked about as a hyper local market, we would agree, and it matters not just what market you're in, but what street in what street corner you're on. And so I think in order to be great at real estate, you have to be broad in your footprint and broad in your capability. You're right, there's distressed opportunity or transitional opportunities in office, there's growing opportunities in data centers.
We're making significant investments in industrial real estate to take advantage of what we perceive to be a realignment of global supply chain. So there's a lot of different ways to play real estate. I will say, though, the things that drive value in real estate going forward are going to be rates again, whether.
They come down fast or not.
Stability and rates is a positive for real estate growth, economic growth, and.
We're continuing to see strengthen the.
US economy that will drive transaction volumes and then supply.
And I think one of the things that people don't.
Fully appreciate is because of the headwinds that the real estate market has had over the last couple of years, the market is fundamentally undersupplied.
Which does two things.
It supports the value of the existing assets of people, and it's going to create demand for new development and new capital coming into the market.
So you've got to pick your spots.
But I think generally when you view it through the lens of rates and supply, there's a tail when going into twenty twenty five.
Five rates are staying higher for longer. Then you also set a potential distressed opportunity in real estate. How big is that distressed opportunity and would you play in it? Would you want to.
Invest in it? Yeah?
We cover the waterfront in terms of our real estate positioning. Multifamily and industrial have been our two largest exposures, but we also play to an increasing extent in data centers, student housing, self storage, so other growth markets. We have largely avoided office in the primary market. We have large pools of capital that are geared to invest in opportunistic real estate equity and opportunistic.
Real estate debt.
So what we've learned in past cycles is the way that distress plays out is sometimes it's a secondary market.
Opportunity where you're buying good assets at good basis.
Sometimes it's just to shift in the competitive dynamic in the primary market.
So you have to be prepared for both.
Right, if banks who are over exposed to commercial real estate office don't sell those assets, that probably means they're going to be less competitive in the primary market. So you have to be prepared for either outcome.
Mike, we're running out of time. We have to leave it there. Of course, a big setup for twenty twenty five. That is Mike Arrogetty of Areas Management