10-QPeriod: Q3 FY2023

Ares Management Corp Quarterly Report for Q3 Ended Sep 30, 2023

Filed November 6, 2023For Securities:ARESARES-PB

Summary

Ares Management Corporation (ARES) reported its third-quarter 2023 financial results, demonstrating solid growth in management fees and resilient performance across its diverse investment strategies despite a challenging macroeconomic environment. Total revenues saw a significant increase year-over-year, driven by a robust rise in management fees across its Credit, Real Assets, and Secondaries segments. While performance fees and carried interest allocation experienced volatility due to market conditions and valuation adjustments, particularly in the Private Equity segment, the overall Fee Related Earnings (FRE) and Realized Income (RI) showed strong year-over-year growth, underscoring the stability of its recurring revenue streams. Financially, the company maintained a healthy liquidity position, with significant assets under management (AUM) and fee-paying AUM (FPAUM) growth driven by successful capital deployment and fundraising efforts. The company's diversified business model, with a strong emphasis on perpetual capital and long-dated funds, provides a stable foundation. Key strategic initiatives, including recent acquisitions and partnerships, are positioning Ares for continued expansion and market leadership in alternative investments. Investors should note the company's ongoing focus on expanding its global reach and enhancing its product offerings, particularly in the wealth management channel.

Financial Highlights

25 data points
Beta

Revenue

$671.25M

Net Income

$61.82M

9.2% Net Margin

Total Assets

$23.38B

Cash & Equivalents

$311.83M

Free Cash Flow

$318.27M

Financial Statements
Beta
Revenue$671.25M
SG&A Expenses$211.84M
Operating Expenses$560.96M
Interest Expense$25.98M
Net Income$61.82M

Key Highlights

  • 1Total revenues increased by 22% year-over-year to $2.58 billion for the first nine months of 2023, driven by a 20% increase in management fees.
  • 2Fee Related Earnings (FRE) grew by 21% year-over-year to $795 million for the first nine months of 2023, indicating strong operational profitability from recurring fee streams.
  • 3Realized Income (RI) increased by 17% year-over-year to $831 million for the first nine months of 2023, reflecting the company's ability to generate profits from its investment activities.
  • 4Assets Under Management (AUM) grew to $394.9 billion as of September 30, 2023, up from $341.4 billion in the prior year, showcasing successful fundraising and deployment of capital.
  • 5Fee Paying Assets Under Management (FPAUM) increased to $247.7 billion as of September 30, 2023, up from $218.6 billion in the prior year, indicating an expanding base for management fee generation.
  • 6The Credit Group continues to be the largest contributor to FRE and RI, demonstrating strength in direct lending and alternative credit strategies.
  • 7The company reported a net income of $736.5 million for the first nine months of 2023, a significant increase from $145.7 million in the prior year period.

Frequently Asked Questions

Ares Management reported a total revenue of $2.58 billion for the first nine months of 2023, a 22% increase compared to the same period in 2022. Net income was $736.5 million, a substantial increase from $145.7 million in the prior year. Fee Related Earnings (FRE), a key metric for operational profitability, grew by 21% to $795 million, and Realized Income (RI) increased by 17% to $831 million, highlighting the company's ability to generate recurring revenue and profits.

Ares Management experienced strong growth in both AUM and FPAUM. Total AUM increased to $394.9 billion as of September 30, 2023, from $341.4 billion in the prior year. Similarly, FPAUM grew to $247.7 billion from $218.6 billion in the prior year. This growth indicates successful capital deployment and fundraising activities across the company's various investment segments.

The increase in management fees is primarily driven by capital deployment in direct lending funds within the Credit Group and increased fundraising for strategies within the Real Assets Group, such as the non-traded REITs and the Infrastructure Debt Fund V. Additionally, the SSG Buyout in the Credit segment contributed to higher fees following the integration and rebranding. The growth in FPAUM across these segments directly translates to higher management fee income.

While management fees remained robust, carried interest allocation and performance fees showed volatility due to market conditions. The Private Equity segment, in particular, saw a significant negative impact on carried interest allocation in the three-month period ending September 30, 2023, due to the reversal of unrealized carried interest on certain investments, primarily driven by lower valuations and operating performance of portfolio companies. This highlights the sensitivity of performance fees to market fluctuations and asset performance.