01—Abstract
Summary
Summary of the 10-K filed February 28, 2022. Cited figures are marked; the original filing is the authoritative source.
Ares Management Corp (NYSE: ARES) closed 2021 with $305.8 billiona in assets under management, up roughly 55% from $197.0 billion a year earlier, driven by $76.8 billion of gross new capital raised and $81.0 billion deployed.
Fee-related earnings (FRE), the metric management emphasizes for core recurring profitability, rose 65% to $712.3 millionb, and realized income rose 52% to $882.9 million. GAAP results were far stronger still: total revenues nearly tripled to $4.21 billion, driven by a $2.07 billion carried interest allocation (up from $505.6 million), and net income attributable to Ares Management Corporation Class A and non-voting common stockholders was $386.7 million, or $2.15 diluted EPS. Investors should note that carried interest is volatile and unrealized, so GAAP earnings are more sensitive to fund valuations than the fee-based metrics.
The firm's earnings quality is anchored by its fee base: about 95% of management fees came from perpetual capital vehicles and long-dated funds, and management fees rose 40% to $1.61 billionc. Credit remains the core franchise, with $192.7 billion of AUM and $719.1 million of FRE. Real Estate and Secondary Solutions contributed meaningfully after the Black Creek and Landmark acquisitions completed in 2021, though those deals also added intangible amortization, earnouts, and compensation costs.
ARCC is a notable concentration, accounting for about 45% of Credit Group management fees. The company also reported $90.4 billiond of available capital, $57.9 billion of AUM not yet paying fees, and a steady dividend policy tied to FRE after allocated taxes, set at $0.61 per quarter for 2022.
Key risks flagged in the filing include fee compression pressure from institutional investors, the Holdco Members' effective voting control through the Class B and C structure (the company is a 'controlled company'), a $1.7 billion estimated early-termination payment under the tax receivable agreement, rising leverage through a $1.5 billion debt stack, and the expected Fed rate hikes and geopolitical tensions (Russia-Ukraine) that could affect valuations and fundraising. The Series A preferred was fully redeemed in June 2021, simplifying the capital structure ahead of 2022.
02—Key points
Key Highlights
- AUM reached $305.8 billion at December 31, 2021, up about 55% year over year, with a five-year AUM CAGR of 26%.
- Gross new capital raised was $76.8 billion across more than 135 vehicles, with 84% of direct institutional fundraising coming from existing investors.
- Fee-related earnings rose 65% to $712.3 million; realized income rose 52% to $882.9 million.
- GAAP total revenues increased 139% to $4.21 billion, led by a $2.07 billion carried interest allocation, which is unrealized and subject to reversal.
- Net income attributable to Class A and non-voting common stockholders was $386.7 million, with diluted EPS of $2.15 versus $0.87 in 2020.
- Acquisitions of Landmark (secondaries) and Black Creek (real estate) added AUM and fee streams but also raised compensation, earnout, and intangible amortization costs.
- Quarterly dividend for 2022 set at $0.61 per share, aligned to fee-related earnings after taxes; the $150 million buyback program was renewed through March 2023 but no shares were repurchased in 2021.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 28, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $4.21B$1.75B | +140.2% |
| SG&A Expenses | $444.18M$259.00M | +71.5% |
| Operating Expenses | $3.41B$1.45B | +135.1% |
| Interest Expense | $36.76M$24.91M | +47.6% |
| Net Income | $386.75M$152.14M | +154.2% |
05—Questions
Frequently Asked Questions
How much of Ares's earnings come from recurring fees versus volatile carried interest?
Management fees of $1.61 billion were the largest revenue line in 2021 and are recurring, with 95% sourced from perpetual capital and long-dated funds. Carried interest of $2.07 billion is far larger on a GAAP basis but is recognized on unrealized fund valuations and can reverse. FRE, which excludes net performance income, is the better gauge of core recurring profitability and grew 65% to $712.3 million.
What drove the large increase in 2021 GAAP revenue?
Carried interest allocation rose $1.57 billion, mainly from private equity funds such as ACOF V and ACOF IV, plus real estate equity funds and direct lending funds. These gains reflect market appreciation of portfolio holdings, including AZEK and industrial and multifamily properties, rather than cash realizations, so they may not repeat in a weaker market.
Who controls Ares, and what does that mean for Class A shareholders?
The Holdco Members, through Class B and Class C stock, hold effective voting control while the Ares Ownership Condition is satisfied, and Class A holders have very limited ability to elect directors or influence major decisions. Ares is a 'controlled company' under NYSE rules, exempt from certain governance requirements. A takeover premium may therefore be limited.
What are the main balance sheet and financing considerations?
Corporate debt rose to $1.50 billion, including $415 million drawn on the revolver, $650 million of senior notes, and $450 million of 2051 subordinated notes, with an additional $500 million of senior notes issued in January 2022. Cash was $343.7 million at year-end. The filing also estimates a roughly $1.7 billion early-termination payment under the TRA if triggered, which is a material contingent obligation.
What are the biggest risks investors should monitor in 2022?
Key risks include investor pressure to reduce fees, dependence on ARCC for about 45% of Credit Group management fees, poor fund performance that could trigger clawbacks (about $194.6 million if all investments were worthless), tighter regulatory scrutiny of private fund advisers, and rising interest rates and geopolitical tension affecting valuations and fundraising.
06—Continue