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« Another topic which AB elaborated on was fees/pricing particularly in the US retail market. Peter Kraus commented that there is a very strong philosophical argument for the regulators to approve new fee structures which would allow investors to pay alow beta fee and a higher performance fee for alpha generated (while it exists in Europe, a similar structure is not available in the U.S.). While some in the industry may not be fans to adapt such a structure, given challenging cost structure changes, he thinks the product could be much more competitive relative to passive products. Alternative Asset Manager Top Takeaways mice Management (ARES), C-2-7, Neutral Michael Arougheti, Co-founder and President, presented for Ares. Overall, Mr. Arougheti was positive on the firm’s growth prospects, given demand for their products across the platform by institutional investors. In addition, given recent fundraising and fees on the horizon, the outlook for FRE and DE is attractive. e When asked “What would get you more interested in investing in ARES stock?” the most common response was a higher float and reduced tax complexity (64%), followed by more diversification in the business model (21%), and confidence in an attractive credit return outlook (14%). Investors were less concerned over the visibility on the distribution (0%). Chart 60: What would get you more interested in investing in ARES stock? 70% 60% 50% 40% 30% 20% 10% 0% A higher float and Confidence inan = More diversification in Increased visibility on reduced tax complexity attractive credit return the business model the distribution outlook Source: BofA Merrill Lynch Global Research ¢ — If comprehensive tax reform includes an elimination of carried interest tax, potentially moving to an ordinary income rate, it could have some impact to after tax unitholder returns, but 80-90% of revenue comes from management fees and much of the income already faces a corporate tax rate. It could make it more attractive to shift to a C-corp. A change to the tax deductibility of interest expense could have more far-reaching changes to the business, and to U.S. « — Ares will always look to do tuck-in acquisitions, and has been doing almost one a year. The pipeline of M&A opportunities continues to grow for ARES, given demographics of principles with founders aging, and the environment becoming harder to compete for small managers. The Blackstone Group (BX), C-2-8, Neutral ¢ Jonathan Gray, Global Head of Real Estate, presented for Blackstone. Overall, Mr. Gray was positive on the outlook for the U.S., with new pro-growth fiscal policies Bankof America 2 2016 Future of Financials Conference | 17 November 2016 = 41 Merrill Lynch HOUSE_OVERSIGHT_014355