10-QPeriod: Q1 FY2016

Ares Management Corp Quarterly Report for Q1 Ended Mar 31, 2016

Filed May 10, 2016For Securities:ARESARES-PB

Summary

Ares Management Corp (ARES) reported a net loss attributable to common unitholders of $3,090,000 (or ($0.04) per diluted unit) for the first quarter of 2016, a significant decrease from a net income of $18,456,000 (or $0.23 per diluted unit) in the same period of the prior year. This decline was primarily driven by a substantial drop in performance fees, which fell from $104.9 million to a negative $29.9 million due to market conditions and the passage of time impacting internal rate of return calculations, leading to a reversal of previously recognized performance fees. Total revenues decreased by nearly 50% year-over-year, largely due to the performance fee decline. Expenses also saw a significant shift, with compensation and benefits increasing slightly while performance fee compensation decreased substantially in line with lower performance fees. Despite the reported net loss, Ares Management maintained a solid Assets Under Management (AUM) of $93.5 billion, with its Credit Group, Private Equity Group, and Real Estate Group each contributing significantly to the overall managed assets. The company's liquidity position remained stable with $109.9 million in cash and cash equivalents.

Financial Highlights

18 data points
Beta

Revenue

$136.01M

Net Income

-$3.09M

-2.3% Net Margin

Total Assets

$4.34B

Free Cash Flow

-$28.05M

Financial Statements
Beta
Revenue$136.01M
Operating Expenses$129.54M
Net Income-$3.09M

Key Highlights

  • 1Ares Management reported a net loss of $3.09 million ($0.04 per diluted unit) for Q1 2016, compared to a net income of $18.46 million ($0.23 per diluted unit) in Q1 2015.
  • 2Total revenues decreased by 49.6% to $136.0 million due to a significant decline in performance fees, which swung from $104.9 million in Q1 2015 to a net reversal of $29.9 million in Q1 2016.
  • 3Compensation and benefits expense increased by 8.7% to $110.7 million, while performance fee compensation decreased by 127.9% due to the lower performance fees.
  • 4Assets Under Management (AUM) remained robust at $93.5 billion as of March 31, 2016, with the Credit Group holding the largest portion at $60.0 billion.
  • 5The company's liquidity remains stable with $109.9 million in cash and cash equivalents and $192.0 million in borrowings outstanding under its Credit Facility.
  • 6Distributable Earnings (DE) decreased by 38.7% to $41.3 million, reflecting the impact of lower performance fees and higher operating expenses.
  • 7The company reorganized its segments, combining the Tradable Credit Group and Direct Lending Group into a single 'Credit Group'.

Frequently Asked Questions

The primary driver for the significant decrease in net income was a substantial decline in performance fees, which swung from a positive $104.9 million in Q1 2015 to a net reversal of $29.9 million in Q1 2016. This was due to challenging market conditions and the impact of time on IRR calculations, leading to the reversal of previously recognized performance fees.

Total AUM remained relatively stable, standing at $93.5 billion as of March 31, 2016, compared to $93.6 billion at December 31, 2015. The Credit Group remains the largest segment by AUM, with $60.0 billion.

As of March 31, 2016, Ares Management reported $109.9 million in cash and cash equivalents. The company also had $192.0 million in borrowings outstanding under its $1.03 billion Credit Facility, indicating a stable liquidity position to manage its operations and commitments.

The company reorganized its segments, combining the Tradable Credit and Direct Lending groups into a single 'Credit Group.' While the Credit Group's Fee Related Earnings (FRE) saw a slight increase, its Performance Related Earnings (PRE) and Economic Net Income (ENI) decreased significantly due to lower performance fees. The Private Equity Group also experienced a substantial decrease in PRE and ENI, largely driven by the decline in performance fees. The Real Estate Group showed modest growth in ENI, but a decrease in FRE. The overall decrease in consolidated ENI and Distributable Earnings (DE) reflects the challenges in performance fees across most segments.