Ares Management Corporation · NYSE:ARES
Ares Management — Q3 2018 Earnings Presentation
39 slides from Ares Management's earnings presentation, Nov 1, 2018
Slide 1: Third Quarter 2018 Earnings Presentation
Exhibit 99.2 Third Quarter 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: Third Quarter Highlights
Third Quarter Highlights • Assets Under Management ("AUM") of $125.1 billion • Fee Paying AUM ("FPAUM") of $79.4 billion Assets Under • Available Capital of $34.4 billion Management • AUM Not Yet Earning Fees available for future deployment of $21.7 billion • Raised $6.8 billion in gross new capital
Slide 4: Gross New Capital Commitments – Third Quarter of 2018
#ACACAC #1E3154 Gross New Capital Commitments(1) – Third Quarter of 2018 #225070 #828282 $ in millions Q3 2018 Comments Credit Group #D2D2D2 #49749B New equity commitments of $1.6 billion. Since quarter end, we raised additional equity U.S. Senior Direct Lending Commingled Fund 1,620 commitments of
Slide 5: Assets Under Management
Assets Under Management AUM of $125.1 billion as of September 30, 2018 increased 18.4% year over year(1) • Q3-18 gross new capital commitments of $6.8 billion, including $4.8 billion in equity commitments, $1.1 billion of CLO commitments and $0.9 billion in other debt commitments ◦ Of the $6.8 billi
Slide 6: AUM, FPAUM and Management Fee Duration
AUM, FPAUM and Management Fee Duration As of September 30, 2018, approximately 72% of AUM, 71% of FPAUM and 83% of management fees had a duration longer than 3 years ◦ At time of fund closing, the initial duration was greater than 7 years for approximately 77% of AUM AUM: $125.1 billion FPAUM: $79.4
Slide 7: Available Capital and AUM Not Yet Earning Fees
Available Capital and AUM Not Yet Earning Fees Available Capital of $34.4 billion as of September 30, 2018 increased 33.6% year over year • During Q3-18, $4.7 billion in available capital came from new commitments, including $3.8 billion in net equity commitments and $0.9 billion in debt commitments
Slide 8: AUM Not Yet Earning Fees
AUM Not Yet Earning Fees As of September 30, 2018, AUM Not Yet Earning Fees of $25.8 billion could generate approximately $280.7 million in potential incremental annual management fees, of which $233.3 million relates to the $21.7 billion of AUM available for future deployment(1) ◦ The $21.7 billion
Slide 9: Incentive Eligible AUM and Incentive Generating AUM
Incentive Eligible AUM and Incentive Generating AUM Incentive Eligible AUM of $76.3 billion as of September 30, 2018 increased by 26.3% year over year ◦ The increase of $15.9 billion was primarily driven by fundraising across E.U. and U.S. direct lending funds Incentive Generating AUM(1) of $37.2 bi
Slide 10: Capital Deployment
Capital Deployment(1) • Total gross invested capital during Q3-18 of $4.9 billion compared to Q3-18 Capital Deployment Breakdown: $4.9 billion $5.0 billion in Q3-17 ◦ Of the total amount, $3.8 billion was related to deployment in our ($ in millions) drawdown funds compared to $3.6 billion for the sa
Slide 11: GAAP Statements of Operations
GAAP Statements of Operations $ in thousands, except share data Three Months Ended September 30, Nine Months Ended September 2018 2017 2018 2017 Revenues Management fees (includes ARCC Part I Fees of $33,377, $91,660 and $24,036, $76,436 for the three and nine months ended September 30, 2018 and 201
Slide 12: Financial Summary of RI, ENI and Other Measures
Financial Summary of RI, ENI and Other Measures $ in thousands, except share data (unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 % Change 2018 2017 % Change Management fees(1) $213,662 $188,628 13% $612,792 $550,969 11% Other fees 3,872 6,144 (37)
Slide 13: 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, 2018 2017 2018 2017 Economic Net Income, Realized Income and Fee Related Earnings: Income before taxes $52,343 $88,424 $165,461 $12,916 Adjustments: Amorti
Slide 14: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.)
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.) $ in thousands Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Performance income and net investment income reconciliation: Unconsolidated performance income - realized $71,568 $178,989 $217
Slide 15: Credit Group
Credit Group(1) • Management and other fees increased by 18% for Q3-18 compared to Q3-17, primarily due to deployment in new U.S. and E.U. direct lending strategies and an increase in ARCC Part I Fees • Realized Income increased by $5.8 million for Q3-18 compared to Q3-17, primarily driven by increa
Slide 16: Private Equity Group
Private Equity Group(1) • Management and other fees decreased 6% for Q3-18 compared to Q3-17 driven by distributions from private equity funds that are past their respective investment periods • Realized Income decreased by $33.2 million for Q3-18 compared to Q3-17, primarily driven by reduced monet
Slide 17: Real Estate Group
Real Estate Group(1) • Management and other fees increased 16% for Q3-18 compared to Q3-17, primarily driven by a U.S. equity fund and an E.U. equity fund, partially offset by the liquidation of one of our E.U. equity funds combined with the sale of investments within certain other real estate equit
Slide 18: Realized Income per Share Data
Realized Income per Share Data Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 After-tax Realized Income, net of preferred share dividend Realized Income before taxes $91,418 $116,845 $271,545 $250,685 Entity level foreign, state and local taxes (990) (1,753) (6,
Slide 19: Economic Net Income per Share Data
Economic Net Income per Share Data Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 After-tax Economic Net Income, net of preferred share dividend Economic Net Income before taxes $75,717 $101,431 $255,162 $335,340 Entity level foreign, state and local taxes (990)
Slide 20: Balance Sheet
Balance Sheet • Substantial balance sheet value related to investments in Ares managed vehicles and net performance income receivable ◦ $122.2 million in cash and cash equivalents, $350.8 million in debt obligations including $105.0 million drawn against our $1.065 billion revolving credit facility
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 September 30, 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 $33,377) $145,414 $48,287 $19,961 $— $213,662 Other fees 3,656 206 10
Slide 24: Financial Details – Segments, Nine Months Ended
Financial Details – Segments Nine Months Ended September 30, 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 $91,660) $413,028 $147,492 $52,272 $— $612,792 Other fees 16,263 883 20
Slide 25: AUM and FPAUM Rollforward
AUM and FPAUM Rollforward Q3-18 Total AUM Rollforward ($ in millions) LTM Total AUM Rollforward ($ in millions) $ in thousands Credit Private Equity Real Estate Total $ in thousands Credit Private Equity Real Estate Total Q2-18 Ending Balance $86,858 $23,602 $10,910 $121,370 Q3-17 Ending Balance $70
Slide 26: AUM and FPAUM by Strategy
AUM and FPAUM by Strategy(1) Strategy ($ in billions) AUM % AUM FPAUM % FPAUM Credit Syndicated Loans $18.7 20% $18.3 34% High Yield 4.5 5 4.5 8 Credit Opportunities 2.8 3 2.4 4 Structured Credit 5.1 6 3.6 6 U.S. Direct Lending(2) 39.2 43 18.6 33 E.U. Direct Lending 21.2 23 8.6 15 Total Credit Group
Slide 27: Balance Sheet Investments by Strategy
Balance Sheet Investments by Strategy $ in thousands September 30, 2018 December 31, 2017 Credit Syndicated Loans*(1)(2) $ 84,073 $ 246,460 Credit Opportunities 4,744 4,464 Structured Credit 20,417 14,067 U.S. Direct Lending 57,583 61,411 E.U. Direct Lending 42,667 48,672 Credit Group $ 209,484 $ 37
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 September 30, 2018 Returns (%)(1) Current Quarter Year-To-Date Since Inception(2) Year of AUM Primary Inception (in millions) Gross Net
Slide 29: Significant Fund Performance Metrics (drawdown funds)
Significant Fund Performance Metrics* The following table presents the performance data for our significant funds, all of which are drawdown funds: As of September 30, 2018 Credit Cumulative MOIC IRR Realized Unrealized Year of Original Capital Invested (5) (6) (7) (8) (9) (10) ($ in millions) Incep
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. 6. The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying
Slide 32: Weighted Average Common Share Information
Weighted Average Common Share Information Q3-18 Q3-17 GAAP Shares Adjusted Common Shares(3) GAAP Shares Adjusted Common Shares(3) Ares weighted average common shares 98,706,419 98,706,419 82,166,852 82,166,852 Ares Operating Group Units exchangeable into common shares(1) 119,822,657 — 130,192,448 —
Slide 33: Additional Information
Additional Information Dividends/Corporate Action Targeted Net Returns(1) Investor Base as a % of AUM(1) Credit Group: Public Entity & Related: 19% l Ares declared a quarterly dividend of $0.28 per common l Syndicated Loans and High Yield Bonds: Benchmark l 700+ institutional investors(3) (2) share,
Slide 34: RI, ENI and Other Measures – Financial Data
RI, ENI and Other Measures –Financial Data(1) $ in thousands Year ended December 31, 2017 2016 (2) Credit Group $481,466 $444,664 Private Equity Group 198,498 147,790 Real Estate Group 64,861 66,997 Management fees $744,825 $659,451 Other fees $22,431 $12,351 Compensation and benefits expenses(3) (4
Slide 35: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Year ended December 31, 2017 2016 Economic Net Income and Fee Related Earnings: Income before taxes $149,859 $297,920 Adjustments: Amortization of intangibles 17,850 26,638 Depreciation expense 12,631 8,215 Equity compen
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, 2017 2016 Performance income and net investment income reconciliation: Unconsolidated performance income - realized $317,787 $292,998 Performance income - realized earned from Consolidated
Slide 37: Glossary
Glossary ARCC Part I Fees ARCC Part I Fees refers to a quarterly performance income on the investment income from ARCC. ARCC Part II Fees ARCC Part II Fees refers to fees based on ARCC's net capital gains, which are paid annually. Ares Operating Group Units Ares Operating Group Unit refers to, colle
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