Ares Management Corporation · NYSE:ARES
Ares Management — Ares Capital — Q4 2023 Earnings Presentation
55 slides from Ares Management's earnings presentation, February 2024
Slide 1: Investor Presentation Quarter Ended December 31, 2023
Investor Presentation Quarter Ended December 31, 2023 Confidential – Not for Publication or Distribution
Slide 2: Disclaimer
Disclaimer IMPORTANT NOTICE: Statements included herein may constitute “forward-looking statements,” which may relate to future events or the future performance or financial condition of Ares Capital Corporation (“ARCC”), its investment adviser Ares Capital Management LLC (“ACM”), a subsidiary of Ar
Slide 3: Risk Factors
Risk Factors An investment in a fund managed by Ares Management, strategy, account or vehicle entails a significant degree of risk and, therefore, should be undertaken only by investors capable of evaluating the risks of that investment and bearing the risks it represents. General risks about making
Slide 4: Market Leading Company in Direct Lending
Market Leading Company in Direct Lending Market Leading Business Significant Development Company Competitive Strengths Attractive Portfolio and Compelling Track Record Diverse Sources of Funding Key Differentiators $16.47 Largest publicly traded Incumbency from Large BDC1 with Significant Discipline
Slide 5: ARCC's Positioning and Team Advantages
ARCC’s Positioning and Team Advantages Confidential – Not for Publication or Distribution
Slide 6: ARCC is Well Positioned in a Growing Market
ARCC is Well Positioned in a Growing Market ARCC has a leading market position with many distinct competitive strengths developed over 19 years Largest Investment A Leading Credit Expanding Market Team and Market Company Position Manager Opportunity Coverage2 ARCC’s manager The addressable ARCC is l
Slide 7: Ares Management
Ares Management With approximately $419 billion in assets under management, Ares Management Corporation is a global alternative investment manager operating an integrated platform across five business groups Global Footprint2 Profile Founded 1997 AUM $419bn Employees ~2,850 Investment Professionals
Slide 8: Market Opportunity and Industry Shift
Market Opportunity and Industry Shift We believe that addressable market continues to expand which provides additional opportunities for ARCC Banks Continue to Retrench from Middle Market Direct Lending1 Growing Demand for Direct Lending2,3,4 65% reduction in Banks’ Share of the Leveraged Loan Marke
Slide 9: Leading Investment Team
Leading Investment Team We believe ARCC benefits from a large, long tenured and experienced team with significant experience in direct lending and extensive middle market knowledge ARCC’s Team Brings Members of the Investment Committee Invested over $91 billion 29 years average across over 2,000 Kno
Slide 10: ARCC's Key Differentiators
ARCC’s Key Differentiators ARCC’s scale and flexibility lead to sourcing differentiators and significant deal flow Relationships Incumbency Large Scale Ares Credit Group • 19 year history in the • Incumbency allows us • Ability to commit over • Multi-asset class market to finance and grow $500 milli
Slide 11: ARCC Has an Attractive Profile
ARCC Has an Attractive Profile Confidential – Not for Publication or Distribution
Slide 12: Key Elements to Our Investment Approach
Key Elements to Our Investment Approach We believe a credit-focused investment approach supports our 19 years of leading performance • Leading market • Resilient, non-cyclical Fundamentally Strong share positions Attractive Industries industries Companies • Companies with long-term • Strong entry ba
Slide 13: Highly Diversified Attractive Portfolio
Highly Diversified Attractive Portfolio Attractively positioned $22.9 billion1 highly diverse portfolio with downside protection Moderate portfolio company 505 Portfolio Companies3 Average Position Size 0.2%4 Largest investment is ~2%5 leverage with LTV of ~43%2 Portfolio by Asset Class1 Issuer Conc
Slide 14: ARCC's Significant Portfolio Diversity vs. BDC Peer Averages
ARCC’s Significant Portfolio Diversity vs. BDC Peer Averages ARCC’s portfolio is designed to mitigate risk from any one issuer or industry Average Hold1 Number of Industries identified by S&P1,3 Peer Exposure to Industries 34 Not in ARCC’s Portfolio1,3 0.6% 27 0.2% Airlines ARCC BDC Peer ARCC Q4-23
Slide 15: Industry Selection Supports High Quality Credit Portfolio
Industry Selection Supports High Quality Credit Portfolio Focus on selecting defensively positioned companies in less cyclical industries ARCC Portfolio by Industry1 vs. High Yield and Leveraged Loan Industry Exposure to Cyclical Industries 9% Hotel & Gaming Oil & Gas 2% 11% 2% 23% 2% 3% 8% 3% 3% 5%
Slide 16: ARCC's Strong Financial Results
ARCC’s Strong Financial Results Confidential – Not for Publication or Distribution
Slide 17: ARCC Has Delivered Compelling Long Term Performance
ARCC Has Delivered Compelling Long Term Performance We believe ARCC has a high quality portfolio and leading track record 19 YEARS • 19 year track record with cumulative net realized gains on over $91 billion of capital invested, Length of Track Record resulting in strong interest and attractive div
Slide 18: Long Track Record of Consistent Core Earnings and Return on Equity
Long Track Record of Consistent Core Earnings and Return on Equity ARCC has generated strong core earnings1 and stable core ROE2 since its IPO Long standing track record of stable core ROE ranging We have out-earned our dividend with cumulative core from ~7% to ~13% annually over the past 19 years e
Slide 19: Consistent Track Record of Generating Meaningful Shareholder Value
Consistent Track Record of Generating Meaningful Shareholder Value ARCC has delivered the highest regular/base dividend growth, NAV per share growth, NAV-based total returns and stock-based total returns when compared with every other externally managed BDC with a market cap of over $700 million tha
Slide 20: We Have Generated Attractive Long-Term Stock Returns
We Have Generated Attractive Long-Term Stock Returns ARCC has outperformed relative to indices through a variety of market environments since IPO Annualized Cumulative Shareholder Total Return Since Inception 10/8/04 – 12/31/23 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% ARCC 1 S&P 500 Index BDCs 2 Banks
Slide 21: ARCC Has a Compelling Track Record of Credit Performance
ARCC Has a Compelling Track Record of Credit Performance ARCC’s annual loss rate has been significantly better than the industry averages ARCC Credit Experience Since Inception1 First Lien Second Lien & Subordinated Period Measured1 2004 – Q3-23 2004 – Q3-23 Significant Capital Deployed1 $65 billion
Slide 22: Strong Credit and Investment Performance
Strong Credit and Investment Performance ARCC has generated cumulative net realized gains where others have generated losses ARCC generated ~200 bps of average annual incremental Since IPO in October 2004 through December 31, 2023: gain differential vs. Peers3 since 20044 1.4% Approximately Net real
Slide 23: Strong Investment Performance
Strong Investment Performance ARCC has generated strong net realized gains relative to the BDC peer group Annualized Net Realized Gain/Loss Rates1 Since 2004 or IPO for ARCC and BDCs >$1.5 billion portfolio at fair value or >$2 billion 2% combined portfolio at fair value if under common management2
Slide 24: Differentiated Portfolio Management Capabilities and Focus
Differentiated Portfolio Management Capabilities and Focus In our view, Ares has the largest and most experienced portfolio management and valuation team among any other direct lending manager in U.S.1 • ~45 person dedicated portfolio management and valuation team is enhanced by Ares firm wide resou
Slide 25: Capital & Liquidity
Capital & Liquidity Confidential – Not for Publication or Distribution
Slide 26: Deep and Diverse Access to Debt Financing
Deep and Diverse Access to Debt Financing Our deep bank and capital market relationships enhance our access to capital supported by our investment grade ratings Aggregate Principal ARCC Has Long Standing Investment Grade Ratings Weighted Debt Summary Amount of Principal Average Stated ($ in millions
Slide 27: ARCC Has Stable and Broad Sources of Financing
ARCC Has Stable and Broad Sources of Financing Conservative balance sheet with a longstanding track record of accessing diverse sources of financing Simple Balance Sheet with Significant Liquidity Strong Liability and Funding Construction Available liquidity 2.7x $492 Available Cash $6.4 billion of
Slide 28: Deep Sources of Liquidity and Well Laddered Maturities
Deep Sources of Liquidity and Well Laddered Maturities Investment portfolio provides ample cash flows to support debt maturities Sales & Repayments Sources of Liquidity* 70% as a % of Portfolio at $18,343 ~$6.4 billion of Amortized Cost 60% available borrowing capacity3 50% $8,198 $11,913 $ Millions
Slide 29: Strong Coverage Ratios
Strong Coverage Ratios ARCC noteholders may benefit from conservative liability structure and significant unencumbered assets Strong Asset Coverage for Unsecured Notes1 Significant Fixed Charge Coverage from Earnings2 4.5x 4.5x 4.1x 4.0x 4.0x 3.8x 3.7x 3.5x 3.4x 3.5x 3.3x 3.4x 3.5x 3.5x 3.2x 3.2x 3.
Slide 30: Ares' Values
Ares’ Values Confidential – Not for Publication or Distribution
Slide 31: Ares' Values Driven Culture
Ares’ Values Driven Culture While our backgrounds are diverse, at Ares we are unified and guided in what we do by our shared values Collaborative Purpose We achieve more We are a catalyst for shared prosperity and together a better future Trustworthy We are dedicated stewards Vision We seek to lead
Slide 32: Conclusion
Conclusion Confidential – Not for Publication or Distribution
Slide 33: Conclusion
Conclusion We believe ARCC is well positioned to deliver differentiated results Strong and growing position in an expanding market Meaningful competitive strengths driven by our scale and tenure in the market Healthy, attractively positioned and diversified senior oriented portfolio Large and experi
Slide 34: Appendix
Appendix Additional Investment and Financial Considerations Confidential – Not for Publication or Distribution
Slide 35: Ares Credit Group
Ares Credit Group Integrated scaled global platform combines direct origination, deep fundamental credit research and broad perspective of relative value Differentiators $284.8 Billion AUM1 Access to ~75 Partners averaging 25 years of experience Deep Investment Differentiated Ability to Express 460
Slide 36: Risk Position: Asset Mix Changes with Views on Risk and Return
Risk Position: Asset Mix Changes with Views on Risk and Return Our portfolio composition will change based on our view of market conditions and the returns available 100% 3% 6% 4% 4% 4% 4% 4% 5% 5% 5% 7% 7% 7% 7% 8% 9% 9% 12% 11% 12% 4% 3% 3% 3% 3% 4% 4% 4% 12% 4% 2% 5% 5% 3% 2% 4% 3% 4% 90% 5% 1% 4
Slide 37: Ivy Hill Asset Management Overview
Ivy Hill Asset Management Overview Ivy Hill was established in 2007 and has become a leading middle market loan manager Ivy Hill Portfolio and Team Characteristics IHAM Portfolio Annual Default Rate vs. Market Since Inception in 20075,6 15+ ~$14bn Year Track Record AUM3 2.2% 20 287 Managed Vehicles
Slide 38: Why is Direct Origination Important?
Why is Direct Origination Important? Widens the Funnel to Provide For a 1 Larger Deal Universe Selectivity Primary Diligence on Thousands of 2 Deals Reviewed Since Inception Potential for Enhanced Investing Increased Control Over Structures and 3 Better Economics Differentiated and Diversified Portf
Slide 39: ARCC's Portfolio Has Generated Higher Returns with Less Risk
ARCC’s Portfolio Has Generated Higher Returns with Less Risk Our investment strategy and competitive strengths have led to attractive returns with lower volatility Annualized Returns (Dividends & Change in NAV)1,2 3 Years 5 Years Since IPO (2004) 15.4% 12.0% 12.3% 11.9% 8.0% 6.5% 6.1% 6.1% 4.7% 4.5%
Slide 40: Cycle Tested with Differentiated Approach
Cycle Tested with Differentiated Approach ARCC’s team has deep experience and a leading track record in managing underperforming companies ARCC’s Historical Core Non–Accruals1,2 12% Percentage of Total Core Investment Portfolio Differentiated Approach 10% Pro-active portfolio management approach all
Slide 41: Strong Financial Results Through Two Global Crises
Strong Financial Results Through Two Global Crises We have demonstrated our resilience through two major global crises, further enhancing our positioning coming out of each period of volatility Performance During the GFC (2008 - 2009) Core ROE1,3* Realized ROE2,3* 11.2% 9.5% 9.3% -0.1% ARCC BDC Peer
Slide 42: Rigorous Underwriting and Credit Management
Rigorous Underwriting and Credit Management Our in-depth process typically spans several months, allowing for thoughtful decision making Typical Average Timeframe Key Attributes of ARCC Borrowers1 Investment Opportunity (Primary and Secondary) Up to 1 week 100% Preliminary Evaluation by senior manag
Slide 43: ARCC's Robust Valuation Process and Approach
ARCC’s Robust Valuation Process and Approach Disciplined, Longstanding Process for Determining Portfolio Values • ~45 person dedicated portfolio management and valuation team provides portfolio monitoring and is responsible for managing the quarterly valuation process Portfolio • Perspective is enha
Slide 44: BDC Structure Offers Benefits to Creditors
BDC Structure Offers Benefits to Creditors We believe creditors benefit from the leverage restrictions and diversification requirements of the BDC/RIC structure BDCs are closed-end investment companies The BDC/RIC structure provides limitation on regulated by the SEC leverage and requires portfolio
Slide 45: Reconciliations of GAAP Net Income to Core Earnings
Reconciliations of GAAP Net Income to Core Earnings Reconciliations of GAAP Net Income to Core Earnings For the years ended (in millions) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 GAAP Net Income $508 $489 $591 $379 $474 $667 $858 $793 $484 $1,567 $600 $1,522 Adjustments: Net reali
Slide 46: Index & ETF Definitions
Index & ETF Definitions Confidential – Not for Publication or Distribution
Slide 47: Index Definitions
Index Definitions Indices are provided for illustrative purposes only and not indicative of any investment. They have not been selected to represent appropriate benchmarks or targets for ARCC. Rather, the indices shown are provided solely to illustrate the performance of well known and widely recogn
Slide 48: Endnotes
Endnotes Endnotes Confidential – Not for Publication or Distribution
Slide 49: Endnotes
Endnotes Slide 4: Market Leading Company in Direct Lending 1. By market capitalization as of December 31, 2023. 2. Includes invested capital from inception on October 8, 2004 through December 31, 2023. Includes investments made through Ares Capital Corporation, the Senior Secured Loan Program and th
Slide 50: Endnotes
Endnotes Slide 12: Key Elements to Our Investment Approach 1. The portfolio weighted average EBITDA and average EBITDA for the underlying borrowers includes information solely in respect of corporate investments in Ares Capital's portfolio and the weighted average total net leverage multiple and int
Slide 51: Endnotes
Endnotes Slide 17: ARCC Has Delivered Compelling Long Term Performance 1. Includes invested capital from inception on October 8, 2004 through December 31, 2023. Includes investments made through Ares Capital Corporation, the Senior Secured Loan Program and the Senior Direct Lending Program. Excludes
Slide 52: Endnotes
Endnotes Slide 21: ARCC Has a Compelling Track Record of Credit Performance 1. Includes invested capital from inception on October 8, 2004 through September 30, 2023. Includes investments made through Ares Capital Corporation, the Senior Secured Loan Program and the Senior Direct Lending Program. Ex
Slide 53: Endnotes
Endnotes Slide 28: Deep Sources of Liquidity and Well Laddered Maturities 1. Represents the total aggregate principal amount outstanding. 2. Subject to borrowing base, leverage and other restrictions. 3. Requires periodic payments of interest and may require repayments of a portion of the outstandin
Slide 54: Endnotes
Endnotes Slide 39: ARCC’s Portfolio Has Generated Higher Returns with Less Risk 1. Returns are calculated as annualized average returns of dividends paid plus changes in net asset value over the time periods represented. 2. BDC peer group consists of BDCs with a total portfolio at fair value greater
Slide 55: Confidential – Not for Publication or Distribution
Confidential – Not for Publication or Distribution