Ares Management Corporation Q2 FY2025 earnings call

Market Environment and Financial Results

• Ares had strong second quarter results with significant growth in AUM and fee-paying AUM driven by fundraising, investment performance, and market appreciation.
• Logged second highest quarterly fundraising total on record, over $26 billion raised with over 20 strategies and 40 funds in market across three channels.

Business Unit Highlights

• Fundraising: Second quarter saw strong fundraising with over $26 billion raised, year-to-date gross commitments over $46 billion, on pace to meet or exceed last year's record.
• Secondaries Group: One of the strongest growth vectors, secondaries segment FRE nearly doubled since acquisition of Landmark in 2021, secondaries AUM increased 29% to nearly $34 billion in past 12 months.
• Wealth Strategy: Top 5 leadership position with estimated market share approaching 10%, fundraising for first half of 2025 totaling $7 billion in equity commitments, a 54% increase over first half of 2024.
• Insurance Strategy: Aspida generated over $1.9 billion in new premiums in second quarter, ended quarter with total balance sheet assets of $23 billion, $15 billion sub-advised by Ares.
• GCP Acquisition: Contributed $103 million in revenues and $34 million in FRE for a 33% FRE margin in second quarter, expected to generate additional $40 million in management leasing and development fees through end of Q1 '26.

Ares reported strong second quarter results. Quarterly AUM increased to $572 billion, representing quarter-over-quarter organic growth of 19% on an annualized basis. Fee-paying AUM (FPAUM) increased to $350 billion, with quarter-over-quarter organic growth of 17% on an annualized basis. Management fees were a record $900 million, representing a 24% year-over-year increase. Total fee-related revenue growth was 29% and FRE growth was 26%.

FRE Expectations

• GCP is expected to contribute $200 million in FRE in the first 12 months from the acquisition.

Deployment and Fundraising

• Anticipate third quarter to be a record quarter of capital raised across semi-liquid funds as investors continue to seek solutions, global scale and track record. Expect transaction activity to accelerate further in second half of the year with potential for lower short-term rates and record private equity dry powder.

Market and Fee Pressures

• Market volatility could impact business performance.
• Potential fee pressure as some peers cut fees to attract capital in the private credit market.

Q: Alex Blostein asked about private credit institutional demands, fee rates, and alternative credit.

A: Michael J. Arougheti responded that private credit fundraising institutionally is down sequentially, but Ares has continued growth, not seen fee pressure yet, resistant to cutting fees, alternative credit is a big growth market with excess return relative to traded benchmark.

Q: William Raymond Katz asked about 401(k) market and Ares' opportunity.

A: Michael J. Arougheti said Ares is close to offering product into 401(k) market, excited but tempering enthusiasm, focusing on unique investment opportunities and matching with right capital.

Q: Michael Patrick Davitt asked about deployment pipelines and gross-to-net tracking.

A: Michael J. Arougheti said Ares is on both sides of BSL refi, direct lending business is less reliant on upper middle market sponsor flow, pipelines building into Q3.

Q: Kenneth Brooks Worthington asked about European direct lending market compared to US.

A: Michael J. Arougheti said Europe is more attractive now, deployment and credit quality in Europe and US are similar, Europe's credit quality a little better than US.

Q: Kyle Kenneth Voigt asked about retail distribution investment and international flows.

A: Michael J. Arougheti said investment in product, people, and education is key, international flows increasing due to adding people in Europe and Asia Pacific, continued momentum in Q3.

Q: Benjamin Elliot Budish asked about FRE margins and guidance.

A: Jarrod Morgan Phillips said deployment, fundraising, and GCP synergies will help absorb GCP drag, set up for next year.

Q: Michael J. Cyprys asked about alternative credit sourcing and extending into investment grade.

A: Michael J. Arougheti said alternative credit is a meaningful part of the business, balance between nonrated and rated, focused on FRE growth and profitability.

Q: Brian J. Mckenna asked about direct lending credit quality and resilience.

A: Michael J. Arougheti said private credit performance resilient due to quality of companies, high equity contributions, bilateral relationships, and durable private credit capital.

Q: Brian Bertram Bedell asked about deployment of AUM not yet paying fees.

A: Michael J. Arougheti said deployment has been roughly a year on dry powder, on pace with AUM not yet earning fees.