KKR & Co. (KKR) Presents at 2018 Goldman Sachs U.S. Financial Services Conference (Transcript)

KKR & Co. (NYSE:KKR) 2018 Goldman Sachs U.S. Financial Services Conference December 4, 2018 2:40 PM ET

Executives

Scott Nuttall - Co-President and Co-COO

Analysts

Alexander Blostein - Goldman Sachs

Alexander Blostein

Okay, great thanks. We are ready to move onto our next presentation of the day. Next up, it's my pleasure to introduce Scott Nuttall, Co President and Co-COO of KKR. 2018 marked milestones for the firm, strong investment performance versus foremost a record $185 dollars in AUM over 20% growth in book value and also considerable milestone with a conversion to C Corp earlier this year. Scott will open up with a couple of slides and then we will jump to questions. Scott?

Scott Nuttall

Great, thank. Thank everybody for being here today. I thought I just set the stage a little bit and talk about our firm and kind what we've been up to and the primary areas of focus. But just a very high level, this is what we look like today, bit over a $100 billion in private markets, bit over 90 billion in public markets across credit and hedge funds, a pretty unique capital markets business, which we will talk about that allows us to syndicate our own and third party debt and equity, and monetize more of everything that we do.

And then another unique aspect of our business model is our balance sheet, which is about 19 billion of total assets, but when you strip out some noise about 13 billion of cash and investments. So if you really look at a very high level 195 billion of AUM in the very lucrative parts of the alternative asset management space and capital markets business in the balance sheet that allows us to grow much more quickly and compound value. This is how our AUM has grown overtime.

So you can see about an 18% annual growth rate since 2005, and it's been quite broad-based that were quite diversified now across asset classes. You can see the makeup on the right-hand side of the slide. And if you look at this in more recent periods, you see about 27% AUM growth in the last 12 months, and our dry powder the capital that we have ready to put to work that is callable at any time is up 21% in the last 12 months to about $58 billion.

One of the things that we focus on quite a bit is the quality of our capital. Our capital base is quite distinct from most asset management firms. We have a combination of permanent capital and long-duration capital for the vast majority of the capital that we manage and critically virtually everything that we manage, we get paid on the capital that is committed to us, not the mark-to-market.

But if you break it down or balance sheet is obviously permanent and compound with performance, we then have third-party permanent capital that’s about 18 billion today that’s forever capital. We also have these strategic investor partnerships in core capital that is very long-term. I think 20 to 30 year expected duration a lot of that with recycling then we have another 114 billion of capital that is eight plus years committed to us as inceptions and then 39 billion that more typical subject to periodic redemption.

So when you add it all up, 80% of our AUM is performance to be eligible and the contractual life of more than eight years and inception, and we see opportunities to grow all of these columns on the page. But overtime a strategic imperative for us is to continue to grow our permanent and core and strategic capital, we want even more long-duration capital in the makeup of our base. We’re less focused on the total aggregate AUM which is obviously been growing nicely, and we are the quality and profitability of our AUM over the long term.

Now we had an Investor Day back in July, there is a deck of 200 and some-odd pages on our website, if you're so inclined, but this is probably the most important slide in the deck. What we did is we laid out what we've achieved over the course of last 5 to 10 years and then used significantly haircut assumptions to show how powerful the business model is and how powerful compounding is for us as a business model. So using conservative assumptions much less than what we've achieved, you can see what happens to a couple metrics. This is pretax distributable earnings, which for us has been about $1.6 billion over the course of the last 12 months.

And with significantly haircut assumptions, you can see what happens in your 5 and your 10. Basically double in the next five years and the 1.6 for the 5 million 10 years, and lot of this is just the power of the compounding of the business model, balance sheet plus third-party capital. Same thing on a book value per share basis now it's about $16.68, last quarter. You can see what happens, if we just perform with significantly lower growth levels then we had in the past and lower return levels then we’ve achieved in the past. So this has been a purposely built business model that allows us to compound, both profitability and book value significantly overtime.

Now what's going on, key drivers of value creation is really four very simple things that make up the story, our industry is growing and were growing faster than the industry. So alternative asset management is symmetrically available publicly, it’s been growing about 12% a year. We've been growing about 20% year over the similar timeframe. So, we've been outperforming a fast-growing industry. The second thing, there is a driver of value creation for us is our business model distinct. It’s a third party AUM plus capital markets, plus balance sheet. It's hardly all work together, that allow us to compound value over the very long-term. And this is our business model on our page.

You can see the bubbles on the chart those are the businesses that we're in. On the left-hand side, those are the ones that we own 100%. And the green on the right, our strategic partnerships for other relationships we have where we might have 25% to 40%, but we have a close relationship and we monetize ideas by really marrying the three things at the top of the page, third party AUM, balance sheet and capital markets. And we're really focused on only being in business is where we can be about three. If we cannot get scale and be a top three player we do not want to be in that business and that is our focus.

One of the things that different about this model is our capital markets business. This is where we syndicate equity and debt in our own transactions and increasingly for third parties. And you can see this was the business that in 2018 made 18 million of revenue, and you can see last 12 months nearly $549. This is from connecting the dots across our firm and monetizing more of our own and third parties deal flow. And you see on the right hand side, it’s become quite a diversified source of revenues across this business. You see private equity, third party infrastructure, energy, credit, it's really now working across virtually everything that we do.

And so we continue to see significant upside in this capital markets revenue stream. The third thing that's different about us and we think is going to be a real driver of value creation going forward is we're really young firm. We've been in 42 years, but the vast majority of our activities and businesses have really been around for less than 10 years. And we are in a business that takes 10 to 20 years to scale profitability in the businesses that were in, it just takes time. You got to raise Fund I, invested start to raise Fund II. About the time Fund II really starts to get invested Fund I starts to generate carry, but the thing about our business is the CapEx shows up a day 1.

You get to hire all the people before any of the assets show up. So, we have been making significant investments around the world and across all of our business. This should give you a sense. What we've seen is there tends to be an inflection curve where it takes a long time to start to achieve scale and track record and in the businesses take off. We have a number of our businesses that are just that inflection part of the curve. Here is one example, our credit business that you can see is now about $63 billion that we manage, it took a long time to start to achieve scale, but now we’re starting to get escape velocity. This is our Asia private equity business. You can see how that scales.

If you look at the bottom of the page capital markets again and infrastructure, these are just four examples and now just look at everything that we do as a firm to give you a sense. We have one business that's been 43 years as U.S. private equity, that's the one that gets media attention. And Europe private equity has been around 19 years, this is everything else. So back to the point the vast majority what we've been doing, we've only been doing for anywhere from 1 to 10 years, And these are businesses that we think between years 10 and 20, really start to see the profitability show up.

So, we planted a lot of seeds over the course of last decade and were now only just beginning to get into the part of the curve where we star to monetize those efforts and were significantly under earnings management fee potential and carry potential as a result. And this just give you sense, our goals as we top three and everything that we’re doing, there in private equity and a couple other places, but gives you a sense of upside opportunity. This is real estate, infrastructure and a few others. So, we see a significant opportunity not only doubled the size of these businesses but is significantly more than that overtime as we perform.

And the fourth thing that we've been focused on is equity value creation. Remember, we have employed owner control about 40% to KKR shares, and one of the things that we did d earlier this year effective in July with convert to the C Corp. We found that we frankly did not have a shareholder base that had the same long-term investing perspective that we and we wanted to be more relevant to the indices passes and where the markets were going generally. And so, its early days but what we found 3 to 4 months in that early read in terms of reaction to the C Corp conversion has been very positive.

Mutual fund ownership increased, hedge fund broker-dealer ownership and we have a lot of friends in that’s space and we’re in that space, but as it decreased and the quality of our shareholder base has improved. In the index fund then certainly, the index funds have bought about 68 million shares so far. So lot of education left to do and a long way to go, but we're very pleased with the results so far. And we think the education will yield significantly positive results overtime.

Question-and-Answer Session

Q - Alexander Blostein

So, first question I have for you is maybe touching some of the macro factors are that are out there and it feels like the environment has changed very quickly in the last couple months at least from a public markets perspective. It's less clear if the real economy has changed as quickly and the answer is probably little bit less so. But given your footprint and given the number of companies you guys touch, will it be helpful to just kind set the stage of what's your outlook for economic growth around the world in 2019 and perhaps 2020, but let’s start with '19 first? And then secondly if there are in fact, some build up of risks that the market is not appreciating enough, what are some of those risks you guys worried about?

Scott Nuttall

Appreciate the question, I would say in terms of what we’re seeing in the portfolio. First off just as a reminder, we’re very global firm, so we have more than half our investment professional actually outside of the United States. But when we look at the portfolio performance, we really haven't seen any deterioration in the underlying fundamentals. We will continue to see very attractive revenue growth. EBITDA growth on average has been low double digits. And so, we continue to see nice value creation in the portfolio itself and that's true across U.S, Europe and Asia.

One of the things we're watching for of course things like wage growth and just upward inflation pressures on wages has not had a material impact as of yet, we just survey not long ago, 2% to 3%, bit more than we’ve seen but nothing that we call alarming. Clearly, a lot of focus on trade and where the tariffs mean for our company's no significant impact as of yet small single-digit percentage. A lot of it has been able to pass through to the underlying products and customer thus far.

So no net impact, but we’re watching trade very closely as one of the things that we're keeping an eye on. Obviously, relations with China we have offices in Beijing, Shanghai. We have investment in 20 plus companies there. You watch all of these things. So, it's we’re alert, but nothing that has caused us a fundamentally change our view. I think in the U.S., we don't see a recession in 2019, we see a more modest pullbacks beginning in 2020 based on what we see today.

Alexander Blostein

When it comes to capital deployment, you guys are I believe sitting on nearly $55 million to $60 million of uncalled commitments, which is again as a result of all fundraising you've done over the last 12 months. There is good volatility in the market and there is bad volatility in the market. I would argue in terms of good volatility you’re more likely to deploy that capital because you still feel pretty good about the macro backdrop I mean the bad volatility you probably want to take a step back. Where are we in terms of those two camps, so in terms of the pace for some of the deployment that you see ahead of yourself in the next year or see?

Scott Nuttall

Yes, look, the nice thing about our business model is we can happy virtually all the time. When the markets are up, we own a lot of assets and they are worth more and people want to buy them at an attractive price. And when the assets re-price down, your point we're sitting on nearly $60 billion of dry powder plus 2 billion to 3 billion of cash on our balance sheet, and we have the ability to go invest in this location. And so, we view markets like this as an opportunity for us to deploy as more attractive levels. And it is, right now, put it in the healthy volatility, there is a level of dislocation where nobody wants to do anything where you end up with more of a distressed seller in almost any instance, we’re not there.

And I think there is recency effect on all of us, but the market still gone quite a bit over the last few years. But when you look around the world at value, I think it's easy to get hung up in the macro headlines in terms of the multiples some of the markets are going. We’re not buying the highflying tech stocks. That's not what we do. We don’t buy and invest in those companies. We actually think the markets have been functioning even before the recent noise in a really healthy way for us. But what the market has been doing is overvaluing simplicity and growth stories, in our view undervaluing complexity.

And where we make money is investing in complexity and then figuring out how to simplify and then overtime creating value using a private enterprise and then finding a proper exit for it. And so just in U.S. private equity and this is a stat I think surprises people. The investments we made in the last few years have been at actually lower multiples than with the investments we made in the prior three year. And that's because we've been finding these opportunities that the market is kind left for that, companies that have just too much explaining, too many different aspects to there the story they miss a quarter by a couple of pennies, stock goes down a lot. Opportunities are created in markets like this when those situations arise.

Alexander Blostein

On the flip side, I guess, of that question. When it comes to realizations, obviously, you guys have handful of fairly mature products where there is a lot of different carry sets in those funds. We saw an update from you yesterday obviously the number went out from the original number you guys bought in call. The timeline made of extended a little bit, but you kind of sit in over $700 million thinking and gross carry and investments you expected to see over course of this quarter and a little bit into 2019. How do you think about the risk to that realization pipeline? How much of that really dependent on public markets remaining fairly healthy versus you just see other opportunities to exit?

Scott Nuttall

Well, I think what we put in the press release yesterday to be clear the things that we have line of sight to that will happen. It's just a matter of a transaction closing in Q4 or Q1 that’s we’re trying to clarify that, but you’re right, the aggregate amount actually went up relative to our earnings call. And so, that’s something that’s we think you can very much count on. I think in terms of the rest of the portfolio, we continue to see significant ways to monetize the more mature assets that we have. Back to point, we own a number of things in Europe and Asia, we have companies that in the U.S. even despite that's been happening in some parts of public markets continue to trade at very attractive levels, and we continue to do secondaries. So, we remain in a functioning market. I do not think that we should react to what's happened last few weeks. We continue to see opportunities to monetize the portfolio even in markets like this.

Alexander Blostein

Let's shift gears, little bit talk about the fundraising side. So in your slides, you've outlined a number of growth avenues for the firm which obviously private equity being the most neutral part of the market, part of the business rather and then you've talked about some of the other avenues. In terms of real estate I guess that’s one of the areas where you've done a lot, but you've started to kind branch out I think sort other verticals within real estate. You've spent a little time where you’re seeing the fast momentum and where the most attractive fundraising opportunities are there?

Scott Nuttall

Yes, I'd say real estate is the youngest business we have with the most upside in the largest end market, right. So to your point, we really started in real estate business 5 or 6 years ago. It was coming out of the crisis. We saw a significant amount of opportunity in real estate equity and real estate credit, but the U.S. real estate opportunistic equity business started five years ago. There is the credit business, the Europe business started 3 or 4 years ago. Asia, we just announced the higher in the last handful of weeks. And so, we’re in the process of launching Asia real estate right now.

So the largest players in the real estate space and what we do manage over $100 billion, and we said year-to-date about $6 billion or $7 billion and our focus is getting to be a top three player. And we do see significant runway in that asset class across equity credit U.S., Europe and Asia funds separate accounts, permanent capital vehicles. We name it. We see lots of different ways to grow that business in time. We have just to give you a sense, how you need to invest the head of revenues, we have about 63 people on the real estate team globally, right now, seven different offices, five countries.

So, we're making that CapEx investment which we scale, and you'll see us continue to announce on earnings calls. And otherwise, fundraising wins across real estate. And I think that for us, ultimately, some day can be a bigger business than our private equity business.

Alexander Blostein

On the public side and there's a few things going on there. But fundraising momentum has also been very strong, a big driver behind that has been to build out and credit. And some of that of course has been inorganic with a BBC agreement that you guys did at the end of last year, I think it's been about a year closed earlier this year. But of course there's opportunity to credit this Special Situation business. So, walk us through, how you see opportunity for further growth in your credit business especially kind of at this point of the credit cycle?

Scott Nuttall

Yes, I'd say credit is another area where we've now managed about 63 billion give or take. And we -- but if you look underneath that business, we started to leverage credit business in 2004, but everything else has been started post credit crisis, direct lending, private credit opportunities, mez, our principal finance, business or special situations, business. Our European businesses and now in the process of launching Asia credit as well. So, you've got a number of businesses that are 3, 5, and 7 years old, and you've got a couple of businesses, we're just launching now.

I think credit is a business we can double again from here. We've got a great track record and we've had been proven the ability to invest in different parts of the cycle. And so, we're just in the process of continuing to monetize those records and just raise capital. And there again, I don't see any reason we can take the 16th has to double that number in a reasonable period of time.

Alexander Blostein

You've touched on the KCM, KKR capital markets business, obviously, that's been a very unique kind of growth opportunity for the farm. I think you guys kind of surprised the market multiple times now with the kind of revenues that are coming out of this business fairly on a recurring basis. Now, we see multiple quarters with significant upside. Can you up us I think, sort of, through the growth algorithm in that part of the business? How are you going out there, third party transactions, so sort of, like, what's KKR what's not KKR? And ultimately, again, how do you sort of see that business evolving overtime?

Scott Nuttall

I think the key thing that we've been able to get right is to have our teams work together on a global basis. So what we've said to all of our teams despite the fact we've talked about the relative use and therefore upside from a growth standpoint and in a number of our businesses, we ask everybody in our firm to act like their top three players already. So go source an asset that you really like and don't say no because it's too big. Let's figure out a way to go get the transaction done by using the capital markets capability that we have in the syndication machines that we've built.

And because we still run the firm with this culture that everybody works together gets paid up one P&L that has actually worked quite nicely. So one of the ways we've been able to scale for example, infrastructure is we had our team over the course of the last couple years they'd source a transaction that would be a $2 billion equity check where we could hold $350 million on it. And we would go to speak for the amount in full and then syndicate the rest. And whether that allows you to do is, one, you can buy an asset more quickly because if you show up is 20% relevant to a situation, you’re not really relevant. That we can speak for the entire amounts were calling our investors all the time with co-invest opportunity which they like.

They know we can source larger transactions and so when you go back with the next fund that’s so much larger they don’t ask you if you got style drift. They say, of course, you need more money because you've been calling me constantly with this big deal flow. And so that’s how infrastructure goes from $1 billion front to 3 billion to 7 billion in relatively short order, but we've been able to do that type of thing across a number of our different asset classes which allows us to basically punch above our weight and earn our right to scale faster.

So that’s the KKR piece of it is relatively straightforward, and I think we've just done a very good job connecting the dots and monetizing that deal flow in a way that we frankly did not historically. And that’s part of the reason you seen the business take off is the syndicated equity capital owned and has gone quite a bit, and we’re also underwriting debt and syndicating debt in all those deals as well. So we got a higher capture rates, we call the participation rate inside the firm.

At the same time, we've been more successful with third parties. We've increased our investment in origination, our private credit platform to your point on Franklin Square. Our partnership there from before is entirely is very helpful in that regard. So, we've invested in origination, we cover 150 financial sponsors ourselves now. And we have been going to them with capital solutions and lot of cases at the same team that’s financing the KKR transactions.

So we’re able to go to them and say here's what we would do in a situation, let us be a capital provider and it's the same idea was for the entire amount of the check, we will keep what we want and syndicate the rest that we created a holistic solution for them. And all those cases where there is our deal flow or third-party we’re able to capture economics on the syndicated amount that historically would have gone to others.

Alexander Blostein

Bringing this little bit closure to the financials of the business just help you spend a couple of minutes on pure earnings and pure literary earnings growth. Obviously a lot of it comes from the back of strong fundraising which we talk about, you guys have a ton of dry powder that shadow AUM that’s kind turn on fees as you guys deploy. So, we will see that about couple of years. How should we think about scaling opportunity here? Because the question will get a lot obviously look to your point with so many investments already in the ground margin expansion should be a considerable part of the story. How do you guys think that internally where do you see margins go overtime? How does growth of the capital markets business play into that because that feels like a higher margin part of the business as well?

Scott Nuttall

I think capital market is a very high margin part of the business because we're in effect monetizing a lot of -- it's already late inside the firm. We're really fortunate in terms of our business model business because we have a significant amount of visibility to your point, not only in the management fees that we have because they are contractually committed and we cannot go away for the most vast majority of it, but also we do have about $20 billion that is committed to us that is not yet turned on. And so think of that as about 1% average management fee, so we got a couple hundred million dollars of visibility on revenue that’s already been raised, it's not yet in our run rate management fees.

And that’s before you get to the fact that we've been continued to raise a lot of capitals been $35 billion to $40 billion in the last few months and see a lot of upside in terms of these fundraisings that we have ahead of us. And then a lot of what we do Fund I is typically about a $1 billion fund, and then you earn the right for Fund II be 2 billion to 3 billion, and then Fund III can be 5, 7, 10. And so if you think about what we have is, we have a series of businesses that were kind somewhere between that $1 billion fund and that $7 billion to $10 billion.

And so with this fundraising backdrop, in particular, we feel very good about our ability to grow management fees. The capital markets business allows us to punch above our weight as we get there. So we think we can continue to grow that to as long as we have a certain level of deal activity. And you put those 2 things together and we should by virtue the fact that the CapEx showed up before the revenue, we should have positive operating leverage. So we're already operating in a 50 plus percent margin. And that's something that we've indicated the market our goal is over time to take that margin up. And we think that's durable.

Alexander Blostein

I have a few more questions, but I want to give the audience chance to ask. So if anybody has got a question, raise your hand on and mics will come around. All right, so keep going. The other thing I was hoping to touch on is the evolution of the balance sheet strategy. Again, that's been a bit of a unique cornerstone of KKRs since really the beginning, and how you guys became public? But the balance sheet certainly evolved overtime, became less concentrated, and is likely continue to do so. But from your seed, given a lot of dry powder that's built up on the balance sheet as well kind of how do you see that deployment occurring over the next few years?

Scott Nuttall

I think the balance sheet allowed us to accelerate the growth of a number of these businesses. So we've used it to seed a number of the asset classes that we just talked about and we will continue to do that, but I think there'll be less on a percentage basis of that going for them we have. Because really, if you look at where we still have growth opportunities, it's more building out what we started in the U.S. and Europe and Asia, credit real estate infrastructure. So I think there will be some seeding of new efforts and acceleration of efforts by using the balance sheet, but it will be more selective in one-off than it used to be. And we'll be able to now find the right level in terms of our investments in our funds that what we think is appropriate.

One other things that we've talked about quite a bit publicly as our desire to, it's about 40% to 50% of our balance sheets in private equity. And frankly we were monetizing so much, we were having a hard time getting up to those levels. Now, with the addition of core the commitment that we've made our Asia private equity fund, we're getting into that asset allocation zone. And to your point, it's more diversified than it had been.

Remember our balance sheet came together through two legacy mergers in fact. We had a merger with a private equity closing fund and a credit closing fund. So, really, what's been happening over the course of the last 5 to 10 years is us rotating from what that inherited portfolio to something that we think is more of a sensible long-term asset allocation. And I think we're nearly there, we're making good progress, but it's going to be more core real assets. And we're focused selectively and increasingly yield of the balance sheet as well.

And don't forget the balance sheet we don't talk about this enough really allows us to drive a significant amount of fee-related earnings growth. We view the balance sheet as one of the reasons that our fee-related earnings has grown so quickly. and one of the fastest in our space. So, supporting the capital markets business our Marshall Wace strategic partnership, which has been very profitable for us. We just announced the sale of Nephila which was a profitable balance sheet investment which showed up in our hedge funds strategic partnerships line and submitted about three times our money there. So, we've been able to use the balance sheet in a way to really drive management to see growth and see related earnings profitability.

Alexander Blostein

Right, well, I think we have a question back.

Unidentified Analyst

Can you talk a little bit about, how you think going through the next few years of recession? How we should expect KKR funds to perform like especially versus let's say the funds that did in 06 and 07? Should we expect them to have similar performances, better performances, worse performance? And also on the credit end and real estate side if you could give your option on that?

Scott Nuttall

Sure, I'd say, look, we have -- we've been through many cycles now as a firm. And what typically happens during a periods of market pullback or call it market returns of some 6% to 7% annualize is, our got of level of outperformance in private actually equity, actually increases. What happens if you have a market that’s going up 20% to 25%, these years where we may not outperform, but when the market is actually returning single digit or lower, our level of our performance is significantly greater.

And so, over the last 42 years, we've beaten the S&P by something like 800 or 900 basis points net. And most of that outperformance comes in periods of time that the public equity markets are not generating significantly attractive results. Our expectations will see the same thing here that we will be able to meaningfully outperform the public industries. We may not see 25%, 30% IRRs like we've been seeing over the course of last couple years, but we still think that will be able to meaningfully beat the expectations that our investors have for us.

Alexander Blostein

Indices over the next few years end up being down 30%. Could there be a scenario and maybe I'm being overly conservative here where there is very little carry realize from the business as the result of before the foreseeable 3, 4, 5 years?

Scott Nuttall

We really don't see that. If you look at the diversity of the underlying businesses that we're in, real estate infrastructure, the credit business, the variety of different vintages of the underlying private equity fund, the fact we got well over $1 billion of net accrued carry on the balance sheet based on what we've already been created in the portfolio. We have not seen anything like that in terms of multiple years of no carry in our entire history. And so, our expectation is what we’re going to see in the U.S. is going to be more a modest pull back and one through which we expect to continue to generate very attractive investment results across all of our asset classes.

I think what the other thing to keep in mind is, as rates go up, a significant amount of what we do in our credit business, we get paid on LIBOR plus basis. And this is something that hasn't really been written much about, but our hurdle rate in our funds where -- which calculate our carry is actually a fixed hurdle. So as LIBOR goes up, our ability to generate carry out asset classes like private credit actually increases. Then you go outside of the U.S where I think there is very different story to talk about, but Japan as an example. Japan is the market we've been in most active. Conglomerates are finding -- are selling their subsidiaries. We're buying the 7, 8 times EBITDA, and you can finance a very attractive EBITDA leverage ratios at sub 2% pretax costs of financing.

So you have to understand the globality of our business. So when you layer that on, even if you have a dislocation in a certain market that causes us to say, we may not want to sell assets into this fund, we've got so many things going on all around the world now. In 2006, we did not have that. But from here forward, we’re in a very different place, which makes us much more comfortable that carry -- and if you look, carry has been very stable last few years that will continue to find ways to generate it through different environments.

Alexander Blostein

Well, I think we’re out of time. So, thank you for your time here.

Scott Nuttall

Thanks everybody.