Ares Management Corp (ARES) 2015 Q1 法說會逐字稿

Welcome to Ares Management, LP's first-quarter earnings conference call.

(Operator Instructions)

As a reminder this conference call is being recorded on Tuesday, May 12, 2015. I would now like to turn the call over to Carl Drake, Head of Ares Management, Public Investor Relations.

Good afternoon and thank you for joining us today for our first-quarter earnings conference call. I am joined today by Michael Arougheti, our President, and Michael McFerran, our Chief Financial Officer. In addition, Greg Margolies, our Head of Tradable Credit, and Bennett Rosenthal, our Co-Head of Private Equity will also be on the call today and available for questions.

Before we begin I want to remind you that comments made during the course of this conference call and webcast contain forward-looking statements that are subject to risks and uncertainties. Our actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. We assume no obligation to update any such forward-looking statements.

Please also note that past performance is not a guarantee of future results. Moreover, investors should note that the investment performance of our funds, as well as an investment in our funds, is discrete from an investment in Ares Management, LP.

During this conference call we will refer to certain non-GAAP financial measures. We use these as measures of operating performance not as measures of liquidity. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with Generally Accepted Accounting Principles. These measures may not be comparable to similarly titled measures used by other companies. In addition, please note that our management fees include ARCC Part 1 fees.

Please refer to our earnings release and Form 10-Q for definitions and reconciliations of these measures to the most directly comparable GAAP measures. I would like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Ares fund. We've also posted a new first-quarter earnings presentation under the investor resources section of our website at Aresmgmt.com, which can be used as a resource for today's call.

To give a quick recap of our first-quarter results, we generated $0.35 per unit in after-tax economic net income and $0.26 per common unit and distributable earnings, up 18% over the prior-year period. We also declared a first-quarter distribution per common unit of $0.25, our highest quarterly distribution as a public company.

I will now turn the call over to Michael Arougheti, Ares' Co-founder and President.

Great. Thanks, Carl. And good afternoon, everyone. I am more than pleased to be joined today by our new CFO, Michael McFerran, who joined us a little over a month ago. And as you may have seen from our press release, Mike has extensive public company experience in the alternative asset management sector and a deep accounting and finance expertise across the financial services industry. We believe he will be a great asset to our senior leadership team, not only in leading our reporting functions but also implementing new value-add systems to support our growth and business management.

I'd also like to take this opportunity to thank Dan Nguyen for his service as our CFO and his many contributions to the Firm over the years. Dan, of course, continues to be a highly valued financial executive at Ares, serving as the Divisional CFO for both our tradable credit and private equity groups, as well as assisting on strategic projects.

Before I walk you through a few highlights for the first quarter, I'd like to start with maybe some market observations that will contextualize our investment strategy and growth opportunity in the current market environment. In general, we're seeing good underlying economic fundamentals in our markets, with benign credit and fairly solid earnings growth. However, excess liquidity in certain markets has created supply-demand imbalances, which can have mixed implications for our business.

On the one hand, asset values are higher on realizations and our access to efficient capital is improved, enhancing our returns. However, this has to be measured against increased competition for assets making selectivity critical at this stage of the cycle.

At Ares, as you know, we leverage our proprietary sourcing and research advantages across our collaborative platform to invest in what we view as superior risk-reward investments. We strive to take advantage of market volatility and focus on assets in transition or dislocation, where factors such as changing regulations or ongoing consolidation are creating attractive investment opportunities. We're also taking our core competencies into complementary new asset classes like power and energy where we can offer investors additional investment solutions.

So, while the current investment environment has some challenges investors still need to solve for higher alternative returns without taking a commensurate amount of risk. This makes our global platform, our range of products and flexible strategies ever more desirable to investors.

According to Preqin, between one-third and two-thirds of institutional investors are seeking to increase allocations into private debt, private equity, real estate and infrastructure, all asset classes that we manage and that we believe we manage well. We find investors are increasingly seeking out Ares for greater uncorrelated returns amid concerns over historically low interest rates, high public equity valuations, and global volatility. We believe that these industry tailwinds give us a lot of runway for continued attractive growth in our AUM.

The EIF transaction, which closed on January 1 of this year, highlights the growth opportunity represented by the consolidation of other niche asset managers that possess unique product or industry expertise. With EIF, we've already captured margin efficiencies and we expect to enhance synergies by cross-selling fund offerings to both sets of investors. The EIF transaction added $4.4 billion to our AUM, and was accretive to our first-quarter FRE. Furthermore, we believe that the accretive nature of this transaction will only improve through additional fund raising.

So, now let me turn quickly to our earnings highlights, which Mike McFerran will discuss in greater detail in a moment. During the first quarter we continued to execute well on several of our important goals, and we believe our results appropriately reflect that.

Our AUM increased by about $5 billion to approximately $87 billion, a year-over-year increase of 13%. Our fee paying AUM also increased by about $4.3 billion to $65.7 billion, about 15% higher year over year. We increased our fee related earnings by approximately 54% compared to the prior year, driven by increases in fee related earnings in all four of our investment groups.

The balanced growth contribution from our businesses provides a high degree of stability, which is a key component of our strategy. This growth was also driven by a 440 basis point improvement in our FRE margins as we captured some scale economies from EIF, and as we began to benefit from cost management and efficiency initiatives.

As you've heard us say in the past, our single most important job as an asset manager is to deliver attractive risk-adjusted returns for our fund investors, and we're pleased that performance remains strong. In our liquid credit funds, we generated strong performance in our long-only loan and high-yield composite, with quarterly returns of 2.4% and 3.1%, respectively, outperforming their benchmarks by about 30 and 60 basis points, respectively, over this period. These strategies have continued to outperform their benchmarks over the last 12 months, as well.

In terms of our special situation strategy and alternative credit, our gross IRR continues to be strong at approximately 19% since inception. And within our direct lending group, our since-inception gross realized IRR for our European strategy remains strong at 12%. And ARCC has also generated a total annualized return to shareholders of approximately 12% since inception.

Our two most recent corporate private equity funds, ACOF III and ACOF IV, are performing very well, appreciating approximately 5% to 6% for the first quarter alone and 19% to 20% over the last 12 months. These funds continue to have very strong long-term performance with gross IRRs since inception of 32% and 25%, respectively.

Also our most recent power and energy fund is performing well with a gross IRR of over 18% since inception. And, lastly, our real estate funds are very solid performers, with gross IRRs since inception for our US and European composites, which operate value-add and opportunistic strategies, of approximately 15% and 16%.

Our historical experience has always been that assets follow good performance. And, not surprisingly, over the last 12 months, we've raised approximately $14.5 billion in gross new capital, including $3 billion in the last quarter.

Our first-quarter gross inflows were highlighted by tradable credit funds, including our 33rd US CLO for $613 million, $1.2 billion for structured products, and an additional closing totaling $235 million in our fourth special situations fund. Post quarter end, we held an additional closing into this special sits fund, which took it to over $1.5 billion versus our $1 billion target. We also raised new funds related to our BDC, Ares Capital Corporation, as well as other co-investment vehicles or separate accounts in our real estate debt and equity strategies during the first quarter.

As we look out to the remainder of this year, we believe that we are well positioned across all four groups as we begin marketing flagship funds in a number of our strategies, in each case with targets in excess of their predecessor funds. In direct lending, we launched our third European fund and we're experiencing strong initial momentum. In addition, our commercial finance platform has expanded as one of our funds signed a definitive agreement to acquire a pool of asset-backed loans, which will bring our loan commitments in that strategy to approximately $700 million.

In private equity, this quarter, we began marketing our fifth power and energy fund to take advantage of our new teams' expertise and the significant demand for building new power plants to replace our nation's aging infrastructure. Within real estate, we're in the early stages of marketing our US opportunistic and European value-added funds. And, finally, within tradable credit, we continue to be well positioned for additional CLOs as the market is open and active for scaled players like Ares.

We also have co-mingled fund-raising objectives and other alternative strategies, particularly dynamic credit and global asset-backed strategies. And, as always, we expect to continue to supplement our co-mingled fund raising with strategic partnerships, separate accounts, all with larger investors.

On the investing side, our deployment pace remains relatively steady with the most significant amounts invested in our special situations and European direct lending funds where we are paid on invested capital. In these drawdown funds we invested approximately $1.3 billion during the first quarter.

Across our corporate and real estate private equity funds we continue to find interesting opportunities, investing more than $800 million this past quarter. And as we progress throughout 2015, we're in a strong position for growth with $18.9 billion of available capital to invest, of which over $10 billion is eligible to earn fees upon investment.

So maybe with that I'll turn the call over to Mike for some more details on our earnings.

Thanks, Mike. I'm truly thrilled to be part of Ares and work with this extraordinary group of people, as I've started off here over the past six weeks. I look forward to meeting everyone on the call in the months ahead. I'll start with a quick summary of our results and key metrics, and then follow-up with a review of our balance sheet and our upcoming distribution.

Overall, we are pleased with our performance as we begin the year with double-digit, year-over-year growth across all key metrics, including AUM, fee-earning AUM, and fee-related earnings. In addition to asset and top-line growth, we have witnessed strong margin improvement through scale and cost management.

Now let's go through the numbers. For the first quarter we generated management fees and fee-related earnings of $162.3 million and $47.6 million, respectively, a growth rate of 16% and 54% over the prior year period. Our first-quarter fee-related earnings also benefited from year over year and sequentially through substantial margin improvement totaling 720 basis points and 440 basis points, respectively.

First quarter's fee-related earnings growth of $7.6 million compared to fourth quarter fee-related earnings of $40 million reflected the contribution from EIF, as well as certain scale and cost efficiencies as we manage the business to a higher contribution margin. Also, as a reminder, our fourth-quarter earnings included $6.2 million of catch-up management fees from our real estate private equity funds.

Looking longer term, we continue to expect management fee growth from additional capital raising, as well as new management fees paid on funds where we are paid as we invest. Of our $10.1 billion in AUM not yet earning fees, we would expect to earn approximately $98.5 million in annual management fees assuming we invest this capital.

Moving in to our performance related earnings, we generated $35.3 million for the first quarter compared to $46.4 million for the same period a year ago. Let's break this down into two components. Our net performance fees of $27.7 million were up 22% over the prior year period, driven by stronger performance in our corporate private equity portfolios, and to a lesser extent, by net performance fees within our direct lending funds.

Turning to our investment income from our portfolio, our first-quarter net investment income of $7.6 million was down compared to $23.7 million for the prior-year period. There are two contributing factors to this difference. First, in the first quarter of 2014, we experienced higher appreciation on more seasoned fund investments, including some positions that were realized. This past quarter reflects a comparatively lower level of asset appreciation with a portion of our portfolio in less seasoned investments.

Our first-quarter pre-tax economic net income of $82.9 million rebounded quarter over quarter and was our best quarter as a public company, above the $77.4 million for the first quarter of 2014 and $64.7 million for the fourth quarter of 2014. On a per unit basis, our economic net income, net of tax, was $0.35 compared to $0.34 for the same period a year ago and $0.27 for the fourth quarter. The reduced level of fourth-quarter unrealized investment income did not negatively affect our distributable earnings.

Our first-quarter distributable earnings of $67.3 million increased meaningfully from the $54.5 million a year ago and also from the $64.5 million for the fourth quarter. Our management fees, which include $29 million from Ares Capital Corp. Part 1 fees, represented over 85% of our total fee income for the first quarter. Accordingly, our fee-related earnings comprise a higher percentage of our distributable earnings, representing 71% for the first quarter, providing stability in our cash flow available for distributions.

Now let me move to distributions. First-quarter distributable earnings attributable to common unit holders were $0.26 per common unit, net of tax. This morning, we announced a distribution of $0.25 per common units for the first quarter, up $0.01 from the past few quarters' distributions. The distribution will be payable on June 2 to common unit holders of record as of May 22.

Our balance sheet provides us with great flexibility and capital for growth. After the closing of EIF, we have a modest amount of net debt with attractive long-term funding in place. In addition, we have a $1 billion-plus revolving credit facility with approximately $970 million currently available for future capital needs.

Our net accrued performance fees increased slightly to over $169 million. And our investment portfolio also increased to approximately $607 million in investments.

Now I'll turn it back to Mike for some closing thoughts.

Great, thanks, Mike. Again, great to have you on board. As we cross our one year anniversary as a public company, we are pleased we are delivering on our key performance metrics, including quality fund performance, double-digit asset growth, margin improvement and a relatively steady distribution. The fund-raising environment and outlook for us remains very strong as Ares is increasingly becoming an attractive solutions provider for an increasing number of global investors.

On the investing side, our $18.9 billion of dry powder gives us the ability to grow our fee streams as we patiently invest this capital. As I said we continue to be highly selective leveraging our platform advantages to invest opportunistically with a broad market view.

Moreover, our balance sheet and access to capital provide optionality for us to expand our business with accretive acquisitions like EIF and to execute on our core strategic growth objectives. So, ultimately our goal continues to be to offer stable and predictable distributions built around a high percentage of growing fee-related earnings and enhanced by long-term performance fees.

And that concludes our prepared remarks. Again, thanks, everyone, for your time and support. And, operator, if you'd open up the line for questions.

(Operator Instructions)

Our first question comes from Mike Carrier from Bank of America Merrill Lynch.

Thanks, guys. First question just on the fee-related earnings and margin. I realize that EIF came in, so there was some benefit there, but I just wanted to get a sense, I think the pace we saw even sequentially, over 400 basis points of operating leverage, was more than expected. So, just wanted to get a sense on the outlook, anything unusual in either the comp or the non-comp, like the expense lines, or on the management fee side, any types of catch ups that benefited the quarter to boost the margin.

I'll just make a general comment. Obviously, as we said in the prepared remarks, EIF was a contributor as we brought the fee-paying AUM on board and got the efficiencies from those new assets.

Secondly, as I highlighted on deployment -- and this will be a recurring theme -- the fact that we continue to have $10 billion-plus of assets that we manage that are not currently generating fees, obviously with that deployment comes very accretive growth. And as Mike said in his prepared remarks, we believe that, based on the dry powder we have today, as it invests there is about $98.5 million of embedded management fee that comes at a very high margin.

Third, as we've discussed I think on the prior two earnings calls, both prior to becoming a public company but I think now more than ever as a public company, we are laser focused on generating good efficiencies in our middle and back office. We're laser focused on building out scalable systems so that we can actually drive margin absorption. And, frankly, we're holding our business heads much more accountable for delivering margin and delivering comp against that margin.

So it's really a combination of all of those things. I would not expect to see a 440 basis point increase in FRE margins every quarter but obviously we're thrilled with the trajectory.

Okay, thanks. And then maybe second question just on investment income, it seemed like that came in a bit lower than expected. But it sounds like performance across a lot of the products is relatively strong. So I didn't know if there was something there that was a nuance that created maybe less upside on the investment income with the balance sheet or if it was something else. Any color on that?

Yes, it is a little bit of an anomaly because if you look, as I highlighted, across almost every strategy we're managing we seen very good sequential performance. Two big things to highlight on the investment income. One, we had two positions in our ACOF Asia fund that had mark-to-market challenges in the quarter just based on some of the volatility in that market. And we also saw some volatility in the mark-to-market in some of our special situations funds, driven a little bit based on the energy volatility there.

So, nothing that we're concerned about. In fact, most of the investments that contributed to that softness have actually improved post quarter end. That's basically it.

Okay, that's helpful. Thanks a lot.

Thank you. Our next question comes from Ken Worthington from JPMorgan.

Hi, good afternoon. First, on the acquisition front, EIF closed in Q1, I think you've got First Capital closing in Q2. How does the environment look for further acquisitions as you look out to the rest of the year? And how regularly are you in conversation with firms? Are conversations fairly regular? Are they few and far between? And maybe how has that changed in the last year or so?

There are a couple of questions in there. I'm going to take it very high level to start because we've talked about this before. We believe that our industry is consolidating, for better or for worse. I would say for better. It's consolidating behind a couple of key industry trends, one of which is that the global investor base is shrinking its number of manager relationships.

Two, I think both the institutional and retail investor has recognized the benefits of scale, both in terms of information and investing advantages, relationships with the street, deal flow, et cetera. So the consolidation trend is undeniable.

There's also an underlying trend that we're experiencing, and EIF and AREA were no exceptions, which is there is a generational transfer that's occurring within the alternative asset management space. To oversimplify it, if you go back and say that the bulk of alternative asset management platforms were put in place in the late 1980s and early 1990s, you now have a class of founders and senior partners who have built really high-quality institutional businesses and are thinking about the longevity of those platforms. So, when you think about this consolidation trend, the supply of opportunity is increasing just at a time when the demand for scale platforms is increasing. I think that's why you're seeing so much M&A opportunity, particularly in these smaller and mid-sized managers.

Second, as we've talked about before, acquisitions have always been a part of our growth story. We've enjoyed tremendous organic growth but have always used acquisitions of teams, assets, platforms to enhance our capabilities and try to deliver better returns to our investors.

That being said, you will not see us just making acquisitions for acquisition sake, or acquisitions to bulk up. Whether you're talking about EIF or AREA or the Indicus acquisition we made many years ago, we are looking to bring on people who have a unique capability in an industry or asset class that is additive to our core business and, as importantly, that we think we can add value to either by enhancing information, enhancing distribution and driving higher returns. I think those types of acquisitions you should expect will be a regular part of our growth story.

And then, third, as we've talked about, many of our peers went public for different reasons. As we've talked about, we went public largely to enhance our global brand and also to take advantage of this consolidation trend with a public currency and a strengthened balance sheet.

So, not surprisingly now, a year after going public, as you'd expect with an enhanced brand and a more global platform and a strong balance sheet with a currency, the amount of M&A dialogue that we're having on a consistent basis is pretty high. That being said, you should assume that we are applying a very rigorous filter to everything we're looking at as a potential acquisition, whether it's people, assets or platforms.

Great. And then just, secondly, in terms of returns, it looks like private equity had a very good quarter in terms of returns. What worked out well or particularly well there this quarter? And then real estate seemed to not do as well. Maybe what didn't work as well in real estate this quarter? Thank you.

This is Bennett Rosenthal, by the way. I would say from the private equity perspective, if you look down the list, there's a lot of green in terms of improved valuation, which would tell you, and if you look at our EBITDA growth across the portfolio, it's pretty strong. So, it's pretty much across the board in terms of our private equity portfolio, with nothing really dominating as I look at it.

We obviously took Smart & Final public, and that's doing quite well. And we've had growth in a number of the portfolio companies. So, it's pretty broad based across the portfolio.

Okay, great. And then real estate?

In the real estate funds the returns were low single digits. Assuming the asset class and where we are we didn't think those were bad. And, as you know, the illiquid nature of these assets is you're not necessarily going to have linear relationships of appreciation.

Okay, fair enough. Thank you very much.

Thank you. Our next question comes from Doug Mewhirter from SunTrust.

Hi, good afternoon. I just had a question. This is partially addressed from ARCC's viewpoint a week or two ago. But I just wanted to get your comments on the uncertainty surrounding GE Capital. Obviously it may or may not affect ARCC directly but also how it would affect the other markets in which you participate in, because obviously they are a very broadly diversified platform -- sort of the good and bad from what's happening now.

Sure. Again, as I often do, I'll try to take this high level and then maybe get specific on some of the markets that we play in. To start, and I mentioned this in my prepared remarks, generally speaking Ares is positioned to take advantage of market dislocation. Probably the biggest singular trend driving our business right now is changing bank behavior. Both in the US and Europe it's having a meaningful impact on the opportunity -- positive impact -- on the opportunity in US and European direct lending, as well as our tradable credit businesses.

I view the GE announcement of a couple of weeks ago really as just the continuation of this trend of banks and regulated institutions exiting attractive markets to our benefit just because of regulatory cost of capital, regulatory burdens, et cetera. At a high level, GE exiting the business is a very good thing for Ares. We expect it will create opportunities within direct lending both in the US and Europe. We think that it will create opportunities in our commercial real estate lending businesses in both the US and Europe. We think it will drive growth in our commercial finance platform which, as we've talked about, is still in its infancy as a business here but has been growing quite dramatically.

I'd expect increased share because of GE leaving for Ares. I'd also expect that the ROA and ROE on a lot of the businesses that GE used to participate in will become more attractive.

As good as GE is at credit and investing, in many of the markets where we would bump into them, they were effectively an unnatural competitor. They had the lowest cost of capital with the highest balance sheet leverage and as a result were able to compete on price in a way that other market participants aren't. It may take some time to work its way through the market but my personal expectation is, in many of the markets where we used to bump into GE, we will see fees go up, margins widen, and certain structural changes work their way through the market to accommodate non-bank players and non-GE players in those markets.

Vis-a-vis the, quote/unquote, uncertainty, as you mentioned, around GE, maybe just to reiterate some of the things that Kipp talked about on the ARCC call, GE has been a great partner of ours over the last five and a half years in SSLP. And I think together we have introduced a wonderful product in the form of the unitranche that changed the direct lending landscape in the US a little bit.

That said, it shouldn't be lost on people that Ares's direct lending business is, we believe, the largest in the market. We have 85 front-facing investment professionals who are originating and executing on that business every day with phenomenal credit performance.

So, our hope is that, through this process, there will be a resolution that is good for the existing SSLP. However, I think that we are going to be very successful regardless of how this process plays out given our market position and given some of the strategic dialogue we're having with investors and financing sources around the sale process.

Okay, thanks. That's very helpful. Thanks, that's all my questions.

Thank you. Our next question comes from Michael Cyprys from Morgan Stanley.

Hi, this is Nick Stelzner filling in for Mike Cyprys. Just a question on energy investment opportunities. You seemed cautious but optimistic on the opportunity last quarter. Can you provide some color on how that has panned out? And are you still seeing opportunities in the space?

Sure, this is Greg Margolies. Our view generally has been very much twofold. One, taking what the market is offering. And what I mean by that is, there's certainly been price volatility over the course of the last six months in the energy space, across both E&P, as well as services, and we are very selective in terms of our entry point. And that's what I mean by taking what the market is offering,

Secondly, we're also very selective in terms of the companies we are looking at. We don't believe that everything for sale is a good sale or good buy in energy today, or even over the course of the last few months. So we've been very selective in terms of the companies that we are investing in, where the assets are, what Basins they're in, their positions in those Basins, our cost of lift, et cetera. So, we have been very selective.

We're happy with the positions we've built in our portfolios across our alternative businesses in tradable credit. They certainly have had an uplift as WTI is up to over $60.5 today. That volatility and the underlying commodity has driven upward volatility recently in the underlying loan and bond prices. So, we continue to watch the market for interesting entry prices in the select few names that we follow and we like.

Great. That's very helpful. And then just one other unrelated question on expenses. As we look forward from here, the current quarter is comp and non-comp expense amounts, is that the right starting point? And how should we think about the growth rate from here as you guys build out the platform?

I think as the team has echoed on past earnings calls, as the business grows we think there's a lot of scalability built within it as we deploy the dry powder Mike's talked about, with the existing investment team. So, I think this is a good starting point to think about future quarters.

Great that's helpful, thank you.

(Operator Instructions)

Our next question comes from Robert Lee from KBW.

Thanks. Good morning or good afternoon, everyone. The first question is on expanding the LP base. I know that's been an objective of the firm, particularly expanding the base of LPs outside the US. Could you maybe update us with any statistics or what-not that you might have on the progress there?

Sure. Robert, I think there are really two themes that we've highlighted in the past. One is increasing the LP base and, two, increasing the amount of cross-selling within the LP base. And I'll give you a couple of statistics to help think about it. But hopefully over time what you'll see as we deploy more resources behind our business development and marketing efforts, and we broaden our product offering, that you're going to see both of those occurring.

Order of magnitude, over the last year we've raised close to $10 billion -- about $9.6 billion -- organically from about 108 new institutional investors. About half of those investors were new to Ares. So, again, that's also telling you that we are cross-selling very efficiently into our existing LP base.

And then as you would expect, when we make acquisitions like we did with EIF, it gives us the opportunities, as I mentioned in my prepared remarks, to cross sell our product into that very happy LP base. So, to put that in perspective, EIF came with about $4.6 billion of AUM in the first quarter. They had 129 institutional limited partners. About 85 of them we did not have a relationship with.

So, what you're going to see is, as we get out into the market and market our products and market the platform capabilities, we're going to broaden the investor base. And then, obviously, as we make some of these tuck-in acquisitions we're going to get introduced to loyal LPs who I think will have an open mindedness to trying out new product in other parts of the platform where they may be under-invested.

And then, lastly, as we've articulated in the past, we are seeing global demand for alternatives increasing across all of our investor asset classes, from pension, sovereigns, insurance, high net worth, endowments et cetera. We have put renewed focus on the insurance base, as we've said on prior calls. And an interesting statistic -- if you look at the first quarter, about 65% of the capital that we raised in the first quarter actually came from insurance companies. And if you look at the AUM that we manage now, about $3.6 billion a year ago has grown to about $6.8 billion from the insurance market. So, the efforts that we've been putting behind generating more demand for the assets that we manage in that space is bearing fruit, as well.

All right, great. And then maybe a quick follow-up on the distribution. If I look at it, this quarter, last quarter, it's been paying out somewhere around 95% of DE. At least relative to a year ago when you first went public, that's a little bit higher payout rate than I would have expected. Should we be thinking that that's really the payout rate to expect going forward? Obviously it will bounce around given your capital needs. Or is the goal here really to have this base distribution around $0.24, $0.25 and build from there? How should we think of that?

I think our thinking on that is, frankly, developing as we continue to operate in the public markets. More than anything we think it's important that we have predictability and stability in the distribution. And if we execute the way that we know we can, we should also see growth.

So I'd say in the early days it is more important to us that we are focusing on the stability and the predictability of that distribution, which has been reflected in our past four quarters' performance. The range of distribution that we put out at the IPO I think still stands. You may see us slightly above or slightly under in any given quarter but, generally speaking, I think we're going to try to stick to that initial range.

Okay, great. Then maybe just one last question, if I could, on capital raising. You mentioned you raised just under 10 billion organically last year, the past 12 months, and about $2.5 billion the first quarter. You have a lot of initiatives. Is there a general capital-raising goal that you have for 2015 or the next 12 to 18 months? Is it comfortable, the current pace, or do you think there's potential for it to even accelerate some just given the backdrop of strong demand?

Just to clarify the $10 billion because if people try to reconcile the number. Understand, the $10 billion that I quoted was just from direct institutional investors. But as people know, we raise a significant amount of capital through our publicly traded entities and indirectly through things like CLOs. So when you look at the last 12 months' numbers, I believe it's about $14.5 billion relative to the $9.6 million of total AUM.

I think the pace that we're on is a good pace. I do believe it can accelerate for the following reason -- and I mentioned this in the prepared remarks. If you look at our current fund-raising pipeline, we are in the really nice position now of being in the market, or soon to be in the market, with what we would call flagship funds in many of our core strategies.

And I think, as most people know, the flagship funds tend to, while they raise episodically, if you have good performance you tend to get them in and out of the market more quickly, and you tend to get them raised at higher levels than the predecessor fund. So, whether we're talking about the special situations fund that we just closed at $1.5 billion against a $1 billion target, or our third European direct lending fund or our fifth power fund, you're starting to see funds 3, 4, 5 in mature strategies with a lot of momentum. I can craft some scenarios here where that kind of momentum would continue just based on the strategies we're in the market with.

All right, great. Thank you for taking my questions.

Thank you. At this time we have no further questions. I will turn the call back over to management for closing remarks.

Great. We have no further prepared remarks. Again, I just wanted to welcome Mike to his first call here and thank him. And also thank you for your time and attention today, and we look forward to catching up again next quarter.

Thank you. Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archive replay of this conference call will be available through June 11, 2015 by dialing 877-660-6853 and international callers by dialing 1-201-612-7415. For all replays please reference conference number 13606085. An archived replay will also be available on the webcast link located on the homepage of the investor resources section of our website.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.