01—Abstract
Summary
Summary of the 10-K filed February 27, 2024. Cited figures are marked; the original filing is the authoritative source.
Ares Management Corp. (NYSE: ARES) closed 2023 with record scale: $418.8 billiona of AUM (up 19% year over year), $74.5 billion of gross new capital commitments, and $68.1 billion deployed.
Growth was led by Credit, which holds $284.8 billionb (68% of AUM), while Private Equity, Real Assets and Secondaries contributed the rest. Management fees rose 19% to $2.55 billion, and roughly 95% of management fees came from perpetual capital vehicles and long-dated funds, which supports earnings durability. Profitability improved sharply.
Fee related earnings (FRE, the non-GAAP measure of recurring core earnings) grew 17% to $1.16 billionc, and realized income grew 12% to $1.27 billion. GAAP net income attributable to Class A and non-voting stockholders rose 183% to $474.3 million, or $2.42 diluted EPS, helped by higher carried interest allocation ($618.6 million, up 35%) and performance income. Carried interest and incentive fees remain volatile by nature, so investors should weigh the recurring fee base separately from performance revenue.
Key risks include a heavy reliance on Ares Capital Corporation (ARCC), which contributed about 37% of Credit Group management fees; elevated leverage (about $2.97 billiond of debt obligations); a $1.7 billion estimated TRA termination exposure; and a controlled-company structure in which Class B and C holders effectively control director elections. The Board also raised the dividend policy anchor, declaring a $0.93 quarterly dividend for Q1 2024 (up from $0.77), which reflects a fixed dividend tied to FRE after taxes.
02—Key points
Key Highlights
- AUM reached $418.8 billion at December 31, 2023, up 19% for the year, with a 5-year CAGR of 26% and a 10-year CAGR of 19%.
- Gross new capital commitments were $74.5 billion across 125+ vehicles, and 88% of direct institutional fundraising came from existing investors.
- Fee related earnings rose 17% to $1.16 billion, and realized income rose 12% to $1.27 billion.
- Management fees grew 19% to $2.55 billion, and about 95% of management fees came from perpetual capital or long-dated funds.
- GAAP net income attributable to Class A and non-voting holders increased to $474.3 million ($2.42 diluted EPS) from $167.5 million, driven by higher carried interest.
- The quarterly dividend was set at $0.93 per share for Q1 2024, reflecting the company's fixed-dividend policy tied to FRE after taxes.
- Unfunded commitments were $1.03 billion, and AUM not yet paying fees included $62.9 billion available for deployment, which could generate roughly $621.6 million of potential incremental annual management fees.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 27, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $3.63B$3.06B | +18.9% |
| SG&A Expenses | $660.15M$695.26M | −5.0% |
| Operating Expenses | $2.80B$2.75B | +1.8% |
| Net Income | $474.33M$167.54M | +183.1% |
05—Questions
Frequently Asked Questions
How much of Ares' revenue depends on a single fund vehicle?
ARCC contributed about 37% of Credit Group management fees in 2023, and ARCC Part I Fees are a meaningful component of total management fees. A significant decline in ARCC's total assets or net investment income, or termination of its advisory agreement, would materially reduce revenue. ARCC's advisory agreement can be terminated on 60 days' notice.
Is the dividend sustainable, and how is it set?
The board intends a fixed quarterly dividend for each calendar year, based on expected fee related earnings after an allocation of current taxes paid. The Q1 2024 dividend is $0.93 per share, versus $0.77 in each quarter of 2023. Dividends are at the board's discretion and may be reduced if cash flow is insufficient, and the Credit Facility can restrict distributions if an event of default occurs.
How exposed is Ares to leverage and refinancing risk?
Total debt obligations were $2.97 billion at year-end 2023, including $895 million drawn on the $1.325 billion Credit Facility (maturing March 2027), senior notes maturing in October 2024 ($250 million), and subordinated notes due 2051. The company was in compliance with all covenants, and $430 million remained available under the Credit Facility. Floating-rate Credit Facility borrowings increase interest expense when SOFR rises.
Who controls voting power, and what does that mean for Class A shareholders?
Class B and Class C holders, both controlled by the Holdco Members (senior founders and executives), hold voting power that gives them effective control over director elections while the Ares Ownership Condition is met. Ares is a 'controlled company' under NYSE rules and is exempt from some governance requirements. Class A holders have limited ability to influence governance, and the structure may deter a takeover premium.
What drove the large increase in GAAP net income, and is it repeatable?
Net income increased mainly due to higher carried interest allocation ($618.6 million, up from $458.0 million), higher management fees, and lower prior-year earnout compensation (a $218.1 million Black Creek earnout charge in 2022 did not recur). Carried interest is unrealized and depends on fund valuations, so it can reverse. Investors should therefore focus on FRE and realized income as recurring measures of performance.
06—Continue