Ares Management Corporation · NYSE:ARES
Ares Management — Q2 2019 Earnings Presentation
39 slides from Ares Management's earnings presentation, Jul 31, 2019
Slide 1: Second Quarter 2019 Earnings Presentation
Exhibit 99.2 Second Quarter 2019 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: Second Quarter Highlights
Second Quarter Highlights • Total Assets Under Management ("AUM") of $142.1 billion • Total Fee Paying AUM ("FPAUM") of $89.4 billion Assets Under • Available Capital of $37.1 billion Management • AUM Not Yet Earning Fees available for future deployment of $27.3 billion • Raised $7.3 billion in gros
Slide 4: Gross New Capital Commitments
#ACACAC #1E3154 Gross New Capital Commitments(1) #225070 #828282 $ in millions Q2 2019 Comments Credit Group ARCC and affiliates $3,330 New and additional debt commitments #D2D2D2 #49749B U.S. Direct Lending 984 New and additional equity and debt commitments to various funds Alternative Credit 775 N
Slide 5: Assets Under Management
Assets Under Management AUM as of June 30, 2019 was $142.1 billion, an increase of 17.1% from prior year(1) • The increase of $20.7 billion was driven by capital raising, primarily across U.S. and European direct lending, alternative credit, and syndicated loan funds in our Credit Group FPAUM as of
Slide 6: Management Fees by Duration and Fund Type
Management Fees by Duration and Fund Type For the three months ended June 30, 2019: ◦ 83% of management fees come from funds with three or more years remaining in duration ◦ 89% of management fees are derived from permanent capital, closed end funds and CLOs Duration Fund Type 1% 2% 2% 5% 7% 11% 7%
Slide 7: AUM and FPAUM by Duration
AUM and FPAUM by Duration As of June 30, 2019, 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 74% of AUM AUM: $142.1 billion FPAUM: $89.4 billion 14% 17% 3% 22%3% 7% 13% 16% 7 18%
Slide 8: Available Capital and AUM Not Yet Earning Fees
Available Capital and AUM Not Yet Earning Fees Available Capital as of June 30, 2019 was $37.1 billion, an increase of 11.4% from prior year • The increase of $3.8 billion was driven primarily by new commitments in U.S. and European direct lending and alternative credit funds in our Credit Group AUM
Slide 9: AUM Not Yet Earning Fees
AUM Not Yet Earning Fees As of June 30, 2019, AUM Not Yet Earning Fees of $29.1 billion could generate approximately $286.1 million in potential incremental annual management fees, of which $271.9 million relates to the $27.3 billion of AUM available for future deployment(1) • The $27.3 billion of A
Slide 10: Incentive Eligible AUM and Incentive Generating AUM
Incentive Eligible AUM and Incentive Generating AUM Incentive Eligible AUM as of June 30, 2019 was $85.3 billion, an increase of 16.5% from prior year • The increase of $12.1 billion was primarily driven by capital raising across U.S. and European direct lending funds in our Credit Group Incentive G
Slide 11: Capital Deployment
Capital Deployment(1) • Total gross invested capital during Q2-19 of $6.7 billion compared to Q2-19 Capital Deployment Breakdown: $6.7 billion $6.4 billion in Q2-18 ($ in millions) ◦ Of the total amount, $4.1 billion was related to deployment in our drawdown funds compared to $4.3 billion for the sa
Slide 12: GAAP Statements of Operations
GAAP Statements of Operations $ in thousands, except share data Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Revenues Management fees (includes ARCC Part I Fees of $39,157, $77,550 and $29,866, $58,283 for the three and six months ended June 30, 2019 and 2018, respective
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 June 30, Six Months Ended June 30, 2019 2018 % Change 2019 2018 % Change Management fees(1) $246,279 $202,304 22% $479,291 $399,130 20% Other fees 4,611 7,221 (36)% 7,686 13,294 (42)
Slide 14: GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Realized Income and Fee Related Earnings: Income before taxes $84,383 $51,072 $220,343 $113,118 Adjustments: Depreciation and amortization expense
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 June 30, Six Months Ended June 30, 2019 2018 2019 2018 Performance income and net investment income reconciliation: Carried interest allocation $119,712 $(13,444) $317,005 $40,685 Incentive fee
Slide 16: Credit Group
Credit Group(1) • Management and other fees increased by 24% for Q2-19 compared to Q2-18, primarily due to an increase in deployment in funds in the U.S. and European direct lending strategies • Fee related earnings increased by 24% for Q2-19 compared to Q2-18, primarily driven by higher management
Slide 17: Private Equity Group
Private Equity Group(1) • Management and other fees increased 5% for Q2-19 compared to Q2-18 primarily driven by new commitments in our energy opportunities fund and by deployment of capital within SSF IV • Fee related earnings decreased 3% primarily driven by an increase in compensation offset by h
Slide 18: Real Estate Group
Real Estate Group(1) • Management and other fees increased 31% for Q2-19 compared to Q2-18, primarily driven by new commitments and $3.6 million in catch up fees from our fifth flagship European equity fund • Fee related earning increased 17% for Q2-19 compared to Q2-18, primarily driven by higher m
Slide 19: Realized Income per Share Data
Realized Income per Share Data Three Months Ended June 30, Six Months Ended June 30, $ in thousands, except share data 2019 2018 2019 2018 After-tax Realized Income, net of Series A Preferred Stock dividends Realized Income before taxes $94,311 $108,054 $198,943 $180,127 Entity level foreign, state
Slide 20: Balance Sheet
Balance Sheet • Substantial balance sheet value related to investments in Ares managed vehicles and net accrued performance income receivable ◦ As of June 30, 2019, our balance sheet had $247.2 million in cash and cash equivalents and $566.3 million in debt obligations, which included $320.0 million
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 June 30, 2019 $ 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 $39,157) $172,347 $52,162 $21,770 $— $246,279 Other fees 3,939 — 672 — 4,61
Slide 24: Financial Details – Segments Six Months Ended
Financial Details – Segments Six Months Ended June 30, 2019 $ in thousands Private Real Operations Credit Equity Estate Management Group Group Group Group Total(1) Management fees (includes ARCC Part I Fees of $77,550) $335,313 $103,558 $40,420 $— $479,291 Other fees 7,005 — 681 — 7,686 Compensation
Slide 25: AUM and FPAUM Rollforward
AUM and FPAUM Rollforward Q2-19 Total AUM Rollforward ($ in millions) LTM Total AUM Rollforward ($ in millions) $ in thousands Credit Private Equity Real Estate Total $ in thousands Credit Private Equity Real Estate Total Q1-19 Ending Balance $101,076 $23,778 $11,810 $136,664 Q2-18 Ending Balance $8
Slide 26: AUM and FPAUM by Strategy
AUM and FPAUM by Strategy As of June 30, 2019 Strategy ($ in billions) AUM % AUM FPAUM % FPAUM Credit Syndicated Loans $20.9 20% $20.2 31% High Yield 3.5 3 3.5 5 Credit Opportunities 2.5 2 2.1 3 Alternative Credit 7.3 7 3.8 6 U.S. Direct Lending(1) 46.3 44 24.4 38 European Direct Lending 25.0 24 10.
Slide 27: Balance Sheet Investments by Strategy
Balance Sheet Investments by Strategy(1) $ in thousands June 30, 2019 December 31, 2018 Credit Syndicated Loans(2) $100,751 $75,029 Credit Opportunities 3,763 3,420 Alternative Credit 21,013 19,518 U.S. Direct Lending 62,674 58,970 European Direct Lending 37,035 47,854 Credit $225,236 $204,791 Priva
Slide 28: Significant Fund Performance Metrics
Significant Fund Performance Metrics The following table presents the performance data for the significant fund in the Credit Group that is not a drawdown fund: As of June 30, 2019 Returns (%)(1) Current Quarter Year-To-Date Since Inception(2) Year of AUM Inception (in millions) Gross Net Gross Net
Slide 29: Significant Fund Performance Metrics (cont’d)
Significant Fund Performance Metrics (cont’d) The following table presents the performance data for all our significant drawdown funds: As of June 30, 2019 Credit Cumulative MOIC IRR Year of Original Capital Invested Realized Unrealized ($ in millions) Inception AUM Commitments Capital Proceeds(4) V
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 Shares
Weighted Average Shares Q2-19 Q2-18 Common Shares, Common Shares, Total Shares As Adjusted(3) Total Shares As Adjusted(3) Weighted average shares of Class A common stock 105,188,966 105,188,966 98,037,252 98,037,252 Ares Operating Group Units exchangeable into shares of Class A common stock(1) 116,8
Slide 33: Additional Information
Additional Information Targeted Net Returns(1) Investor Base as a % of AUM(1) Credit Group: Public Entity & Related: 19% l Syndicated Loans and High Yield Bonds: Benchmark Outperformance(2) l 700+ 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 Credit Group $564,899 $481,466 Private Equity Group 198,182 198,498 Real Estate Group 73,663 64,861 Management fees(2) $836,744 $744,825 Other fees $24,288 $22,431 Compensation and benefits expenses (456,255) (
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 Realized income and fee related earnings: Income before taxes $184,341 $149,859 Adjustments: Depreciation and amortization expense 25,087 30,481 Equity compensation expense 89,724 69,711
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 Performance income and net investment income reconciliation: Carried interest allocation $42,410 $620,454 Incentive fees 63,380 16,220 Carried interest allocation and incentive 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 Eligible Assets Incentive eligible AUM (or “IEAUM”) refers to the AUM of our funds that are eligible to produce performance income, regardless of Under Management whether or not they are currently generating performance income. It generally represents the NAV plus uncalle
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