01—Abstract
Summary
Summary of the 10-K filed February 24, 2023. Cited figures are marked; the original filing is the authoritative source.
Ares Management Corp (NYSE: ARES) closed 2022 with $352.0 billiona of assets under management, up roughly 15% year over year, and over 2,550 employees.
Its fee-driven franchise is the key investor story: management fees rose 33% to $2.14 billionb, while fee related earnings (FRE), the non-GAAP measure of recurring core profitability, grew 40% to $994 million. Realized income rose 28% to $1.13 billion. Gross fundraising was $56.8 billion across more than 135 vehicles, and about 95% of management fees came from perpetual capital or long-dated funds, which supports earnings stability.
GAAP results were far weaker than the operating metrics. Total revenue fell 27% to $3.06 billionc because carried interest allocation dropped 78% to $458 million, reflecting markdowns in the 2022 market. Net income attributable to Class A and non-voting common stockholders fell 57% to $167.5 million, and diluted EPS was $0.87 versus $2.15 in 2021.
Results were also hit by $181.6 milliond of non-cash intangible impairments, including the Landmark trade name, and by a $218 million Black Creek earnout expense. Capital returns and balance sheet items stand out. The quarterly dividend was raised to $0.61 per share in 2022 (about $429 million total) and set at $0.77 for 2023, with the policy tied to fee related earnings after taxes.
Debt rose to $2.27 billion, including a $700 million drawn revolver, and carried-interest contingent repayment exposure was approximately $128 million. The company is a controlled company, with the Holdco Members effectively controlling votes through Class B and C stock, which limits Class A holders' influence. Management also flagged pending acquisitions, including the remaining SSG interest, expected to close in Q2 2023.
02—Key points
Key Highlights
- AUM reached $352.0 billion at 12/31/2022, a roughly 15% increase year over year, with a 5-year CAGR of 27%.
- Management fees rose 33% to $2.14 billion, and FRE grew 40% to $994 million, showing strong recurring earnings growth.
- GAAP revenue fell 27% to $3.06 billion as carried interest allocation dropped 78% to $458 million on 2022 market declines.
- Diluted EPS fell to $0.87 from $2.15, and net income to Class A holders dropped 57% to $167.5 million, including $181.6 million of intangible impairments.
- Gross fundraising of $56.8 billion across 135+ vehicles, with 92% of direct institutional capital coming from existing investors.
- Quarterly dividend increased to $0.61 per share in 2022 and set at $0.77 for 2023, based on fee related earnings after taxes.
- Ares is a controlled company: Holdco Members hold voting control through Class B and C shares, which limits Class A shareholder influence.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 24, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $3.06B$4.21B | −27.5% |
| SG&A Expenses | $695.26M$444.18M | +56.5% |
| Operating Expenses | $2.75B$3.41B | −19.4% |
| Interest Expense | $71.36M$36.76M | +94.1% |
| Net Income | $167.54M$386.75M | −56.7% |
05—Questions
Frequently Asked Questions
Why did GAAP earnings fall sharply in 2022 if the business grew?
GAAP results are heavily influenced by carried interest, which is recognized on unrealized fund valuations. Carried interest fell from $2.07 billion to $458 million as public and private markets declined in 2022. Performance-related compensation fell by a similar proportion, but total net income still declined 52%. Management's recurring metrics, such as FRE, were not affected by these mark-to-market swings, which is why they are the better guide to core operating performance.
How reliable is Ares's fee income?
Management fees are relatively stable: about 95% come from perpetual capital vehicles and long-dated funds. Fee income is also affected by fund deployment, fee-rate mix, and potential investor fee pressure. Fee-paying AUM rose to $231.1 billion, and $41.8 billion of AUM not yet paying fees could add roughly $410.9 million of annual management fees once deployed.
Is the dividend sustainable?
The dividend is set as a steady quarterly amount based on fee related earnings after an allocation of current taxes, which is intended to make it more predictable than earnings-based payouts. Ares paid $447.6 million in common dividends in 2022, while FRE was $994 million. The board can reduce or suspend the dividend, and the company notes that cash to fund it depends on fund-level cash flows and debt covenants.
What are the main balance sheet risks?
Debt obligations totaled $2.27 billion at year end, including $700 million drawn on the revolving Credit Facility, which is SOFR-based and therefore exposed to rising rates. Ares also faces potential contingent repayment obligations on previously distributed carried interest, estimated at about $128.4 million if all fund investments were worthless. Consolidated CLO liabilities of about $10.7 billion are non-recourse to Ares.
What should investors watch in 2023?
Key items include the expected Q2 2023 closing of the Ares SSG remaining-interest acquisition (primarily stock), the AAC SPAC business combination with X-Energy, continued fundraising momentum, the pace of fund deployment, and whether fee-related earnings growth holds as carried interest remains dependent on market valuations. Investors should also track the tax receivable agreement obligation, currently $118.5 million, and related tax legislation.
06—Continue