01—Abstract
Summary
Summary of the 10-K filed February 25, 2021. Cited figures are marked; the original filing is the authoritative source.
Ares Management Corp. (NYSE: ARES) closed 2020 with $197.0 billiona of AUM, up roughly 32% year over year, driven by $41.2 billion of gross new capital raised and $26.7 billion deployed.
Fee Related Earnings (FRE), the core recurring metric, rose 31% to $424.5 millionb, while Realized Income rose 16% to $582.0 million. GAAP income before taxes fell 11% to $379.5 million, mainly because carried interest allocation dropped 19% to $505.6 million and performance-related compensation fell only 19%, so the GAAP picture is more volatile than the fee-based picture. Growth was supported by the July 2020 SSG acquisition, the December 2020 Aspida (F&G Re) reinsurance acquisition, and strong direct lending fundraising.
Management fees rose 17% to $1.15 billionc, including $184.1 million of ARCC Part I Fees, and the company says roughly $428 million of annual potential fee revenue sits in AUM not yet paying fees. Investors should note the concentration in ARCC (about 48% of Credit Group management fees), the dependence on performance income and its clawback exposure, and the structure in which Holdco Members control the vote through Class B and Class C shares while the Ares Ownership Condition is met. Balance sheet liquidity is solid, with $539.8 million of cash and an undrawn $1.065 billion revolver against $650 million of senior notes, and the board set a quarterly Class A dividend of $0.47 for 2021, reflecting the company's policy of tying dividends to after-tax FRE.
The filing also highlights several 2021 risks and developments: the COVID-19 pandemic and its effect on energy, hospitality and retail holdings, the LIBOR transition, Brexit's effect on EU passporting, the IRS final carried-interest regulations, and a May 2020 SEC order with a $1.0 milliond civil penalty tied to MNPI policies. Ares Acquisition Corp (a SPAC) IPO'd in February 2021 with $1.0 billion of gross proceeds, and the company invested $23.0 million as sponsor.
02—Key points
Key Highlights
- AUM reached $197.0 billion at December 31, 2020, up from $148.9 billion in 2019 (about 32% growth), with 2020 gross new capital of $41.2 billion from 358 institutional investors.
- Fee Related Earnings rose 31% to $424.5 million and Realized Income rose 16% to $582.0 million, showing strong recurring earnings growth.
- Management fees grew 17% to $1.15 billion, including $184.1 million of ARCC Part I Fees; about $428.3 million of annual potential fee revenue sits in AUM not yet paying fees.
- GAAP income before taxes fell 11% to $379.5 million, and carried interest allocation dropped 19% to $505.6 million, reflecting performance income volatility versus steadier fee income.
- Liquidity was $539.8 million of cash with an undrawn $1.065 billion revolver; senior notes totaled $650 million, with a new $400 million 3.25% 2030 issue in June 2020.
- Class A dividend was $1.60 per share in 2020 and the board declared $0.47 per quarter for 2021, tied to after-tax fee related earnings.
- Governance concentration: the Holdco Members control the vote via Class B and Class C shares (Ares Owners holds about 51% of the company economically), and Ares is a 'controlled company' under NYSE rules.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 25, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $1.75B$1.77B | −0.7% |
| SG&A Expenses | $259.00M— | — |
| Operating Expenses | $1.45B$1.46B | −0.8% |
| Interest Expense | $24.91M— | — |
| Net Income | $152.14M$148.88M | +2.2% |
05—Questions
Frequently Asked Questions
How much of Ares's earnings are recurring versus performance-driven?
Fee Related Earnings ($424.5 million in 2020) represent the recurring core, driven by management fees less compensation and G&A. Performance income (carried interest and incentive fees) is more variable and contributed $547.2 million of realized performance income, offset by $415.7 million of realized performance-related compensation. Investors should weigh FRE as the steadier earnings base and treat performance income as lumpier.
How concentrated is Ares's fee base in ARCC?
Quite concentrated. ARCC contributed about 48% of Credit Group management fees in 2020, and ARCC Part I Fees alone were $184.1 million. Termination or non-renewal of the ARCC advisory agreement, or a decline in ARCC's net investment income or total assets, would materially reduce Ares's revenue.
What is the clawback exposure on carried interest?
If all existing fund investments were assumed worthless at December 31, 2020, contingent repayment exposure net of tax distributions would be about $326.4 million, of which about $252.4 million is reimbursable by professionals. Actual clawback is only triggered at fund termination or interim points, and no contingent repayment liability existed at year-end under liquidation-basis fair values.
Can public shareholders influence Ares's governance?
Limited influence. Class B and Class C shares give the Holdco Members effective control of director elections and certain corporate actions while the Ares Ownership Condition is satisfied, and Class A holders have very limited voting power. The company also relies on the controlled-company exemption from NYSE independence requirements for the nominating and compensation committees.
What were the main 2021 developments disclosed in the filing?
Key events include the February 2021 IPO of Ares Acquisition Corp (a SPAC, $1.0 billion gross proceeds, with a $23.0 million sponsor investment), the planned April 2021 internal reorganization merging Ares Investments and Ares Offshore into Ares Holdings, and the February 2021 renewal of the $150 million share repurchase program through February 2022.
06—Continue