ARES MANAGEMENT CORPORATION Q3 2026 EARNINGS - ARES MANAGEMENT CORP

Financial Performance:

• Announced a quarterly dividend increase of over 20% to $1.35 per share.
• Management fees reached nearly $1.1 billion (up 10% YoY), with Fee-Related Performance Revenues (FRPR) at $79 million.
• Fee-Related Earnings (FRE) totaled $524 million with a FRE margin of 42.5% (up from 41.4% prior year).
• Realized income was $490 million; after-tax realized income per share was $1.26.
• Portfolio companies in U.S. and European direct lending show strong fundamentals with EBITDA growth of 8-9% and interest coverage ratios of 2.1x and 2.3x, respectively.
• Non-accrual rates remain stable, with U.S. direct lending non-accruals improving to 1.8%.
• Total Assets Under Management (AUM) stood at $691 billion, with fee-paying AUM at $416 billion (16% and 13% YoY growth, respectively).

Guidance and Future Outlook:

• Expect full-year 2026 FRE growth to align with the 16-20% annualized target.
• Realized income for 2026 is projected between $300-$325 million, implying $160-$185 million for Q4.
• FRE margin for 2026 is expected to exceed the midpoint of the 0-150 basis point expansion range; 2027 margins anticipated to benefit from catch-up fees.
• Full-year gross equity inflows anticipated to match the $16 billion raised in 2025.
• Expect a rebound in flows into ASIF in 2027 driven by strong performance and higher base rates.
• Deployment pipeline remains at record levels, with a seasonal pickup expected in Q4 and continuing into 2027.

Business Segments and Product Lines:

• Credit: Net deployment of $35 billion focused on European direct lending, alternative credit, and infrastructure. U.S. direct lending activity is recovering after a slower Q3.
• Infrastructure: Total infrastructure AUM grew over 50% in the last year; raised $2.7 billion in Q3 for core infrastructure. Digital infrastructure fund expected to have a first close in Q4.
• Real Estate: Completed final close of $4 billion Japan Logistics Development Fund (JDP-5); real estate debt platform raised nearly $3 billion YTD.
• Secondaries: Raised $4.2 billion for the inaugural Global Structured Solutions Fund (exceeding $1B target); raising capital for a dedicated infrastructure GP-led fund.
• Wealth Management: Equity commitments exceeded $4.2 billion (second-best quarter on record); wealth AUM grew 41% YoY to $82 billion.
• Strategic Initiatives: Launched core infrastructure and sports/media/entertainment strategies; launching interval fund solutions for defined contribution markets.
• M&A: Announced acquisition of MidCap Financial Investment Corporation (Mythic) for closure in H1 2027; acquired a $1.1 billion direct lending portfolio in Q4.

Market and Competitive Landscape:

• Institutional demand remains robust across sectors and regions, broadening beyond traditional commingled funds into open-ended vehicles and SMAs.
• Addressable markets in private credit, real assets, and secondaries are valued in the tens of trillions of dollars with significant upside for further penetration.
• Digital infrastructure represents a $5 trillion Capex opportunity through 2030; company is focusing on the $2 trillion physical data center/power segment over complex GPU financing.
• Credit markets benefit from higher short-term rates as 83% of debt assets are floating rate, enhancing investor returns and firm profitability.
• M&A activity in private equity is aging, creating opportunities for secondary deals and credit secondaries (GP solutions).

Risks and Challenges:

• M&A Environment: Muted primary M&A activity slowed U.S. direct lending deployment in Q3, though pipeline indicators suggest recovery.
• Rate Sensitivity: Higher interest rates increase borrower interest expenses, though portfolio leverage remains prudent with low loan-to-value ratios.
• Real Estate Volatility: Commercial real estate markets are adjusting to rate changes, though fundamentals are viewed as improving long-term.
• Technology Depreciation: Digital infrastructure exposure is limited to physical assets (buildings/power) to avoid risk of rapid GPU/hardware obsolescence.
• Redemptions: Concentrated redemption activity observed in international wealth/family offices, though core institutional and U.S. wealth redemptions remain stable.

Management Commentary and Tone:

• Management expressed high confidence in the firm's "scale and diversification" story, driven by multiple business lines rather than single strategies.
• Tone was optimistic regarding fundraising momentum and the ability to invest from a record dry powder of $174 billion.
• Emphasized a "highly selective" investment approach and the ability to pivot capital solutions based on market relative value.
• Highlighted the structural benefits of the firm's diversified product suite in navigating market volatility.

Analyst Questions and Answers:

• Interest Rates/Deployment: Management clarified that high rates do not necessarily slow deployment; aging PE capital and dry powder provide a strong pipeline for direct lending and secondaries.
• Digital Infrastructure: Explained avoiding complex GPU financing in favor of tangible data center/power assets with long-term leases to hyperscalers, viewing the $2 trillion physical Capex as a simpler underwriting opportunity.
• M&A Strategy: Reiterated a disciplined approach to inorganic growth, focusing on non-credit assets (infrastructure, PE, insurance) only at the right price and with the right people, while the credit franchise continues to grow organically.
• Performance Fees: Noted that delays in exits have pushed some European waterfall payments into 2027, but the underlying asset base eligible for fees has grown to $185 billion, supporting future income.
• Margin Guidance: Clarified that FY2026 margin growth will be slightly above the midpoint due to delayed fund closures, with 2027 benefiting from catch-up fees.

Other Key Points:

• The firm raised over $31 billion in gross capital during Q3 with visibility for a record fundraising year.
• 80% of capital for the new U.S. Senior Direct Lending funds has been closed, representing 60% more than the prior vintage's first close.
• The acquisition of Mythic and the direct lending portfolio purchase demonstrate the firm's capacity to act as a buyer of choice for large, performing institutional portfolios during market repositioning.
• Secondaries performance remains strong, with legacy fund Fund 17 generating a 24% since-inception gross IRR.
• The firm's core credit funds (Pathfinder, USDL, European DL) delivered positive quarterly returns (2.2% - 5.0%) and 12-month returns ranging from 8.1% to 17%.