Ares Management Corporation · NYSE:ARES
Ares Management — Q4 2018 Earnings Presentation
39 slides from Ares Management's earnings presentation, Feb 14, 2019
Slide 1: Fourth Quarter and Full Year 2018 Earnings Presentation
Exhibit 99.2 Fourth Quarter and Full Year 2018 Earnings Presentation
Slide 2: Important Notice
Important Notice This presentation contains “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. Actual outcomes and results could differ materially from those suggested by this presentation du
Slide 3: Fourth Quarter and Year Ended 2018 Highlights
Fourth Quarter and Year Ended 2018 Highlights • Total Assets Under Management ("AUM") of $130.7 billion • Total Fee Paying AUM ("FPAUM") of $81.9 billion • Available Capital of $38.1 billion Assets Under • AUM Not Yet Earning Fees available for future deployment of $24.8 billion Management • Raised
Slide 4: Gross New Capital Commitments – Fourth Quarter and Full Year 2018
#ACACAC #1E3154 Gross New Capital Commitments – Fourth Quarter and Full Year 2018(1) #225070 #828282 $ in millions Q4 2018 FY 2018 Full Year Commentary Credit Group Ares Capital Europe IV ("ACE IV") $1,446 $9,039 New equity commitments of $7.7 billion and new debt commitments of $1.4 billion #D2D2D2
Slide 5: Assets Under Management
Assets Under Management AUM of $130.7 billion as of December 31, 2018 increased 22.7% year over year(1) • $36.1 billion in gross new capital commitments for 2018, including $26.5 billion in equity commitments and $9.6 billion in debt commitments ◦ Q4-18 net new commitments were $10.4 billion, of whi
Slide 6: AUM and FPAUM by Duration
AUM and FPAUM by Duration As of December 31, 2018, approximately 72% of AUM and 73% of FPAUM had a duration longer than 3 years ◦ At time of fund closing, the initial duration was greater than 7 years for approximately 80% of AUM AUM: $130.7 billion FPAUM: $81.9 billion 14% 17% 3% 3% 22% 7% 13% 17%
Slide 7: Management Fees by Duration and Fund Type
Management Fees by Duration and Fund Type For the three month period ended December 31, 2018: ◦ 84% of management fees comes from funds with three or more years remaining in duration ◦ 90% of management fees are derived from permanent capital, closed end funds and CLOs Q4-18 Unconsolidated Managemen
Slide 8: Available Capital and AUM Not Yet Earning Fees
Available Capital and AUM Not Yet Earning Fees Available Capital of $38.1 billion as of December 31, 2018 increased 51.5% year over year ◦ During 2018, $29.1 billion in available capital came from new commitments, including $24.2 billion in net equity commitments and $4.9 billion in debt commitments
Slide 9: AUM Not Yet Earning Fees
AUM Not Yet Earning Fees As of December 31, 2018, AUM Not Yet Earning Fees of $28.2 billion could generate approximately $281.3 million in potential incremental annual base management fees, of which $245.5 million relates to the $24.8 billion of AUM Available for Future Deployment(1) ◦ The $24.8 bil
Slide 10: Incentive Eligible AUM and Incentive Generating AUM
Incentive Eligible AUM and Incentive Generating AUM Incentive Eligible AUM of $78.4 billion as of December 31, 2018 increased 26.1% year over year ◦ The increase was driven primarily by new and additional fundraising across E.U. and U.S. direct lending funds in our Credit Group Incentive Generating
Slide 11: Capital Deployment
Capital Deployment(1) Total gross invested capital for the year ended December 31, 2018 was Q4-18 Capital Deployment Breakdown: $5.4 billion $22.4 billion compared to $16.4 billion for the year ended December 31, 2017 ($ in millions) ◦ Of the total amount, $17.2 billion was related to deployment in
Slide 12: GAAP Statements of Operations
GAAP Statements of Operations $ in thousands, except share data Three Months Ended December 31, Year Ended December 31, 2018 2017 2018 2017 Revenues Management fees (includes ARCC Part I Fees of $37,145, $128,805 and $29,031, $105,467 for the three and twelve months ended December 31, 2018 and 2017,
Slide 13: RI and Other Measures Financial Summary
RI and Other Measures Financial Summary $ in thousands, except share data (unless otherwise noted) Three Months Ended December 31, Year Ended December 31, 2018 2017 % Change 2018 2017 % Change Management fees(1) $223,952 $193,856 16% $836,744 $744,825 12% Other fees 7,122 5,433 31% 24,288 22,431 8%
Slide 14: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Three Months Ended December 31, Year Ended December 31, 2018 2017 2018 2017 Realized Income and Fee Related Earnings: Income before taxes $18,880 136,943 $184,341 149,859 Adjustments: Amortization of intangibles 1,215 3,
Slide 15: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.)
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.) $ in thousands Three months Ended December 31, Year Ended December 31, 2018 2017 2018 2017 Performance income and net investment income reconciliation: Carried interest allocation and incentive fees $19,520 $156,470 $105,790 $6
Slide 16: Credit Group
Credit Group(1) • Management and other fees increased 20% and 17% for the three month and twelve month periods ended December 31, 2018, respectively, compared to the same periods ended December 31, 2017, primarily driven by deployment in U.S. and E.U. direct lending strategies and an increase in ARC
Slide 17: Private Equity Group
Private Equity Group(1) • Management and other fees were flat for the three month and twelve month periods ended December 31, 2018, compared to the same periods ended December 31, 2017, driven mostly by distributions from private equity funds that are past their investment periods offset by fees ear
Slide 18: Real Estate Group
Real Estate Group(1) • Management and other fees increased 36% and 13% for the three month and twelve month periods ended December 31, 2018, respectively, compared to the same periods ended December 31, 2017, primarily driven by a new U.S. equity fund and an E.U. equity fund and to $6.5 million of c
Slide 19: Realized Income per Share Data
Realized Income per Share Data Three Months Ended December 31, Year Ended December 31, $ in thousands, except share data 2018 2017 2018 2017 After-tax Realized Income, net of Series A Preferred Stock dividends Realized Income before taxes $123,851 $74,755 $395,396 $325,440 Entity level foreign, stat
Slide 20: Balance Sheet
Balance Sheet Substantial balance sheet value related to investments in Ares managed vehicles and net accrued performance income receivable • $110.2 million in cash and cash equivalents, $481.0 million in debt obligations including $235.0 million drawn against the $1.065 billion revolving credit fac
Slide 21: Corporate Data
Corporate Data Board of Directors Executive Officers Research Coverage Investor Relations Contacts Michael Arougheti Michael Arougheti Bank of America Merrill Lynch Carl Drake Co-Founder, Chief Executive Officer and Co-Founder, Chief Executive Officer and Michael Carrier Partner/Head of Ares Managem
Slide 22: Appendix
Appendix
Slide 23: Financial Details – Segments (Three Months Ended)
Financial Details – Segments Three Months Ended December 31, 2018 $ in thousands Private Real Operations Credit Equity Estate Management Group Group Group Group Total (1) Management fees (Credit Group includes ARCC Part I Fees of $37,145) $151,871 $50,690 $21,391 $— $223,952 Other fees 6,984 125 13
Slide 24: Financial Details – Segments (Year Ended)
Financial Details – Segments Year Ended December 31, 2018 $ in thousands Private Real Operations Credit Equity Estate Management (1) Group Group Group Group Total Management fees (Credit Group includes ARCC Part I Fees of $128,805) $564,899 $198,182 $73,663 $— $836,744 Other fees 23,247 1,008 33 — 2
Slide 25: AUM and FPAUM Rollforward
AUM and FPAUM Rollforward Q4-18 Total AUM Rollforward ($ in millions) FY-18 Total AUM Rollforward ($ in millions) Credit Private Equity Real Estate Total Credit Private Equity Real Estate Total Q3-18 Ending Balance $91,501 $22,991 $10,587 $125,079 Q4-17 Ending Balance $71,732 $24,530 $10,229 $106,49
Slide 26: AUM and FPAUM by Strategy
AUM and FPAUM by Strategy(1) Strategy ($ in billions) AUM % AUM FPAUM % FPAUM Credit Syndicated Loans $18.9 20% $ 18.3 32% High Yield 4.0 4% 4.0 7% Credit Opportunities 2.8 3% 2.2 4% Alternative Credit 5.4 6% 2.8 5% U.S. Direct Lending(2) 40.7 42% 21.7 37% E.U. Direct Lending 24.1 25% 8.8 15% Total
Slide 27: Balance Sheet Investments by Strategy
Balance Sheet Investments by Strategy $ in thousands December 31, 2018 December 31, 2017 Credit Syndicated Loans(1) $75,029 $246,460 Credit Opportunities 3,420 4,464 Alternative Credit 19,518 14,067 U.S. Direct Lending 58,970 61,411 E.U. Direct Lending 47,854 48,672 Credit Group $204,791 $375,074 Pr
Slide 28: Significant Fund Performance Metrics
Significant Fund Performance Metrics The following table presents the performance data for significant funds in the Credit Group that are not drawdown funds: As of December 31, 2018 Returns (%)(1) Fourth Quarter Year-To-Date Since Inception(2) Year of AUM Inception (in millions) Gross Net Gross Net
Slide 29: Significant Fund Performance Metrics
Significant Fund Performance Metrics The following table presents the performance data for all our significant funds that are drawdown funds: As of December 31, 2018 Credit Cumulative MoIC IRR Realized Unrealized Year of Original Capital Invested (5) (6) Total (7) (8) (9) (10) ($ in millions) Incept
Slide 30: Significant Fund Performance Metrics Endnotes
Significant Fund Performance Metrics Endnotes Credit 1. Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses. 2. Since inception returns are annualized. 3. Net return
Slide 31: Significant Fund Performance Metrics Endnotes (cont’d)
Significant Fund Performance Metrics Endnotes (cont’d) Private Equity - Cont. 5. The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect retur
Slide 32: Weighted Average Shares
Weighted Average Shares Q4-18 Q4-17 Common Shares, Common Shares, Total Shares As Adjusted(3) Total Shares As Adjusted(3) Weighted average shares of Class A common stock 101,526,367 101,526,367 82,233,242 82,233,242 Ares Operating Group Units exchangeable into shares of Class A common stock(1) 117,0
Slide 33: Additional Information
Additional Information Targeted Net Returns(1) Investor Base as a % of AUM(1) Credit Group: Public Entity & Related: 18% l Syndicated Loans and High Yield Bonds: Benchmark Outperformance(2) l 750+ institutional investors(4) l Credit Opportunities: 8-12% l 200,000+ retail investors across our public
Slide 34: RI and Other Measures – Financial Data
RI and Other Measures –Financial Data(1) $ in thousands Year ended December 31, 2018 2017 2016 Credit Group $564,899 $481,466 $444,664 Private Equity Group 198,182 198,498 147,790 Real Estate Group 73,663 64,861 66,997 Management fees(2) $836,744 $744,825 $659,451 Other fees $24,288 $22,431 $12,351
Slide 35: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Year ended December 31, 2018 2017 2016 Realized income and fee related earnings: Income before taxes $184,341 $149,859 $297,920 Adjustments: Amortization of intangibles 9,032 17,850 26,638 Depreciation expense 16,055 12,
Slide 36: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.)
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.) $ in thousands Year ended December 31, 2018 2017 2016 Performance income and net investment income reconciliation: Carried interest allocation and incentive fees $105,790 $636,674 $517,852 Performance income - realized earned f
Slide 37: Glossary
Glossary ARCC Part I Fees ARCC Part I Fees refers to a quarterly performance income on the investment income from ARCC. Such fees from ARCC are classified as management fees as they are paid quarterly, predictable and recurring in nature, not subject to contingent repayment and are typically cash se
Slide 38: Glossary (cont’d)
Glossary (cont’d) Incentive Generating Assets Incentive generating AUM (or “IGAUM”) refers to the AUM of our funds that are currently generating, on a realized or unrealized Under Management basis, performance income. It generally represents the NAV or total assets of our funds, as applicable, for w
Slide 39: Glossary (cont’d)
Glossary (cont’d) Realized Income Realized income (or “RI”), a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations