Ares Management Corporation · NYSE:ARES
Ares Management — Q3 2020 Earnings Presentation
44 slides from Ares Management's earnings presentation, Oct 28, 2020
Slide 1: Third Quarter 2020 Earnings Presentation
Exhibit 99.2 Third Quarter 2020 Earnings Presentation
Slide 2: Important Notice
Important Notice This presentation is prepared for Ares Management Corporation (NYSE: ARES) for the benefit of its public stockholders. This presentation is solely for information purposes in connection with evaluating the business, operations and financial results of Ares Management Corporation (“A
Slide 3: Third Quarter 2020 Highlights
Third Quarter 2020 Highlights • Total Assets Under Management ("AUM") of $179.2 billion Q2 #s • Total Fee Paying AUM ("FPAUM") of $112.7 billion Assets Under • Available Capital of $52.5 billion AUM - 158 Management • AUM Not Yet Paying Fees available for future deployment of $36.3 billion FPAUM - 1
Slide 4: Gross New Capital Commitments
#ACACAC #1E3154 Gross New Capital Commitments(1) #225070 $ in billions Q3 2020 Comments #828282 Credit Group Additional equity commitments to various funds including $8.2 billion for the first closing of European Direct Lending $8.9 our fifth flagship European direct lending fund #D2D2D2 #49749B ARC
Slide 5: Assets Under Management
Assets Under Management AUM as of September 30, 2020 was $179.2 billion, an increase of 24.2% from prior year(1) • The increase of $34.9 billion was driven by capital raising across U.S. and European direct lending, which includes the first closing for our fifth flagship European direct lending fund
Slide 6: Management Fees by Duration and Fund Type
Management Fees by Duration and Fund Type For the quarter ended September 30, 2020: • 77% of management fees were earned from funds with three or more years remaining in duration • 90% of management fees were earned from permanent capital, closed end funds and CLOs Duration Fund Type 1 12% 4 1% 7 %
Slide 7: AUM and FPAUM by Duration
AUM and FPAUM by Duration As of September 30, 2020, approximately 68% of AUM and 67% of FPAUM had a duration longer than 3 years • Initial duration exceeded 7 years for approximately 74% of AUM based on each fund's first close AUM: $179.2 billion FPAUM: $112.7 billion 1 7 2 % 2 4% 7 12% 5% 14% 15% %
Slide 8: Available Capital and AUM Not Yet Paying Fees
Available Capital and AUM Not Yet Paying Fees Available Capital as of September 30, 2020 was $52.5 billion, an increase of 55.3% from prior year • The increase of $18.7 billion was driven primarily by fundraising in U.S. and European direct lending, including the first closing for our fifth flagship
Slide 9: AUM Not Yet Paying Fees
AUM Not Yet Paying Fees As of September 30, 2020, AUM Not Yet Paying Fees of $39.3 billion could generate approximately $413.3 million in potential incremental annual management fees, of which $386.1 million relates to the $36.3 billion of AUM available for future deployment(1) • The $36.3 billion o
Slide 10: Incentive Eligible AUM and Incentive Generating AUM
Incentive Eligible AUM and Incentive Generating AUM Incentive Eligible AUM as of September 30, 2020 was $105.6 billion, an increase of 22.5% from prior year • The increase of $19.4 billion was primarily driven by capital raising across the following strategies: European direct lending, U.S. direct l
Slide 11: Capital Deployment
Capital Deployment(1) Q3-20 Capital Deployment Breakdown: $4.4 billion • Total Gross Invested Capital during Q3-20 was $4.4 billion compared to $8.2 billion during Q3-19 ($ in billions) • Of the total amount, $3.9 billion was related to deployment by our $0.4 drawdown funds compared to $7.0 billion
Slide 12: GAAP Statements of Operations
GAAP Statements of Operations $ in thousands, except share data Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Revenues Management fees (includes ARCC Part I Fees of $41,643, $126,872 and $38,786, $116,336 for the three and nine months ended September 30, 2020 a
Slide 13: RI and Other Measures Financial Summary
RI and Other Measures Financial Summary $ in thousands, except share data (and as otherwise noted) Three months ended September 30, Nine months ended September 30, 2020 2019 % Change 2020 2019 % Change Management fees(1) $300,131 $259,978 15% $851,581 $739,269 15% Other fees 4,911 5,343 (8) 12,921 1
Slide 14: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Realized Income and Fee Related Earnings: Income before taxes $159,641 $103,576 $104,325 $323,919 Adjustments: Depreciation and amortiz
Slide 15: GAAP to Non-GAAP Reconciliation (cont'd)
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont'd) $ in thousands Three months ended September 30, Nine months ended September 30, 2020 2019 2020 2019 Performance income and net investment income reconciliation: Carried interest allocation $168,978 $186,803 $241,380 $503,808 I
Slide 16: Credit Group
Credit Group(1) • Management and other fees increased by 16% for Q3-20 compared to Q3-19, primarily driven by deployment in funds in the U.S. and European direct lending strategies and an increase in ARCC Part I Fees • Fee Related Earnings increased by 21% for Q3-20 compared to Q3-19, primarily driv
Slide 17: Private Equity Group
Private Equity Group(1) • Management and other fees were flat for Q3-20 compared to Q3-19, primarily due to additional commitments and deployment in ASOF and offset by $1.5 million in one-time catch up fees from AEOF in Q3-19 • Fee Related Earnings decreased by 8% for Q3-20 compared to Q3-19, primar
Slide 18: Real Estate Group
Real Estate Group(1) • Management and other fees decreased by 12% for Q3-20 compared to Q3-19, primarily a result of $7.0 million in one-time catch up fees from EF V in Q3-19, offset by additional management fees generated with the launch of our third U.S. opportunistic real estate equity fund • Fee
Slide 19: Realized Income per Share Data
Realized Income per Share Data Three months ended September 30, Nine months ended September 30, $ in thousands, except share data 2020 2019 2020 2019 After-tax Realized Income, net of Series A Preferred Stock dividends Realized Income before taxes $146,408 $98,407 $395,801 $297,350 Entity level fore
Slide 20: Balance Sheet
Balance Sheet • Substantial balance sheet value related to investments primarily in Ares managed vehicles and net accrued performance income • As of September 30, 2020, our balance sheet included $868.8 million in cash and cash equivalents and $642.7 million in debt obligations with no amounts drawn
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 September 30, 2020
Financial Details – Segments Three Months Ended September 30, 2020 Private Real Operations Credit Equity Estate Strategic Management $ in thousands Group Group Group Initiatives Group Total(1) Management fees (Credit Group includes ARCC Part I Fees of $41,643) $208,371 $54,653 $23,787 $13,320 $— $30
Slide 24: Financial Details – Segments, Nine Months Ended September 30, 2020
Financial Details – Segments Nine Months Ended September 30, 2020 Private Real Operations Credit Equity Estate Strategic Management $ in thousands Group Group Group Initiatives Group Total(1) Management fees (Credit Group includes ARCC Part I Fees of $126,872) $606,596 $160,206 $71,459 $13,320 $— $8
Slide 25: AUM Rollforward
AUM Rollforward Q3-20 Total AUM Rollforward $ in millions Credit Private Equity Real Estate Strategic Initiatives Total Q2-20 Ending Balance $117,413 $26,602 $14,395 $— $158,410 Acquisitions — — — 6,871 6,871 Net new par/equity commitments 10,111 475 26 190 10,802 Net new debt commitments 1,701 — 23
Slide 26: FPAUM Rollforward
FPAUM Rollforward Q3-20 Total FPAUM Rollforward $ in millions Credit Private Equity Real Estate Strategic Initiatives Total Q2-20 Ending Balance $78,744 $17,473 $9,331 $— $105,548 Acquisitions — — — 4,183 4,183 Commitments 323 210 43 — 576 Subscriptions/deployment/increase in leverage 2,152 310 76 2
Slide 27: AUM and FPAUM by Strategy
AUM and FPAUM by Strategy As of September 30, 2020 $ in billions AUM % AUM FPAUM % FPAUM Credit Syndicated Loans $26.2 20% $25.0 31% High Yield 2.6 2 2.6 3 Multi-Asset Credit 2.9 2 2.4 3 Alternative Credit 10.1 8 5.4 7 U.S. Direct Lending(1) 52.8 40 30.5 37 European Direct Lending 36.6 28 15.4 19 Cr
Slide 28: Balance Sheet Investments by Strategy
Balance Sheet Investments by Strategy(1) $ in millions September 30, 2020 December 31, 2019 Credit Syndicated Loans(2) $94.0 $104.7 Multi-Asset Credit 33.7 29.5 Alternative Credit 22.5 21.0 U.S. Direct Lending 57.9 61.3 European Direct Lending 34.3 32.8 Credit $242.4 $249.3 Private Equity ACOF IV $3
Slide 29: Significant Fund Performance Metrics
Significant Fund Performance Metrics The following table presents the performance data for the significant funds in the Credit Group that are not drawdown funds: As of September 30, 2020 Returns (1) (2) Current Quarter Year -to-Date Since Inception Primary Investment ($ in millions) Year of Inceptio
Slide 30: Significant Fund Performance Metrics (cont'd)
Significant Fund Performance Metrics (cont’d) The following table presents the performance data for our significant drawdown funds (cont'd): As of September 30, 2020 Capital MOIC IRR(%) Year of Original Capital Invested to Realized Unrealized Total Primary Investment ($ in millions) Inception AUM Co
Slide 31: 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 32: Significant Fund Performance Metrics Endnotes (cont'd)
Significant Fund Performance Metrics Endnotes (cont’d) Private Equity 1. Realized value represents the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments. Realized value excludes any proceeds related to bridge financings.
Slide 33: Significant Fund Performance Metrics Endnotes (cont'd)
Significant Fund Performance Metrics Endnotes (cont’d) Strategic Initiatives 1. Realized value represents the sum of all cash distributions to all partners and if applicable, exclude tax and incentive distributions made to the general partner. 2. Unrealized value represents the fund's NAV reduced by
Slide 34: Supplemental Performance Metrics
Supplemental Performance Metrics The following table presents the supplemental performance data for certain drawdown funds: As of September 30, 2020 Credit MOIC IRR(%) Year of Original Capital Capital Invested Realized Unrealized Total Primary Investment ($ in millions) Inception AUM Commitments to
Slide 35: Supplemental Performance Metrics Endnotes
Supplemental Performance Metrics Endnotes Credit 1. Realized value represents the sum of all cash distributions to all partners and if applicable, exclude tax and incentive distributions made to the general partner. 2. Unrealized value represents the fund's NAV reduced by the accrued incentive alloc
Slide 36: Supplemental Performance Metrics Endnotes (cont'd)
Supplemental Performance Metrics Endnotes (cont’d) Real Estate 1. Realized value includes distributions of operating income, sales and financing proceeds received. 2. Unrealized value represents the fair value of remaining investments. There can be no assurance that unrealized investments will be re
Slide 37: Weighted Average Shares
Weighted Average Shares Q3-20 Q3-19 Common Shares, Common Shares, Total Shares As Adjusted(3) Total Shares As Adjusted(3) Weighted average shares of Class A common stock 143,466,209 143,466,209 108,481,929 108,481,929 Ares Operating Group Units exchangeable into shares of Class A common stock(1) 114
Slide 38: Additional Information: AUM Mix by Investor
Additional Information AUM Mix by Investor Institutional Direct - 71%(2) Public Entity & Related l 600+ institutional investors(1) (2) l 200,000+ retail investors across our public funds 13% 28% Total Direct Institutional Investors: 1,000+ 16% Pension Bank/ Private Bank Insurance 1% 4% 11% 6% Sovere
Slide 39: RI and Other Measures – Financial Data
RI and Other Measures –Financial Data(1) $ in thousands Year ended December 31, 2019 2018 Credit Group(2) $713,853 $564,899 Private Equity Group 211,614 198,182 Real Estate Group 87,063 73,663 Management fees $1,012,530 $836,744 Other fees 18,078 24,288 Compensation and benefits expenses (528,207) (
Slide 40: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Year ended December 31, 2019 2018 Realized Income and Fee Related Earnings: Income before taxes $425,180 $184,341 Adjustments: Depreciation and amortization expense(1) 40,602 25,087 Equity compensation expense 97,691 89,
Slide 41: GAAP to Non-GAAP Reconciliation (cont'd)
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont'd) $ in thousands Year ended December 31, 2019 2018 Performance income and net investment income reconciliation: Carried interest allocation $621,872 $42,410 Incentive fees 69,197 63,380 Carried interest allocation and incentive
Slide 42: Glossary
Glossary ARCC Part I Fees ARCC Part I Fees refers to a quarterly performance income on the net investment income of Ares Capital Corporation (NASDAQ: ARCC) (“ARCC”). Such fees from ARCC are classified as management fees as they are predictable and recurring in nature, not subject to contingent repay
Slide 43: Glossary (cont'd)
Glossary (cont’d) Fee Related Earnings Fee Related Earnings or “FRE”, a non-GAAP measure, is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs fro
Slide 44: Glossary (cont'd)
Glossary (cont’d) Performance Income Performance Income refers to income we earn based on the performance of a fund that is generally based on certain specific hurdle rates as defined in the fund’s investment management or partnership agreements and may be either an incentive fee or carried interest