Welcome to today's webcast, announcing Ares Management Corporation's planned acquisition of the International Asset Management business of GLP Capital Partners, which will be referred to throughout today's call as GCP International. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Tuesday, October eighth, two thousand and twenty-four. I will now turn the call over to Greg Mason, Co-Head of Public Markets Investor Relations for Ares Management.
Good morning, and thank you for joining us today. This morning, we announced a definitive agreement to acquire GCP International. Please note that the transaction excludes GLP Capital Partners business in Greater China. Today, I am joined by Michael Arougheti, our Chief Executive Officer, and Jarrod Phillips, our Chief Financial Officer. We also have Bill Benjamin and Julie Solomon, Co-Heads of Ares Real Estate, and Michael Steele, GLP Capital Partners President, joining us today. They will all be available during our question and answer section. Earlier this morning, we posted a press release and an investor presentation on our website, announcing the acquisition, along with its potential strategic and financial impact to our company. You can find the press release and presentation on our website at aresmanagement.com, under the Investor Resources section.
Before we begin, I need to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties. All statements other than historical facts, including statements regarding the expected timing of the closing of the proposed transaction and the expected benefits of the proposed transaction, are forward-looking statements. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results. During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Now, I'll turn the call over to Michael Arougheti, to discuss the highlights and merits of this transaction. Mike?
Thanks, Greg. Good morning, everybody. We are absolutely delighted and excited to gather this morning to discuss our acquisition of GCP International. GCP International manages over $44 billion of AUM in two of the most attractive segments within real estate and digital infrastructure, namely industrial warehouses and data centers, along with unique capabilities in self-storage properties. The firm has significant investment, development, and operating capabilities across Japan, Europe, the U.S., Brazil, and Vietnam. Importantly, we believe that GCP International is very well positioned for strong global growth in the new economy, powered by continued growth in e-commerce, evolving global supply chains, the AI revolution, and rising global demand for clean energy, all of which require significant investments in additional industrial capacity, digital infrastructure, and renewable energy.
Ares has already prioritized investing in these segments with a focus on industrial real estate and nearly $9 billion of investments in digital infrastructure and clean energy over the past five years. We believe the acquisition of GCP International will enhance and accelerate our capabilities in these important markets. In our view, this acquisition strongly meets our most important criteria of being strategically, financially, and culturally accretive. We believe the framework has served us very well in the past, as we've successfully supplemented our strong organic growth with certain strategic acquisitions that have expanded our scale, product suite, and global presence in adjacent and attractive segments, where we determined that a buy versus build decision was strategically more accretive. The acquisition of GCP International brings many strategic benefits to Ares. This acquisition further expands and diversifies our real assets platform.
It adds new capabilities and new institutional investors, and it cements Ares as one of the largest global real asset managers with more than $112 billion in AUM. GCP International's investment capabilities, geographic presence, and product offerings strategically align with many of our highest conviction investment areas within our existing real assets group. As many of you know, Ares is one of the largest vertically integrated managers of industrial warehouse assets in the United States. This transaction not only expands our industrial breadth and leadership into Japan, Europe, and other markets, but it also provides us an entry into the highly attractive and growing data center sector. The acquisition will also allow us to leverage many of our existing clean energy capabilities that sit at the intersection of digital and climate infrastructure.
As Jarrod will discuss, the acquisition is also financially accretive to our FRE and realized income per share metrics, and is expected to become even more accretive over time. This is driven by the significant growth that we expect for GCP International's total fee income and fee-related earnings over the next several years as we raise new capital, deploy existing dry powder, and execute on the many identified revenue synergies, including potential new product launches. Since the business will initially generate nearly all fee-related earnings with significant perpetual capital, it also further enhances our already FRE-rich, asset-light, and stable business model that is driven by long-dated capital. Lastly, we believe that the senior management team and employees of GCP International share many of our core values, which are critical to managing and scaling a successful asset management business.
We look forward to the significant opportunities and new capabilities we will unlock as we collaborate across our various investment, corporate, and executive teams. Let me now take a moment to tell you more about GLP, which was initially founded in 2009 through the acquisition of certain APAC assets owned by Prologis. Over the past 15 years, GLP has thoughtfully expanded into key markets, building a valuable platform around growth sectors and attractive markets that support the new economy, such as industrial, data centers, and self-storage. The company also built a deep local presence across the major geographies in which they operate. For example, the firm employs approximately 95, 65, and 45 investment professionals in Asia, Europe, and the Americas, respectively. GCP International is one of Japan's largest logistics property developers and investors, with nearly $20 billion in fund AUM.
GCP International manages more than $13 billion of perpetual funds focused on the Japanese market, including one of the largest publicly traded J-REITs, with $7 billion in AUM and a $6 billion institutional open-end fund. In Europe, GCP International manages $14 billion in AUM across its institutional commingled funds, which focus on development and core, core plus strategies. In the U.S., GCP International manages $5 billion of institutional AUM, including $1.5 billion in an attractively growing self-storage strategy. Slide eight in the transaction presentation illustrates the additional geographies, products, and capabilities that GCP International adds to our existing real estate platform. We firmly believe one of the key reasons that GCP International has scaled quickly and differentiated itself in the market is due to its vertically integrated platform.
Similar to Ares' existing capabilities in the U.S. industrial sector, GCP International has the capabilities, capital, and scale to design, build, lease, and operate real estate properties across the geographic regions in which they invest. These vertically integrated capabilities drive significant benefits for fund investors, provide a competitive moat, and enhance revenue streams for the asset management platform. By starting from the ground up, we believe Ares and GCP International can increase global deal origination, access proprietary market data, raise more capital around the development of specific assets, and execute on development and property improvement strategies with in-house capabilities. Following the closing of this transaction, our vertical integration capability in the industrial sector will extend from the U.S. to Japan, Europe, Brazil, and Vietnam.
Another compelling aspect of this transaction is the significant global investment opportunity for developing and operating data centers for large enterprises, driven by AI's growing data requirements. Market experts predict that in the coming years, anywhere from $1-$2 trillion in global capital expenditures will be required for the development of data centers. To address this demand, GCP International has built a 65-person team, with executives averaging over 15 years of industry and data center development expertise and experience at leading hyperscalers such as Microsoft and Meta, as well as other data center development firms. The team has secured entitled and powered land at multiple sites in London, Tokyo, Osaka, and São Paulo to create a pipeline to build over 1 gigawatt of IT load, including $7 billion of near-term hyperscale data center development opportunities across London, Tokyo, and Osaka.
We believe that powered land in close proximity to these major metropolitan cities is in high demand, and we expect to launch a series of SMAs and institutional products around this compelling investment opportunity. We're extremely excited about the data center business, and we expect that it will be a meaningful driver of revenues and FRE over the next couple of years. The GCP team has undertaken a significant build-out of the data center team, which is now largely complete, and we believe that the business will reach an inflection point and become highly profitable in the next few years.
While the data center business currently has limited revenue and will contribute negatively to FRE and FRE margin in 2025 and 2026, we estimate that it will generate meaningful growth in revenues and FRE in 2027 and beyond, and be highly accretive to Ares in the coming years. We do view this opportunity as very much part of the playbook that we've executed upon in the past. As we highlighted at our recent Investor Day in May, we have a track record of investing in teams and turning them into highly profitable franchises for Ares. We also see further synergies between the data center business and our climate infrastructure strategy. Estimates indicate a 160% growth in power demand by 2030, with most of the U.S. hyperscalers pledging 100% of power usage derived from renewable power sources.
We believe that there will be significant demand for clean energy development in conjunction with data centers, and our climate infrastructure business is well positioned to partner with data centers to meet this demand. We envision a lot of very exciting investment opportunities around the new economy, where we anticipate the need for trillions of dollars in the coming years to support the growth of industrial assets, digital infrastructure, and clean energy development. We also believe that the combination of GCP International and Ares will enhance our institutional fundraising capability and relationships. GCP International has a diverse institutional investor base consisting of 110 high-quality global investors. Many of these large global investors are already clients of Ares, and we believe this transaction will strengthen and deepen our relationships with them.
Using third-party data over the past five years, Ares and GCP International combined would have been the third-largest institutional fundraiser in the real estate industry. Notably, approximately half of GCP International's top twenty investors by AUM don't directly invest in any of our real asset funds today. Therefore, we believe that we can expand these relationships into other real estate and infrastructure opportunities over time. Finally, as I mentioned earlier, a key component of any acquisition is a strong cultural fit. We have known and admired GCP International's leadership team for many years, and their focus on collaborating to deliver differentiated investment results aligns well with our firm's values. GCP International employs approximately two hundred and fifteen investment professionals and approximately two hundred and five operating professionals across its markets. We're excited to partner with Ming, Michael, and the rest of the GCP International team.
The management team at GCP International will receive a majority of their consideration in the form of Ares equity, and there are significant earn-out provisions based upon the achievement of long-term financial objectives, as Jarrod will describe. We believe that this highlights the strong alignment of interest with the GCP International team and their conviction in what our combined business can achieve. So now let me turn the call over to Jarrod, who can walk us through the financial terms and merits of the transaction in more detail. Jarrod?
Thanks, Mike. I also want to echo how excited I am about the many benefits of this transaction. It will provide additional scale, further diversification, new capabilities into many of our highest conviction investment segments, and the potential for strong 20% plus CAGR in GCP International's fee-related earnings over the next five years. Additionally, it further enhances our FRE mix, expands our perpetual capital, and provides entry into the strategically important market of Japan. As of June thirtieth, GCP International had over $44 billion in AUM and over $32 billion in fee-paying AUM, which on a combined basis, increases our total AUM to over $490 billion and increases our fee-paying AUM to over $307 billion.
We continue to be focused on high-quality AUM growth, and GCP's 32 billion in fee-paying AUM is comprised of approximately $11 billion in perpetual capital, which is all located in Japan. Due to GCP International's vertically integrated model, it earns multiple fee streams for developing and managing its properties, in addition to traditional investment management fees. We believe that the vast majority of these fee streams are predictable, and when combining total fees for the period ending Q2 2024, the trailing twelve-month total fee rate on fee-paying AUM for GCP International would be above the management fee rate for our real estate group. Following the transaction, our real assets group would account for nearly one quarter of our total AUM, further diversifying our business and further enhancing Ares' position as a market leader.
As stated in our press release this morning, we agreed to purchase GCP International for an upfront consideration of $3.7 billion, consisting of $1.9 billion in Ares stock and $1.8 billion in cash. Included in the full consideration is the purchase of certain GP interests at NAV in GCP International funds, which aligns our interests with the performance of the current funds. As of June 30, the value of these GP interests is approximately $160 million, but the final purchase price will be adjusted to the most recent NAV available at closing. The remaining $3.5 billion is for our purchase of GCP International's asset management business and the earlier-stage data center business we believe is nearing an inflection point.
We estimate that GCP International will generate approximately $200 million in FRE for the first 12 months following closing. This amount excludes transaction-related expenses related to the transition and includes specifically identified cost synergies that may not be fully recognized in the first 12 months. I would also note that it includes all expenses and negative FRE associated with the data center business. This would equate to a 17.5 times forward FRE multiple without adjusting for what we believe is significant future value for the data center asset management business as it scales and becomes a meaningful contributor to FRE over time. If we exclude the estimated initial 12 months of negative FRE from the data center platform, the forward FRE purchase multiple in the remaining asset management business will be approximately 15 times.
We expect GCP International's initial earnings will be almost entirely comprised of FRE to Ares, and therefore, it'll further enhance our FRE-rich business model. After the early years of the transaction, GCP International is expected to contribute performance and investment income from the newly acquired carried interest in the open-ended Japanese income fund and GP stakes, along with performance income on new funds raised. From a financial standpoint, we expect that the transaction will be accretive to what we consider our most important metrics, FRE and realized income. More specifically, we expect the transaction will be modestly accretive on both an FRE per share basis and an after-tax realized income per share, Class A and Non-Voting Common Stock in the first full calendar year following closing, and also accretive in the first twelve months following closing under our currently contemplated long-term financing scenarios.
As Mike mentioned, we anticipate considerable further growth in FRE in 2026 and beyond as we deploy capital already raised or expected to be raised, accelerate the launch of the data center asset management business, and capitalize on certain merger-related financial synergies. Therefore, we expect the transaction will only become more accretive as time passes on these metrics. From a financing standpoint, we have the resources to fully fund the cash portion of the upfront consideration from available cash and committed debt facilities, including a $2 billion bridge facility commitment. Of course, we will seek longer-term financing options for the upfront cash consideration. In order to align interests and provide strong incentives for growth, we also structured an earn-out provision that becomes more accretive for both Ares shareholders and GCP International at firm.
The earn-out provision totals up to $1.5 billion and is based on specific fundraising and revenue targets for the Japan and data center businesses, measured through the end of 2027. If any dollars from the earn-out provision are achieved, we expect the financial accretion for the transaction to correspondingly increase and the purchase multiple to decline. In order to reach the full earn-out, GCP International would need to achieve a FRE CAGR well in excess of 25% through 2028. Now, I'll turn the call back to Mike for a few closing thoughts.
Great. Thanks, Jarrod. In our opinion, there are relatively few opportunities that match the scale, market leadership, and strategic fit of this transaction, while at the same time enhancing the growth, diversification, and FRE mix of our business model. We estimate the combination of Ares and GCP International would make us one of the top three global owners and operators of industrial real estate assets. The acquisition nearly doubles our real estate platform, and this new size and scale will drive meaningful investing advantages across Ares' real assets platform, including potential new opportunities for our climate infrastructure strategy. The secular tailwinds supporting the need for industrial real estate, digital infrastructure, and clean energy are expected to require trillions of dollars of investment capital, and we'll have the investment capabilities to invest, develop, and manage assets across each of these segments in many key global markets.
We also believe that this is an attractive time to invest in growth for our real estate business. As interest rates decline across the globe, we would expect real estate to be one of the largest beneficiaries of lower rates, with improving asset values, higher transaction volumes, and greater opportunities to grow fee revenue. Finally, I want to say how excited I am to be partnering with Michael, Ming and the broader team at GCP International. This transaction is highly strategic for our firm, and we believe the investment capabilities, new geographies, expanded products, and the talented team at GCP will serve to drive dynamic growth for Ares in the years to come. We look forward to the exciting opportunities ahead and welcome the entire GCP International team to our firm. Thanks again, everyone, for your time and support.
Operator, I think we can now open up the line for questions.
Thank you. At this time, if you would like to ask a question, please press star then one on your touch-tone phone. If you would like to withdraw your question, please press star then two. Our first question will come from Alex Blostein with Goldman Sachs. Please go ahead.
Oh, this is Luke Bianculli for Alex. Thanks for taking the question. Appreciate all the color on the financials and expected FRE growth, but as we look to bridge the $245 million in 2026, could you just help us think about what margins look like on the business today, and do you mind fleshing out some of the assumptions, such as fee rates and FPAUM growth, to get to the $245 million in 2026? Thanks.
Jarrod, do you want to handle that one?
Sure thing, Mike. Thanks, and thanks for joining. I appreciate it. We didn't address FRE margins directly, but I would say that their historical business has looked very similar to what our real estate business looks like currently, with the then corresponding drag of the data centers, like I mentioned in the prepared remarks. So ultimately, we think that this will continue to expand in margin, just like our business and just like we've laid out in the past, and has the potential to continue to expand, especially from the growth of that data center business, which today, as we mentioned, is actually negative FRE. So that's one of the things that will be a significant growth driver of that top-line CAGR.
In terms of the growth in FPAUM, that is going to be driven across the board by future fundraising across the platform, just like it is for our business, and it will be across geographies, but data centers will be an important component of that as well. We would expect that to grow in line with that 20% plus CAGR that I laid out in prepared remarks. So it will be consistent growth, but again, that growth in the data centers adding a real significant increase to the percentages. That's an item that'll essentially be going from zero to something.
I know that that's something that I've talked about a lot in our Investor Day, is we look for those opportunities to grow our business where we have extremely strong top-line growth, and often it can come from starting from zero, because that's where you get an infinite return. And that's what I believe that the, the data centers can offer as a business that is in the very early stages, but reaching that inflection point and driving continued strong top-line growth with the rest of the business. Luke, did you have another part of that question in there?
Yeah, Jarrod, I would add one other thing, just to give some specificity. As folks have come to understand our financial profile, we talk a lot about dry powder and the impact of the dry powder and fees on assets that yet to be deployed. The structure of the GCP business is very similar. Today, they're sitting on about $9 billion of dry powder that is yet to be deployed, but is deployable into identified projects. So most of the bridge between that 200-245 is just execution on the existing development pipeline and portfolio, as opposed to significant capital raising. And then I think to Jarrod's point, after that, you'll begin to see an inflection point where the new fundraising cycles kick in and begin to contribute meaningfully to the future growth.
Makes sense. Thanks, guys.
Thank you. Our next question will come from Bill Katz with TD Cowen. Please go ahead.
Okay, thank you very much. Congrats on the transaction. So just looking at your slide, it seems like there's a lot of growth opportunities here, whether it be geographically, by product, by distribution channel. So as you think through the opportunity set to leverage the combined platform, where are sort of the top two or three areas of growth? And I was wondering if you could maybe speak also to the opportunity in wealth management globally. Thank you.
Thanks for the question. God, there's so many growth levers, it's hard to get through them all, but if I had to prioritize, I would say, obviously, number one, we are buying what we believe is a crown jewel market leader in the Japanese real estate market at a time when the industrial economy there is growing, and that market leadership position with perpetual capital, we think is highly differentiated, so I would put at the top of the list, continued growth in the Japanese logistics business as we continue to raise successor development funds and leverage the permanent capital vehicles that we have in the J-REIT and our institutional funds. Two, we can't hit on it enough, is just the secular opportunity in digital infra.
Obviously, we have what we think is a best-in-class development team ready to go and scale that business and a $7 billion pipeline, ready to move. So all the ingredients are in place for us to see transformational scaling in the data center platform. Couple that with the investments that we've been making over the years in our climate infrastructure strategy, and our X-energy investment around SMR nuclear technology, and we think that we have all of the ingredients to be a market leader there, around the globe. So I think those are the two, the two big drivers. But to hit on the others, as we talked about in the prepared remarks, I would not underestimate how important it will be over time to be vertically integrated in the real assets market.
As capital flows more freely, I think those like us that can differentiate on origination, either through origination networks built in other parts of our business, or the ability to develop our own investment product, is going to be highly differentiated. We've demonstrated that here in the U.S. on the backs of the Black Creek acquisition and the outperformance there. This will now extend that vertical integration capability from the U.S. through to Europe and the rest of Asia, which we think is highly valuable. And then, as we talked about on our Investor Day, there are always things that we would categorize as, you know, hidden value or earlier stage growth opportunities that have generally helped for breakout growth, whether that was wealth in Black Creek, or others.
And I think here, the self-storage capability that we're acquiring here in the U.S. is highly differentiated, and could be a really interesting growth lever for us to pull on. I think the optionality that we have created for ourselves to grow into emerging markets as we see global supply chains shift in Vietnam and Brazil could be, you know, further opportunities for growth that we haven't underwritten. And then lastly, as we've talked about with all of you before, we do know that scale matters in delivering continued growth and financial performance for both our LPs and our shareholders. And as we fill out our capability and product set in each of these markets, we do see that there will be synergies on new product development, new product launches, new distribution, information advantages, et cetera.
With regard to wealth, obviously, we are making huge strides building out our product set in the wealth channel. We've had significant success with our two non-traded REITs, AREIT and AIREIT. I think that we've had differentiated performance there, seeing net inflows where some of our peers have seen net outflows. We continue to build product there, to leverage our infrastructure capability. So it would follow that as this platform gets integrated, there should be opportunities to lean into that team to develop product to either expand our core, core plus real estate capability in Europe or to leverage the data center business.
Thank you, Michael.
Yep.
Thank you. Our next question will come from Steven Chubak with Wolfe Research. Please go ahead.
Hi, good morning, and congrats on the deal.
Thank you.
So I wanted to start with maybe a bit of a multifaceted question just on the LP overlap. You note in the deck that Ares is currently managing $33 billion from GCP International's top 20 investors, and while about half of these LPs are not currently invested, I recognize, with Ares Real Estate, it's still a fair amount of LP overlap. So just want to better understand the opportunities to further deepen and monetize these LP relationships, and at the same time, how you're handicapping the risk of cannibalization with your legacy real estate business.
Yeah, I don't anticipate any cannibalization. As we've been talking about for years, there is an overarching secular trend in alternative asset management, that the large are getting larger, and that the largest allocators around the globe are shrinking the roster of GPs that they do business with. And you've seen that in the published data around fund flows and where those dollars are going. So not surprisingly, given the size of the Ares platform and given the size of the GCP platform, that you would see significant overlap. Each of these investors, in my experience, wants to deepen and strengthen the relationship with folks like us. It drives more efficiency for them as they're evaluating future allocations.
It gives them better strategic proximity to emerging markets as they open up, like data centers or things that we've talked about in the past, like sports media, that they want to be at the front line when these markets are opening up with people that they trust. They benefit from strengthening the relationship in terms of better information and better risk analytics and better portfolio analytics. There's a big move to consolidation, so I think it's a big, bright spot here. In past deals where we've seen overlap, it's been overlap in similar product. What's so unique here is these are some of our most important investors that have not found a way to attach to our real estate or infrastructure business. And so all this really does is broaden out the relationship and strengthen the conversation.
Very helpful, caller. Thanks for taking my question.
Thank you. Our next question will come from Brennan Hawken with UBS. Please go ahead.
Hi, good morning. Thanks for taking my questions. You flagged during your Investor Day Asia and real assets as likely geographies and capabilities of strategic focus. So curious about whether or not this totally scratches that itch, or should we expect more to come as you continue to scale in those regions? Thanks.
Look, we're a dynamic growth company in a large growing market and huge addressable market, so I don't wanna say it totally scratches the itch, but what is so unique about this, as I said in my closing remarks, is this checks so many boxes for us against the strategic roadmap that we laid out for all of you in terms of the markets that we wanted to get scale in, where we felt like we had gaps in our capability set, where we felt like we had gaps in our product set. So this gives us a lot to dig into here. So I would think that, you know, for the foreseeable future, the bulk of our energies will be placed behind integrating the business and driving maximum growth and revenue synergy from the combination.
Once we've done that, which I think will happen quite quickly, I think then we can lift our heads up and look at how do we grow off of that base. So for example, how do we leverage our long-standing market leadership in Japan to grow our Pan-Asian real estate business? So as we've seen with prior acquisitions, I think we've been quite good at strengthening the core and then growing from there, and I would expect the same here.
Great. Thanks for taking my question.
Sure. Thank you.
Thank you. Our next question will come from Ken Worthington with J.P. Morgan.
Hi, good morning. Thanks for taking the question. You made some reference to the next GCP fundraising cycle, I think, to Luke's question earlier. Where is GCP in its fundraising cycle? And are there or is there meaningful fundraise expected or bigger funds in market over the next twelve months? And then, I guess, a cleanup question: What portion of GCP's fee-paying AUM is generated on committed versus invested? Like, how do they generate their revenue?
Jarrod, do you wanna take a stab at that one, and then I can chime in with additional color?
Sure thing. I would say that there's not any significant funds currently fundraising. So we're not in the midst of a fundraising cycle for GCP right now. I would assume that by the end of twelve months and into a little bit further, that you will then see it go to market with several of the new vintages of their current funds. In terms of overall, how their fees typically work, they're typically paying outside of the J- REIT, which you can take a look, that's a pretty standard NAV.
The primary commingled funds are paying a fee on gross assets that's normally slightly lower than the typical, you know, 1%-1.5%, because then they receive a lot of different fees along the life cycle of these assets that are related to development or management that is part of the overall fee contract. That is what I referenced in the prepared remarks as something that is fairly stable and predictable. You're able to understand where you're at in the development cycle and understand the fees that you will be able to earn from that.
So when you put those two fees together, that gross asset level fee, plus the various fee streams that they earn from development, that's where you get a fee that is above what we see in our real assets group as the standard fee rate. But it does have a little bit of variability year to year. And then just looking at maybe the last five years of inflows going back to fundraising, the inflows have averaged about a little bit less than $4.5 billion annually over the last five years.
Great, thanks.
And maybe just saying what we've already said, Ken, just to make sure that we emphasize it. Obviously, one of the big attractive parts of this opportunity is the preponderance of permanent capital in Japan. And so while there are commingled institutional fundraisers that are a big part of the growth opportunity here, we do have continuously offered funds, you know, in the largest of the businesses. So you'll see over time a smoother inflow profile than, you know, episodic institutional fundraisers.
Great. Thank you both.
Thank you. Our next question will come from Michael Cyprys with Morgan Stanley. Please go ahead. And Michael, you may be muted. We'll go to our next question from Patrick Davitt with Autonomous Research. Please go ahead.
Hey, good morning, everyone. You mentioned the Japanese vehicles are perpetual. Could you give us a little bit broader picture on the mix of AUM by vehicle or wrapper and mix of AUM lockups across the broader $44 billion? Thank you.
Yeah. So, Japan, the way to think about it is we have three core products in Japan. One is I'd broadly call our development vehicles. Those we do raise episodically in the institutional market. The last fund that we raised there was in 2021. And, you know, so that would be one of the funds that would likely find its way into the market in the not-too-distant future. Those development vehicles obviously then serve to feed the growth in our core plus income vehicles, of which there are really two significant funds, one being the publicly traded J-REIT. As we talked about, we have one of the longest-tenured and highest-performing J-REITs. That launched in 2012 and has grown to be close to $8 billion.
If you look over the last six months, the J-REIT's up about 3.7% versus the Tokyo J-REIT Index, which I think is down about 4.5%, so you know, we continue to see outperformance there, and then we have an institutional open-ended product that's roughly $3 billion, so significant perpetual capital in the Japanese business. When you make your way over to the U.S., those funds tend to look a lot more like traditional commingled institutional funds, and we have a self-storage series, as well as a U.S. industrial value add series, and then in Europe, we have an open-ended income fund and a series of development vehicles, so it's kind of a mix.
Broadly speaking, if you look at the AUM, about $14 billion is what we would characterize as perpetual, which is a high percentage, I think, relative to the total AUM.
Thank you. Our next question will come from Michael Brown with Wells Fargo Securities. Please go ahead.
Hi, good morning. Mike, as you mentioned, the Japan franchise, that's the largest based on AUM and fee-paying AUM. You touched on some of the funds there in that market. Can you just maybe expand on the near-term growth potential from that market specifically? And then also, what kind of intermediate and longer-term opportunities for Ares in GCP together in terms of the opportunity to grow your franchise across private equity and credit in the region?
Sure. So probably telling people what they know, Japan is a large, diversified, liquid, you know, developed market. It's the fourth largest economy globally. It has the fourth largest commercial real estate market in the world, has the third largest REIT market, and given what is happening in that economy, I think right now we are beginning to see, you know, a meaningful growth after years of, you know, slower growth, and we're seeing significant capital flows into that market. That said, it is a very difficult market to enter. It is a very difficult market to scale into, and so, you know, to do something similar organically, if we could do it at all, would take, you know, would take a decade, you know, with a lower probability of success.
I do think that one of the benefits of this market is we get scale, brand, reputation, relationship network with the capital markets, the banks, you know, the development community that we can leverage into other parts of our business. You're already beginning to see that with the data center opportunity. As I mentioned, two of the large pipeline projects are in Tokyo and Osaka. Ares has been investing in growing our Japanese footprint prior to the announcing of this acquisition, and so I would expect that as we continue to build, that we would start to put private credit and private equity into that market as well. One of the things that is interesting about the positioning is, obviously, as the economy improves, we believe that we're going to see increased demand for industrial real estate.
And so I think that entering through the logistics side of the business is a great way to, you know, enter that market, just given the growth dynamic there. And then lastly, I would say is, as I said in the earlier answer to the question, I do think that that is a big enough, well-regarded business, and deep enough management team, that over time, we can use our base of operations in Japan to scale into other parts of the region. You begin to see us do that in places like Vietnam.
Thank you. Our next question will come from Chris Kotowski with Oppenheimer. Please go ahead.
Yeah, good morning. Thank you for taking the question. I want to try to understand the dynamic behind this drag of the data centers in the early years and then, the growth-
... after that. So a two-part question. One is, you mentioned $200 billion in FRE the first 12 months of the growth. Is that just the real estate operations excluding the drag on the data center, or does that include the drag on the data center? That's the first question.
That includes the drag, and the drag in year one is roughly $20 million.
Okay, great. Thank you. And then secondly, the you mentioned twenty-five and twenty-six, it's dilutive, and then twenty-seven it becomes positive. And I'm trying to understand, is the dynamic behind that the fact that you've already got the you called them development vehicles. I'm thinking of that as like equity funds, and that then there will be subsequent credit drawdown funds as you develop those properties, or is it primarily driven by the milestone payments that Jarrod was referencing?
Yeah, no. In the data center business, which we think is quite unique, we've been bearing the expense of building what we think is a best-in-class development team from places like Microsoft and Meta. We have built a pipeline of data center projects that are ready to be developed, that are already entitled and powered to the tune of $7 billion plus and 1 gigawatt of power. Now, the next step for us is to just simply raise the capital behind that pipeline, and as that capital comes online, that's when you'll start to get the fee streams against the expense base that we've already built.
It'll be both credit and equity or primarily credit?
This will be primarily equity, but maybe telling people again what they know, Ares, through its infrastructure lending practice, is one of the largest lenders into the data center space already. So when we talk about the combined synergy and domain expertise that we have, in the data center space, that's one of the things that we're referring to. But the growth here is gonna be largely on the equity side as we develop the pipeline that's already in hand.
Great. Thank you.
Sure.
Thank you. Our next question will come from Shakir Taylor with RBC. Please go ahead.
Yes, hello, good morning, and thank you for the transparency in the presentation. I wanted to know if you could comment on your just for leverage, you know, obviously just in the acquisitive environment, wanted to know you know what your tolerance is for you know pro forma leverage and anything on the follow.
Jarrod, do you want to take that? I think the question, if folks didn't hear it, was just what is the balance sheet leverage and how do we think about our leverage profile, given, you know, that we've been acquisitive?
It hasn't really changed our view on how we want to use leverage and what we view as important. We are very protective of the current ratings that we have, and so we wouldn't be looking to do something that would have any negative impact on those ratings, and as we look to even structure our balance sheet, we've been active in the past in doing a number of different transactions to make sure that our rating is both stable and reassured, and that's what we'll continue to do in the future. Certainly, every time that we grow, that gives us a little bit more opportunity to use leverage within that same basic band, but I would say that I wouldn't expect anything different from us in terms of our capital structuring.
Perfect. Thank you.
Thank you. At this time, I'm showing no further questions in queue. I will now turn the call back to Michael Arougheti for any additional or closing remarks.
No, I just want to again thank everybody for their support. We could not be more excited. Welcome to the Ares family, to the entire GCP team. We're looking forward to the integration and the future growth, and we're looking forward to keeping everybody updated on our progress over the next couple of months. So thank you.
Ladies and gentlemen, this does conclude our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available through November eighth, two thousand twenty-four, by dialing one-eight hundred-eight three nine-five six three five, and to international callers by dialing one four zero two two zero five six one.
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For all replays, please reference conference ID Ares 2024. An archive replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website. Thank you. You may now disconnect.