Ares Management Corporation · NYSE:ARES
Ares Management — Q3 2019 Earnings Presentation
39 slides from Ares Management's earnings presentation, Oct 31, 2019
Slide 1: Third Quarter 2019 Earnings Presentation
Exhibit 99.2 Third 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: Third Quarter Highlights
Third Quarter Highlights • Total Assets Under Management ("AUM") of $144.3 billion • Total Fee Paying AUM ("FPAUM") of $93.3 billion Assets Under • Available Capital of $33.8 billion Management • AUM Not Yet Earning Fees available for future deployment of $24.2 billion • Raised $3.5 billion in gross
Slide 4: Gross New Capital Commitments
#ACACAC #1E3154 Gross New Capital Commitments(1) #225070 #828282 $ in millions Q3 2019 Comments Credit Group U.S. Direct Lending $985 New and additional equity and debt commitments to various funds #D2D2D2 #49749B CLOs 505 Closed a new European CLO ARCC and affiliates 393 New and additional equity a
Slide 5: Assets Under Management
Assets Under Management AUM as of September 30, 2019 was $144.3 billion, an increase of 15.3% from prior year(1) • The increase of $19.2 billion was driven by capital raising in our Credit Group, primarily across U.S. and European direct lending, alternative credit, and syndicated loan funds FPAUM a
Slide 6: Management Fees by Duration and Fund Type
Management Fees by Duration and Fund Type For the three months ended September 30, 2019: ◦ 82% of management fees are earned from funds with three or more years remaining in duration ◦ 89% of management fees are earned from permanent capital, closed end funds and CLOs Duration Fund Type 1% 1% 2% 6%
Slide 7: AUM and FPAUM by Duration
AUM and FPAUM by Duration As of September 30, 2019, approximately 70% of AUM and 71% 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: $144.3 billion FPAUM: $93.3 billion 14% 17% 4% 22%4% 7% 13% 16%
Slide 8: Available Capital and AUM Not Yet Earning Fees
Available Capital and AUM Not Yet Earning Fees Available Capital as of September 30, 2019 was $33.8 billion, a decrease of 1.8% from prior year • The decrease of $0.6 billion was driven primarily by deployment in U.S. and European direct lending, corporate private equity, and alternative credit fund
Slide 9: AUM Not Yet Earning Fees
AUM Not Yet Earning Fees As of September 30, 2019, AUM Not Yet Earning Fees of $26.4 billion could generate approximately $253.2 million in potential incremental annual management fees, of which $235.6 million relates to the $24.2 billion of AUM available for future deployment(1) • The $24.2 billion
Slide 10: Incentive Eligible AUM and Incentive Generating AUM
Incentive Eligible AUM and Incentive Generating AUM Incentive Eligible AUM as of September 30, 2019 was $86.2 billion, an increase of 13.0% from prior year • The increase of $10 billion was primarily driven by capital raising across U.S. and European direct lending funds in our Credit Group Incentiv
Slide 11: Capital Deployment
Capital Deployment(1) • Total gross invested capital during Q3-19 of $8.2 billion compared to Q3-19 Capital Deployment Breakdown: $8.2 billion $4.9 billion in Q3-18 ($ in millions) ◦ Of the total amount, $7.0 billion was related to deployment in our drawdown funds compared to $3.8 billion for the sa
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, 2019 2018 2019 2018 Revenues Management fees (includes ARCC Part I Fees of $38,786, $116,336 and $33,377, $91,660 for the three and nine months ended September 30, 2019 an
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, 2019 2018 % Change 2019 2018 % Change Management fees(1) $259,978 $213,662 22% $739,269 $612,792 21% Other fees 5,343 3,872 38% 13,029 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, 2019 2018 2019 2018 Realized Income and Fee Related Earnings: Income before taxes $103,576 $52,343 $323,919 $165,461 Adjustments: Depreciation and amortiza
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 September 30, Nine Months Ended September 30, 2019 2018 2019 2018 Performance income and net investment income reconciliation: Carried interest allocation $186,803 $31,902 $503,808 $72,587 Ince
Slide 16: Credit Group
Credit Group(1) • Management and other fees increased by 23% for Q3-19 compared to Q3-18, 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 Q3-19 compared to Q3-18, primarily driven by higher management
Slide 17: Private Equity Group
Private Equity Group(1) • Management and other fees increased 13% for Q3-19 compared to Q3-18 primarily driven by new commitments in our energy opportunities fund and special opportunities fund, including $1.5 million in catch up fees from the energy opportunities fund • Fee related earnings increas
Slide 18: Real Estate Group
Real Estate Group(1) • Management and other fees increased 35% for Q3-19 compared to Q3-18, primarily driven by new commitments and $7.0 million in catch up fees from EF V • Fee related earnings increased 43% for Q3-19 compared to Q3-18, primarily driven by higher management fees • Realized income i
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 2019 2018 2019 2018 After-tax Realized Income, net of Series A Preferred Stock dividends Realized Income before taxes $98,407 $91,418 $297,350 $271,545 Entity level forei
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 September 30, 2019, our balance sheet included $152.2 million in cash and cash equivalents and $246.4 million in debt obligations with no drawn amount
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, 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 $38,786) $178,447 $54,543 $26,988 $— $259,978 Other fees 5,174 141 28
Slide 24: Financial Details – Segments (Nine Months Ended)
Financial Details – Segments Nine Months Ended September 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 $116,336) $513,760 $158,101 $67,408 $— $739,269 Other fees 12,179 141 709 — 13,029 C
Slide 25: AUM and FPAUM Rollforward
AUM and FPAUM Rollforward Q3-19 Total AUM Rollforward ($ in millions) LTM Total AUM Rollforward ($ in millions) Credit Private Equity Real Estate Total Credit Private Equity Real Estate Total Q2-19 Ending Balance $105,505 $24,735 $11,868 $142,108 Q3-18 Ending Balance $91,501 $22,991 $10,587 $125,079
Slide 26: AUM and FPAUM by Strategy
AUM and FPAUM by Strategy As of September 30, 2019 $ in billions AUM % AUM FPAUM % FPAUM Credit Syndicated Loans $21.3 20% $20.9 30% High Yield 3.4 3 3.4 5 Credit Opportunities 2.5 2 2.1 3 Alternative Credit 7.3 7 4.0 6 U.S. Direct Lending(1) 47.4 45 26.8 39 European Direct Lending 24.4 23 11.8 17 C
Slide 27: Balance Sheet Investments by Strategy
Balance Sheet Investments by Strategy(1) $ in thousands September 30, 2019 December 31, 2018 Credit Syndicated Loans(2) $101,528 $75,029 Credit Opportunities 28,817 3,420 Alternative Credit 20,707 19,518 U.S. Direct Lending 58,447 58,970 European Direct Lending 36,845 47,854 Credit $246,344 $204,791
Slide 28: Significant Fund Performance Metrics
Significant Fund Performance Metrics The following table presents the performance data for the significant fund in the Credit Group that is not a drawdown fund: As of September 30, 2019 Returns (%)(1) Current Quarter Year-To-Date Since Inception(2) Year of Inception AUM (in millions) Gross Net Gross
Slide 29: Significant Fund Performance Metrics (cont'd)
Significant Fund Performance Metrics (cont’d) The following table presents the performance data for all our significant drawdown funds: As of September 30, 2019 Credit Cumulative MOIC IRR Year of Original Capital Invested Realized Unrealized ($ in millions) Inception AUM Commitments Capital Proceeds
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 Q3-19 Q3-18 Common Shares, Common Shares, Total Shares As Adjusted(3) Total Shares As Adjusted(3) Weighted average shares of Class A common stock 108,481,929 108,481,929 98,706,419 98,706,419 Ares Operating Group Units exchangeable into shares of Class A common stock(1) 116,7
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 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 net 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 cas
Slide 38: Glossary (cont'd)
Glossary (cont’d) Incentive Eligible Assets Incentive eligible AUM (or “IEAUM”) refers to the AUM of our funds from which performance income may be generated, regardless Under Management of whether or not they are currently generating performance income. It generally represents the NAV plus uncalled
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