10-QPeriod: Q3 FY2015

Ares Management Corp Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 10, 2015For Securities:ARESARES-PB

Summary

Ares Management Corporation's (ARES) Q3 2015 10-Q filing reveals a mixed financial performance impacted by the adoption of new accounting standards and challenging market conditions. While the company saw an increase in management fees driven by growth in assets under management across its Direct Lending, Tradable Credit, and Private Equity segments, this was partially offset by decreases in performance fees, particularly in the Private Equity and Tradable Credit segments, due to market depreciation and fund liquidations. The adoption of ASU 2015-02 led to the deconsolidation of several funds, which impacted reported revenues and expenses but had no net effect on net income attributable to Ares Management, L.P. The company's balance sheet shows a significant increase in debt obligations, largely due to the issuance of senior notes to fund strategic initiatives and potential acquisitions. Despite a challenging market environment with increased volatility and investor aversion to risk assets, Ares demonstrated resilience, with its Direct Lending and Tradable Credit groups leveraging flexible investment mandates to navigate market shifts.

Financial Highlights

23 data points
Beta

Revenue

$143.85M

Net Income

-$11.35M

-7.9% Net Margin

Total Assets

$4.76B

Free Cash Flow

$2.68M

Financial Statements
Beta
Revenue$143.85M
Operating Expenses$136.39M
Net Income-$11.35M
Shares Outstanding (Basic)80.68M

Key Highlights

  • 1Management fees increased year-over-year across most segments, driven by asset growth and the impact of deconsolidated funds due to new accounting standards.
  • 2Performance fees saw a significant decline, particularly in the Private Equity and Tradable Credit segments, reflecting weaker market conditions and fund-specific performance.
  • 3The adoption of ASU 2015-02 led to the deconsolidation of 56 entities, impacting reported revenue and expense figures but not net income attributable to the company.
  • 4Debt obligations increased significantly due to the issuance of senior notes, including the AFC Notes and AFC II Notes, impacting interest expenses.
  • 5The company's AUM grew to $91.5 billion as of September 30, 2015, up from $79.6 billion in the prior year, driven by new commitments and acquisitions.
  • 6Despite market headwinds, Ares' Direct Lending and Tradable Credit segments showed resilience due to flexible investment mandates and a significant portion of floating-rate assets.
  • 7The proposed merger with Kayne Anderson Capital Advisors, L.P. was terminated in October 2015, with Ares reimbursing KACALP for expenses and making new capital commitments to KACALP-managed funds.

Frequently Asked Questions

The adoption of ASU 2015-02 resulted in the deconsolidation of 56 entities, impacting reported revenues and expenses by removing intercompany eliminations and previously consolidated fund results. While this led to an increase in reported management fees and other income due to non-elimination of revenues from these funds, it did not have a net effect on Ares Management, L.P.'s net income.

Ares Management saw a significant increase in debt obligations, primarily due to the issuance of $250 million in 4.000% senior notes (AFC Notes) in October 2014 and $325 million in 5.250% senior notes (AFC II Notes) in August 2015. These issuances contributed to higher interest expenses.

Performance fees declined significantly, particularly in the Private Equity and Tradable Credit segments, reflecting weaker market conditions, unrealized depreciation in investments, and lower realization events. The company expects performance fees to continue to be influenced by market volatility and investment performance.

The merger agreement with Kayne Anderson Capital Advisors, L.P. was mutually terminated in October 2015. Ares Management reimbursed KACALP for $30 million in expenses and committed $150 million to KACALP-managed funds. The termination also triggered a special mandatory redemption event for the AFC II Notes, which were redeemed in November 2015.