ARES - Earnings call transcript Q1 2018 | Ares Management Corporation

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Operator

Good day and welcome to Ares Management, L.P.’s First Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded on Thursday, May 3, 2018. I will now turn the call over to Mr. Carl Drake, Head of Investor Relations for Ares Management. Mr. yours, is floor the sir. Drake,

Carl Drake

Michael Good Thank Financial Mike joining I McFerran, thank Executive Officer. by for our Chief and and today you, am and for Chief and today call. Mike. us conference our you XXXX Chief Officer afternoon first President our Arougheti, Operating joined Officer quarter

In also questions. for be Kaplan, of Private our Co-Head David available addition, Equity will Group,

you webcast that this we forward-looking comments during to begin, Before subject of and I the uncertainties. are conference and remind call and contain want statements course risks made to

past results. is those of Our reason, actual discrete results expressed of performance our that performance from no could in listed such those guarantee update forward-looking differ a in Moreover, L.P. investment SEC any investment and materially forward-looking note Ares that in for to funds We Please assume from obligation future and not statements Management, in filings. such performance including any also our is please note of statements.

this isolation non-GAAP from operating economic of financial refer earnings, by use other measures measures to not income. companies. these measures of measures not considered conference Accepted to measures used as measures comparable performance, certain like-titled be These in as may a substitute These performance-related We as as should income, for fee-related measures net will accordance Principles. liquidity. such call, During or and in earnings, realized prepared Accounting Generally with not be we

call. and section this comparable would management quarter definitions reconciliations website XX-Q also presentation constitutes report an I note, can to interest of the to fees. sell any Please on nothing GAAP this quarterly refer Investor first www.aresmgmt.com that Please interest of call solicitation today’s Form week. of we that for other or a as measures. This and available announced earnings to per reference Ares the next will including to in declared securities on to offer plan directly In person, dividend which I our we under be on for presentation file most an common measures to offer our is be used a like by at Resources morning, an addition, purchase filed have June you on any to fund. we please fees include of in our Part that remind quarter or holders ARCC second $X.XX any the share, XX, our June note paid that of record any our morning of XX. This XXXX we

quarterly to which preferred also of per Series We June declared our A dividend holders XX, on payable XXXX XX. June share, on of record $X.XXXX is preferred

to call Now, over Arougheti. I will Michael turn the

Michael Arougheti

Thanks, Great. afternoon, Carl. Good everyone.

year-over-year earnings, XX% and quarter with continued strong results $X.X with strong of capital momentum our first fee-related up fundraising Our another over of quarter billion reflect raised.

I who to flexible discussing performance of a investment a strong using call Mike results. then were We our will drive environment. spend and we also the you will continued generate few in deployment hand financial the quarter strategies to in to challenging through will the take over minutes events capital key and McFerran, I successful our

additional differentiated development of teams consistent fundraising. funds new a with business performance, and translated and interest deep strong and and start believe Ares marketing our strategies effective long-term LP growing strong in level highly fund We loyal let’s and base, have So, into commitments. and

our first of gross we the quarters one billion, ever. commitments highest raised $X.X quarter, During new of

to aggregate funds. in new U.S. $X.X billion by other totaling new and million billion highlighted lending credit $X.X and European CLOs in was commitments fundraising and U.S. and Our the commitments, direct additional European in $XXX

investors, target first of is by comprised and XX well $X.X closures two-thirds over months represented platform. our the done. fund also existing €X existing of accomplishment European a of €X.X lending investors commitments team’s continued of we now are equity million congrats on leverage a On the already to great €XXX average billion, testament XX%. closing X first who from $XX and capital equity particular target billion. estate billion that to in have commitments dollar and €X in and in our in on well or involved we We real everyone of We European are approximately This €X.XX fact, exceeds leadership increased yesterday, significant and of our this just direct ago initial to the direct close The on getting investors, lending of their equity of pool we experienced totaled total which support and launched our to closing market new fifth a for billion XX billion including had terms. the fund our just Including first closing, excess closed closing end, thus great our an our fourth our Since Ares really in the commitments. European we anticipated in was investors held quarter way in and XXX predecessor surpassed approximately to fund, commitments. billion far,

marketing estate private currently lending. to U.S. on we European and commingled lending, U.S. addition ongoing focused European the fundraises equity In and in a fund direct direct senior are real

just less why few. premium favor alternative our mark-to-market is be opportunity a investments, be in managed volatility, of in past reminder lower volatility this existing actively traded active a other and trading the publicly strategies the with The multiple investors in correlations expect name to launched to for We increased great quarter the we strategies markets to continue adjacent increasingly near-term. returns, and securities SMAs to

continue our connect we relationships more and with with result, deepen a them. as to LPs So

partnership our growth of continued Our base. evidences we our LPs fundraising the value the momentum and continued global existing with LP have

investor funds trend the all managers in where companies. with about pension And particularly AUM continuing significant see and the three remain categories, these capital We consolidating while XX% their at the the from rate major global recent have compound which in institutions, LPs directly in with years, opportunities we insurance years. diverse clients. a quarters During quarter annual funds have asset This growth capital excess raised of platforms opportunity grown quite was of last broad growth over offerings. industry, are our under-penetrated segments growth at X markets, highlights large with first two product from more of continued means Ares existing the or of our we in what in witnessed for these we of and lots in

we resources. and focuses investment capital The and we these strategies, its compelling are the on are their have is next will critical We public that our performance which will We flexibility factor and strategy. debt. cycles. point, deal negotiated investor enhanced generate as that transactions transformational a on that competitive team investment flow to expanding special have where believe our of website. contained starred personnel is much structured across debt a for credit estate construction, as as To differentiated focuses real that of and all our lending overall, franchises solution. various with special such our discussed our to meaningful in been investments asset-backed sub-strategies special expertise portfolio assist presentation undergoing through businesses are companies providing each focus which and meaningfully our edge. meaningful teams, We posted origination business And and The private are to ability comprehensive private public growth particularly mandates capabilities consistent credit, is merit alternative we areas the privately earnings structured situations credit believe team, we distressed change, not With in geographies. making believe but from we compelling forms following and incremental As situations remains on respective Details of the base. it add last significant broadening equity our strong. across long-term more opportunity on investor team, our performance on their focused only markets structured a emphasizing is this special you call, create see, that sustainable direct and increased in performance and situations and credit, and an real strong

to proprietary absolutely protection. XXX is investment it and in today’s differentiated the and origination network of market flexible collaboration critical rooted competitive which have the returns structure and to generate inside across edge long-term Our are performance breadth relationship by capabilities, with professionals. ability our originate to supported the cycles is across best and market, over information consistent, our sourcing In capital risk-adjusted downside

that market. we deployed three across platform investing which So the not across and diversity breadth excited as the own we advantages advantages first our to our capital we surprisingly, to feel these quarter, leverage well of platform as we billion our businesses. investments In our deploy into of groups of the $X.X all global and to are today’s continue in reflect

turn interest to new already election before we early our structure and the I quite to So are the company. liquidity treated flow the shareholder that to and expanded tax expand early, positive over address in I wanted to to the recent our to be a returns am status. corporate our lastly, happy tax change as briefly corporation Mike, call say institutional corporate with And are investors pleased from it’s helped base. trading to has the us still and while our increase in materially our I

call over to now will I that, with the Mike. So hand

Mike McFerran

earnings, to to funds, XX% forward off significant great double-digit continued since in on Mike growth with strong Based $XX as the already fundraising From our year, earnings as start of to economic beginning Mike. of momentum a Thanks new execute are income. the in business our core our of billion of raised closed, outlook key illustrate strong. net in earnings AUM The approximately our growth remains we capital and XXXX, management objectives. fee-related rates with referred potential year-over-year year-over-year financial otherwise a AUM, new our fees, funds as referenced, fee-related of continue we the the business with along pipeline growth perspective, pace and our on

reporting I have to our tax status our new highlight details that into Before a corporate quarter, better on do reflect going made want election. to change we the financial to

to dividend our after-tax assess us distributions quarterly fixed earnings our now reporting to operating is current earnings was Since will evaluate current policy related performance, change income We performance-related to a while flow-through instead expected income prior realized tax status. We believe structure in to our realized reassessed which the realized appropriate our income, fee-related in income distributable and earnings. distributable be net measure for period unrealized dividend based old believe economic more annually earnings, deducts takes is pay we and earnings. available and allows our measure cash to of income on concise a

will spend our I few on a Next, minutes results. quarterly

year-over-year XX% our As the fundraising is strength over has of X% growth, $XX which up our Mike up AUM AUM $XXX.X our growth, billion to period. supported to and is same described, which billion the fee-paying

first and first the management earnings the respectively. increased and quarter, fees XX% XX% quarter XXXX of For fee-related from

totaled $XX.X Our after-tax million or fee-related common $X.XX earnings unit. per

Our quarter for the the XX% improving a margin illustrated earnings expansion operating is our by fee-related this year first from quarter XX% to for ago leverage first of year.

quarter to effective last the to an year. first In million higher some $XX.X and X performance-related quarter to think the corporation, X% extra a net March how million $XX.X quarter totaled first were rates. taxed the economic our of million, our $XX.X an last quarter income quarter, of attention on year-over-year to Last, over earnings compared election reflecting Our want XX% realized year. of increase income be about of give increase of totaled for first do XX% of I as tax first light

fee-related As at after-tax to fees, fee-related a reflect fee-related expenses. management earnings compensation We operating and earnings quick our our apply earnings. arrive against deductions less refresher,

to that on income approximately For the fee-related corporate was that on effective to our level the during earned earned first income If tax and X.X% X%. the the the of period. to a quarter. tax the our on reflects taxes, corporate quarter, our first amount was XXX% effective deductions our of a income subject function corporate during subject fee-related would of of against XX% this quarter. the weighted for Note we were rate The income rate taxes subject earnings fee-related earnings tax the basis a earned of rate rate is size earnings average had tax have

of will expect X.X% is a tax conversion range full For the and effective rate realized sum XX%. We we rate a fee-related year, from income. performance X.X% the and Realized from net or assume scenario X% of realized remainder performance under earnings to the XX.X% income. tax statutory income on our net

quarter, was realized performance be on rate low first realized will reflects for would plus the our earned performance the X.X%. income by the amount described effective also As to income during only the X.X%. tax realized income unrealized income subject corporate Economic any realized effective have comparatively of performance to income rate of XX% rate tax. Due Under income tax Note, income the on that income. a net the heavily this rate approximately effective result, scenario reflects was tax previously, of our driven been realized level period. XXX%

create until XX.X% on While we unrealized tax assume not for unrealized obligation record it. rate does performance tax statutory a actual income. an Similar performance we realized to income performance do income, tax realized, a provision

full This Again, effective tax, income XXX% reflects will rate approximately first was unrealized the based subject rate and on fluctuate the would XX.X%. of economic on of corporate If quarter, our income the shares this our been subject X%. realized to tax. rate corporate the to income a For one our tax amount earned effective have tax of net gains. of assumed the conversion rate Ares with XX%

to Next, want on our I dividend touch policy.

As each quarterly Carl a we common a for second, third stated and $X.XX dividend the of consistent dividend of to share. of This is amount fourth per quarters per common with earlier, have expectations our $X.XX share XXXX. declared

and prior our to earnings discussed expected trajectory fee-related of As after-tax quarterly in based other dividend the tax. our earnings we call, our related principally factors set upon

other the per Our dividend. factors below basis quarter we of forward-looking into earnings slightly after-tax for share dividend first quarterly and consideration. on as take fee-related were tax a the reminder, a $X.XX set But our common

and One of based the adopted an primarily status qualifying expected of our election annually the was in with tax to investors and for dividend attractive dividend our we be policy connection reassessed on provide objectives after-tax our fee-related would after-tax assets and performance our accelerate our net call, of support last expect to retain the as of income intention earnings. under to to we growth On realized we fee-related our earnings. growth also management announced

into net yet income that investors earning other of management quarter a in performance is based which of eligible the Similarly, with incentive of the potential the upon earn earnings on measures currently focus capital, income we would amount reflects ended and metric the that is performance insight both a we we of at helps provide fees powder. deployment any available our Some measure we not metrics eligible accrued subset income our that capital. also capital performance-related AUM total the of AUM fee $XX.X available AUM, to embedded the net growth We of on referred performance fees, manage. dry and is first point billion time. accrued have the given capital to as earn

our AUM fees $XX.X with tied of strategies to million. AUM available direct $XX.X we credit the XXXX. bring to of deployment billion $XXX.X AUM management to totaling quarter in compared key continue as Our continued and shadow the will fees fourth billion billion the ahead $XX.X revenue earning end of believe driver approximately line $XX.X this Over these management business. not The growth fees in to capital development yet Of quarters fees to increased our lending at strategies billion, the fee-related top online available deployment from future XX% will of relate a and for or earnings. and for for was these both structured credit corresponding serve

AUM near believe potential first billion with $XX that first in quarter not XX% we a XX% approximately an which Of of record billion, reached deployment, invested for incentive-eligible the longer end, accrued As term. value of versus increase $XXX amount, is quarter year-over-year. prior of AUM future $XX and allocation, that year-over-year. up more carried interest represents quarter levels, billion for than of the the the available record of XX% future significant we yet ended high $XX.X year million is the Note Incentive-generating creation over period. up

represented fees, more including we average is our believe forward, X which for this on Looking of to positioned fees the have past due of business management mix strong quarter. our past our than total years, XX% well

potential Our operating fundraising and grow increased supported fee-related are the earnings leverage. continue as for our by to

derived X earned a management traded fees from that management capital, first funds remaining permanent from of Our are more years, capital XX% including vehicles. had as of quarter were than publicly from fees XX% our life long-dated

Now, to for I growth. future will and thoughts historical Mike our turn this his back on

Michael Arougheti

We and Mike. industry meaningful we couldn’t are. momentum. Thanks our see trending business are with just Great. be positively where driving happier we tailwinds our from in And can the we you growth as of have metrics, all

Our investors reward deepening performance is continue them. with to relationships with our larger our which commitments,

in XX of the even time, growing be greater have to also to of believe policy lot tax our growth giving believe benefited We more will grow both of portfolios investor in existing should new last capital our we has firmly Our share structure our we years a strategies. of the from more Over a retain they that strategies for a investors and in wallet, important us enable part alternative us dividend and investments and have than number client next been growth. new corporate room XX.

to we inorganically expect We by our organically that seek products, acquisition And sizes grow to through have opportunities to stakeholders increasing geographic beneficial we would channels actively to of grow or opportunities or expanding our coverage fund be by addition, continue in distribution. over our time.

for and the operator, time. time and thanks your questions? up And support the company open and appreciate please you line we that always, with as could So today for for the

Operator

Instructions] go of will sir. come we from Please the Credit And have Craig Yes, question ahead. Siegenthaler [Operator first Suisse.

Jordan Friedlander

Craig is in filling for Friedlander Jordan afternoon. Good This Siegenthaler.

purposes converted year. this Ares March to for C-Corp in of So tax

to eligible your major need go in However, thoughts estimate for on up-C process? converted converting the inclusion What the to structure to check-the-box be structure? are updated you to up-C step you color And around the we can one structure provide some index indexes. would this believe to further and Ares the

Mike McFerran

Sure.

with law So, did you in to that a state necessarily referring change from inclusion. step – a we right, change of are believe to partnership on is results that just legal What was referring don’t We not or are a are corporate still Jordan. or to and partnership. we as in synonymous I the tax corporation. are from think that index take you making you structure What check-the-box tax working this actually conversion a a itself to corporate

indices the about at indexes our think and and point, haven’t or time of applies Russell at fully the change spending to legal to the in this being of search currently including how we the are in looking talking index rules them. understand some to managers, a increases We structure concluded not. major whether included But likelihood

We not K-Xs do that UBTI have we you have, income, do publish ensuring flow-through were focused indexes are affirmatively on not certain start that which X. and probably aware on not did any March conversion

will something thoughts everyone it’s are we at keep evolve. to as we So, and look posted continuing our

Jordan Friedlander

Got you follow-up, given U.S. are strategies activity little products on And it. one quick at a underlying very how thinking cycle, touch what’s driving these lending the Europe can risk? this? the deployment seeing Thanks, large this in demand And Mike. from strong and about direct you investors, the credit then are in point

Michael Arougheti

Kipp, can think Sure. who that chime I’ll has joined take us, and I in.

lending assets. have think you shorter traditional you all, liquid you as as provides when fixed what class it high and direct have alternative an duration grade to in most than an first traditional investors of income, about fixed income for asset So or

rate. floating have You

are we seeing a so outperformance. short-term seeing up move rates, we in And as are

the willingly lack that asset I XXX leads we structure seniority You And capital last liquidity etcetera, in illiquidity credit folks. other to have to willing which highlighting XX XXX of over excess the investors fixed trade-off performance and returns think When lending put and have than together trade that with duration able is they classes, European superior other that are about we very which have for probably we outcomes over all of return short and more time. to had to years in generate still strategies. couple basis for been to cycle, points and excess is as of in our think correlation late our you investors U.S. income of course of alternatives direct you active have The ago. the of attractive management, to years, of our been

obviously, both in markets. Ares terms why we to comfortable manages In credit of and billion the close $XX are liquid illiquid

end put the appreciate put You to those across lending To very perspective discrete lending markets and in X,XXX significant the core this have of types we know in that flow And selectivity is we U.S. middle-market perspective, these any and the tend our the from company X% that we addressable we that evaluate. we to illiquid market of direct serve trillion to and statistics in are We to see X% business to at market. in close year direct to globally. given pretty U.S. close deal believe are products. to that it look them. direct companies, consistent all opportunities on of lending close And close $X

of we So are exercising leverage in in a some we able asset into we very capital, of low out very addressable diverse competitive larger significant and incumbent about to terms are advantages high-quality competitive And we pools and of large then built have with borrowers. ARCC and then Kipp rate close number lastly, of call selectivity. position as advantages markets, portfolio and lot evaluation obviously we as portfolios scale, a the origination, on large those a significant pretty have talked gotten yesterday, a have

flow the that relationship get executed we look to in And has on have later performance on if and relationships last over from companies you we we the where cycle, we understanding XX% the actually come XX as of those incumbent so backing the months, most have companies. in tend of the focus preexisting the of about And U.S. deal a

for rate what looking right which and big driver they yield, I in direct think rates our is for continues up, is people environment, look of an lending durable, are everybody performance. gives even be going that so today’s But to floating now. And historical still by standards opportunity a are as low

Jordan Friedlander

Great. Thanks, Mike.

Operator

we UBS. Dilts of have Next, Brent

Brent Dilts

color C-Corp if wondering talk has on could increased Appreciate thanks, Hi, or conversations election Was the the the you interest from with public shareholders potential existing impact on election. if any guys. in had about LPs? what

Michael Arougheti

actually One I that’s performance earnings that is It all. LPs hasn’t with strategy over at new new LPs them. drive investment added us some alignment for recognize us the factored is time Yes. even growth, that GP of think our own launched in the retaining more conversation benefit our of the into of there greater it the should to our more capital into and is invest as with sophisticated allows of funds alongside

there think in investors do institutional longer alignment, with I conversation the are factored but hasn’t terms a it benefit So, term point. our having at we is of greater this into really

Brent Dilts

fair about to Ares just suggests you a of a what you seeing the competitive the that there for At positioned, could although are Thanks. benign. this wondering an credit spoke you Arougheti. backdrop particularly how little I mention stage seeing conference enough. seems And increasingly still talk the in markets, that recent is cycle? weakening in you credit one Okay, for elaborate was weakening, is later be probably specifically default of kind did credit of if environment is then Mike structural on structural is just private the in

Michael Arougheti

want to handle Kipp, that? do you

Kipp deVeer

me? hear you Can Yes.

Michael Arougheti

Yes.

Kipp deVeer

senior or in doing. because secured That’s most best in as ourselves frankly we secured can have in less sheet here by junior are substantially to Great. be Look, that challenging balance we positioned less in probably the states. competitiveness moving up we Europe, concerned new environment true as a the U.S., trying both there investing the deal of the we the are about in are we

yesterday’s looking isn’t time fact but an which call, in the are back was spent ARCC at our people loans we a indication you fact of requirement, going is distressed our certainly what told If down. in metrics and which from any obviously non-accruals,

qualitatively of through the he little see more when U.S. and theme comment credit on our conference, made think to at on them portfolio whenever the portfolios. the list anecdotal more bit Mike’s just is probably that’s would a thoughts bit whichever that our we I look stress, it little run a watch at do some we

Michael Arougheti

new. weakness when about anything we is talk structural again, not And and this

the seeing seeing in more it all definitions I covenant years. underwriting develop We have true EBITDA think base as to cases, things lose looser class adjustments are have agreements. like every in But been within levels, just credit been that’s and matures. manifests cycle differently. your asset It’s markets loosening, is the in XX we these it structural Again, where key for we itself baskets

have together. many cycles been navigate to them. We through know how We

you relative that finding very, So them, to around how still very are knowing be can’t them, are to but navigate we attractive value blind about we excited investing in.

Brent Dilts

guys. Thanks, Much appreciate it. Great.

Operator

Next, Carrier, of America. Bank we have Michael

Michael Carrier

guys. Thanks, Alright.

margin or like the portfolio first off. eventually have BDC. ACAS Just up look year waiver got repositioning European the if it’s you I one. billion on maybe question – and get the you then And then FRE you we one double sort rolling of mean, fundraising, at then leverage And the the €X the so, and the over is Mike, outlook in the at mentioned next might the direct lending

the the over on from of growth next a scale? fundraising about that like or businesses am should understand X years of those from as kind how increase continue I like standpoint, some trying line top we to standpoint the to given thinking a So maybe just margin be

Mike McFerran

It’s a great question.

is to longer scale continue expand. comes gets we I our over the is in think online answer, businesses deployed, your margins to capital that our which will statement and final think there term is and continue question, the Your as

the expansion. demonstrated this have XX over months had the years. couple XX% We operating last of In last margin alone, a we have

our lot go that going lot to we operating efficiencies across inherent a what larger of heavier is is expectation is where scalable up. there our model, do a a serve you margin our is particularly costs your So, business, aspects fixed in platform, have and of of

would So, targeted a will. don’t what years, call we grow believe should year-by-year margin for the it overall I coming have our outlook we but and is it philosophy

Michael Carrier

the seemed like don’t the I versus Okay. divergent like investment the was if income? – investment on there a weaker something it incentive small performance income, drove just the incentive quarter. And more income that look then specific when it was earnings know versus at of this of like like I kind like of Mike kind anything kind the

Mike McFerran

up, little – going I in that’s the given with gate, to carry lot you income keep in And certain deploying any a But No. but we where where has you bit picking funds. the our current it quarter. with capital, funds stage investment where of come do out there don’t think, a now see are be are mind, fluctuation is earlier are will of of or later. that to

Michael Carrier

a lot. thanks Okay,

Operator

we Lee Kenneth Capital. next, And of RBC have

Kenneth Lee

taking for my thanks question. Hi,

wondering you from capital, been portfolio recent there comment realizations? have for the outlook could current also Just your and potential if quarters Thanks. near-term whether what’s changes environment on deploying for any

Michael Arougheti

I markets. in like we the just lot are economy I the news is but competitive. are late fundamentally cycled. we Good comments There some of a the of markets liquidity the strong. made, So are in Again, is is

geographies. it of seeing We all parts are and portfolio it in in our we are seeing all

advantage As I proprietary competitive on you self-sourcing. mentioned, focusing drive and origination

it with information and edge. research drive You

fund You drive it with structure. flexible long-dated and

work investments. to hard what a quarter make attractive billion to of very able we as looking of ones We to to we at find the think but large like, we deployed tools I $X.X do when our situations. deployment. it, different in at lot drive are having we those are have lot in addressable we we disposal is what a But mentioned markets, are still So the are we

probably McFerran, the interesting will I of hand folks. environment, to highlight story terms Mike think I it a realization there we In is that should because really for over

Mike McFerran

Yes.

presentation, have you our during think we look And you to it carriers know look at accrued I called where earnings remarks. if prepared our out our today. I at

accrued performance those, have quarter of of on and end. $XXX funds in think to at think their are million timing net about which are fees of the lifecycles. they those where in – important We And realizations they to where it’s

ended longer time. that we American realizations, in in period, mode is able waterfall capital. which So their that amount, take of investment carry get XX% funds, we real now is funds about to style that as means million no of and it deploying $XXX effectively which an to be harvesting $XXX million, are Of have will they means

about pass realizations back, So periods. occur and eligible stepping accrued for of our as tighter funds is as carry payment investment XX% real-time

to realization an in think happen attractive remains accrued carry ahead. I given the past we quarter this based quarters have really It So good from where on is any get volatile on closed, feels it when transactions calls, be an talked going for are environment. about and overall perspective, we but

Kenneth Lee

any new more come the whether could in just and competition And lending have comment Great. – banks are Thanks. on environments, on more the in maybe follow-up the one entrants seeing direct side, changed recent from whether competitive you you the quarters?

Michael Arougheti

to you that want Kipp, take one?

Kipp deVeer

Sure.

U.S. just capital hit kind where in one space, have over taken I think instance, There capital. who whole perhaps for added more some again, assets But the terms will in and of the new first, some managing a a is of shift of host have like seen been not more I transactions firm we has that’s the – capabilities. a in system. there have a interesting KKR,

would leaders the opportunity not of bit earlier U.S., a market think comments, of putting like the hands terms truly say, I more ourselves. the Mike’s of to continues hands significant new more the right. It the development and in which be, I really, on In to a markets there. more in earlier is LPs I So of think the it’s Europe, growth capital entrants in

in in what seeing give closing happened that is simply that our obviously Ares fund leaders to I vis-à-vis LPs entrants. about more are mentioned choose Europe, and efficient more attempts at many talked it first like the same capital. forced And the market finding Mike that’s there. think I occurring true on But we them more new that are U.S. dynamic where

So, we are thrilled.

We thrilled that. about your are follow-on sorry, I question? am

Kenneth Lee

Yes, Thanks. the just changes? obviously and whether you seeing banks step back are regulatory

Michael Arougheti

will Yes, sorry our in for sure business, transactions. participate larger The that. underwriting U.S. up-market about we

large We billion, have done as $X billion. deals as over slightly $X

have come rollback an banks transaction of that Down-market, obviously, to we transactions, that investment as that an see owner middle-market and underwriter don’t product have our which led relief we bank back of all. as systems So offering but the or into flexible the the types holder come financial for see They to market, it the compete really a any this and all. not we in, to belief regulatory syndicator seen as just at be other of as They and it in of haven’t the a us. don’t has don’t at staff there nature, transaction. continues with will

the we be make where banks banks we U.S., product frankly, non-bank, with really under more are UK days. sizes. On it to will have have has swing deals Europe always write operated number. the all much more about markets European XX% that the where happy do don’t nimble, we vis-à-vis very we it huge to different, and but quite think kind and down that the lending our are more we – there. XX% do going And it banks, continues U.S. ever assumption and set up is bank think will bank, of less tickets, in the flexible, side, larger the European substantial XX% to these is driven, under much hold These still less it keep that advantages can of XX% below But gotten in just that

Kenneth Lee

Great. Thanks. Very helpful.

Michael Arougheti

think is lending to growth just One seeing, greater non-bank which follow have something are banks comment is willingness the that to the on of to a we fund watch last the shown I platforms.

in non-banks. that versus and of misperception providing a allocate the capital look so they leverage that at displacement between if the how banks And has you flowing our symbiosis that banks the is been the And by is business. there folks a facilities meaningful again, into the are pretty like banks market, a is us, the there the way huge actually there fact,

are for great So, they partners us.

Kenneth Lee

Thanks. Great.

Operator

come we of question Allison Tayler have next The Rudary Oppenheimer. will from

Allison Tayler Rudary

a in your afternoon you I And am that your consolidation bifurcation take industry seems it good if be makes know landscape are me folks aren’t past you starting scale. wondering pursuing what folks overall you look the that kind able perhaps the BDC going of to is to guys. that, think that there direct take My in is the to regulatory at structure, can’t. that on challenges like really aggressive be and for while close that again for a performance And that an the to strong you and interested between the a question really specifically who noticeable takeover in Hi, be might an said market argument needs lending have to could and opportunity? present strategy, space and advantage the I of

Michael Arougheti

Yes.

say direct lending time. so think we matters the I scale all this in and much

our the funny. people think is conditioned we have management markets, been exactly and not is performance in directly, demonstrating we presenting become is time fund us enemy he the both Kipp how that advantage at huge source in today scale flow, how I that of over to credit with competitive because how size a of evaluate it’s ourselves. in think opposite. and It’s least has the flow, argument we very investment terms how private

So and space, consolidator if a you Allied through big at already been we ACAS. look at the acquisition obviously have BDC the

and between those long performance huge the that been and markets new a has don’t time scale somewhat dispersion have seeing are are those We entrants. that versus in

think obviously, out consolidation of see share weaker And the and because comes consolidation, the markets, are more performance to tend so investors it. I in market weak catalyzes to but we on

of sector LP allocating terms of the markets, the think most are scale understand who behavior over seeing it a folks performance into good are we looking the in and what this at in of private some that I time. can is value the And mean indication

wide consolidation the have amount we I months. the So are environment that seen below, consolidation seeing credit actually been we I and to default in we have space have industry least over pleasantly XX rates XX private given with surprised a are within still that benign and think last credit at of the happening

Allison Tayler Rudary

guess that developing have have That’s are color. terrific in the opportunities lending capital I be where markets? you types we things you going to products going you my in credit? you this for of growth to parts private to of for the type do really geographic fact competencies that in would mean Is to in of that one deal there And Asia offer other light there – great Great. power types the adjacent opportunity see other ancillary I of especially expansion infrastructure might investing? forward, direct perhaps of are to follow-up a and or in expand of and guys use that

Michael Arougheti

credit real borrowers, many too in transportation going of commercial firms, our The all infra-lending, directly and to the whether without equity we broadly it’s credit all see opportunity businesses estate asset-based lending, into geographically those. corporate answer is private middle-market fall lending mortgage private those specifics, yes, define to illiquid grow finance, into of lending,

have could in frameworks a credit market, to robust As regulatory order you place. in you certain appreciate, need to be private

You need a well-established fairly and code. rule law of bankruptcy

the need that at the a of that to went liquid also time each all XXXX out. is mentioned how that now later development years would heavily child XX happened when actually And for some liquid leadership fund are that poster with appropriate that a market markets etcetera consolidation spaces through capital view European market new and here team this capital capital into You Europe different there. we create the with obviously had the and was earnest so markets development. asserted advantages the de-bank and is capital and the of liquid competitive etcetera, market of significant are We between the markets, plays in billion banked. the in $XX We this have illiquid flow of bank you and in approaching markets. really

So, playbook. we the have

develop. We the have seen markets

develop, they we track of the taking and planted then We are have but long-term like to there. do we view time markets have very given as view a seeds will record, can supposed we that over world China, be the but other in these our to how parts are

Allison Tayler Rudary

for it me. Thanks. Perfect. That’s

Michael Arougheti

Thank you.

Operator

of Alex Blostein we have Next, Instructions] [Operator Sachs. Goldman

Alex Blostein

Hi, thanks.

outside for last distribution. Ares whole? M&A Clearly, consolidation, strategy guys BDC on are capital a Just discussion of a to more guess as are the you broader from thoughts the retaining follow-up I what guys you

So, also you little a did of offerings. from bit recent primary

and So for maybe help rationale the what think us mean just could M&A? from through more of it kind retaining cash

Michael Arougheti

Sure.

have now active cash, existing articulate we that remind growth the to that of in we to the value the and be fund ability earlier. So some retaining our investors folks, of when strategies referenced just drive I more alignment to

sheet ability the capital. growth seed strategies fund accelerate using balance of own to and our have new We the

we to be the to either strategy And have the look And at meaningful a over part share share has ability then now growth time, M&A repurchases will about also count neutral there M&A. which been pursue actively here. have opportunity continue talked We evaluating. is before, to are and we or a opportunistically as of

Allied the Indicus, good access the information our or giving by it’s to whether execute that companies access of AREA acquisition, can better the giving them strongly to acquisition, and we ACAS we that is them capital, them earlier. take history believe that us more seen make have Partners referenced of You the advantages I acquisition Property some

and opportunities, really it’s look where So, across board. we the see

We do have we already the well. in things scale opportunity up to

we coming generational where be when converting for M&A growth. of younger future it look M&A we can is contemplating are put a holds a the the seeing, their plus before, path would institutional businesses to on continue we will big currency then the in the the small, lastly, of driver seeing what partners a mention, to forward. grow looking XX sizable targets. opportunities the have the think both X are that conviction pretty and funnel folks terms are tax a us. to a founder-operated and catalysts that be, a we infrastructure us we it little a and than of them a conversion are looked put high strategy these at real opportunistically of different it’s what put pretty big from what have potential to a not our even we been obviously, trillion market leverage the that can XXX where opportunity are other adjacent We continue have perspective, probably of get single as seeing you more things the our a either to parts probably we quality attractive said ago environment, and them. going at And years, to a already to globe. who over that’s of across to strategy have of founder-owned grow pipeline that’s markets acquisition Ares have And represented, been where Obviously, for of potential fairly you as credit. in the given estate, drive front alternative in scaled some we I reactively these active But move C-Corp PE scale, potential business opportunity. here some about liquidity, place we over And corporate to for if that attractive that probably lifecycle like tool time, the was less shift of then And are in developed where an businesses evaluated perspective to of AUM acquisitions, over they businesses look to would a geography at, is opportunities constantly was have this, opportunities And and we we $X into we level asset are core to of founders growth opportunity only but in the and years valuations have competencies creating know to are a purposes a other for you most regular businesses going make to not significant. that asset started have markets, important And to C-Corp opportunity be in, currently have but of like single thing think I going at I markets quite or because and last so one

Alex Blostein

was Thanks. comprehensive. Great. pretty That

am but if clean-up – how guess, for out meaningful carryover kind you am basis? just the question all specific comp it’s the well, fee thinking associated we it was a at but it performance in just funds, last fees on the assuming specific and that I competition I as was a I just guess rate go-forward this I I of, of or – with are the addressed, apologies year. gross ratio where That last but should the already was about, thinking if quarter. performance the guys rate, Just so around investments way, of than was coming look

Mike McFerran

You quarter. it hit in on. given any mix based on spot the It’s

probably have in always the I we think I think I the changing past appropriate in don’t ratio XXs, low soon. that think that’s the about said anytime

Alex Blostein

Alright. it. Got

quarter. kind great. it. of Thanks. So, next backup Got Alright,

Michael Arougheti

Thank you.

Operator

And go Stanley. ahead. our will Please Cyprys Michael Morgan come from question final of

Michael Cyprys

question. for the taking Hi, good morning. Thanks

today? earning how strong Can work? are have just billion put across direct the some that look in. in all of of we capacity are example, How about have to you some origination for you capital yet and bit the creating fees, talk you firm, you AUM capacity a So you platforms coming $XX expanding, fundraising the to this not

Michael Arougheti

Sure.

obviously, offices and XX a we the globe, capital with that, think X,XXX we to people investment here increased done I have around are there at people in over have the add folks So know Ares XXX plus professionals.

in Scott months. a We hiring from Graves capital track last beginning have opportunities we ago of record really XX think I the terms in the and we have information doing of while in that people so is and been what years people XX scaled a that great that base. special now had and business. and example And the are business adding, have capital have had with we a we hired advantages situations we into special our X.X of Oaktree, constantly We

reoriented the in but not and in showing origination some in trading investor demand, We have our and retooled of just up up there performance. showing

So people see we to that. to continue businesses and do and where we we adding growth are will resources scale constantly

Michael Cyprys

and the elaborate investment little color question, And in more Asia Okay. fees the to a on if just fund release bit And follow-up quarter. Just on there. broad-based? single a bit and little what flagged you think hoping in weaker were a they I it topic, could a separate was as private or equity, I just performance this a think happened EIF, that you little

Mike McFerran

Yes.

don’t little why this bit So quarter. – we it was down a

particular couple at big there. previously It EIF, Asia of investment we a net above was cost. unrealized gains a part to million, in or to some development. off names million. $X $X gave of still was March carried portfolio. our want on is in back not It’s I market, a being That investment say that’s still investment us

– and we long-term feel for So about outlook the good it.

long-term a play. you recall, developmental needs an EIF If

development, projects your of of up is there there. mark-to-market a the widespread electrical biggest But is refreshing there completed And at as is you course prices overall on part get be look the valuation corporate nothing business, till where the that if are during for So I what variables, call quarter and other the would inputs you obviously, bit our volatility sold. to and the based portfolio private little quarter. the was business equity going of

Michael Cyprys

And Got below question hurdle the on it, I if sneak another ARCC, just still think could in I rate. okay. it’s

basis I was not it maybe so, think am if I points mistaken. XXX like or

you this happen and back might be that So understand year? just timeframe curious you actions to to take if could How thinking could us about the help better and you look back get up that? are what able

Michael Arougheti

which So part when above obviously on you are historical the referring the meaningfully has rate X rate, income-based X% hurdle gains. hurdle cap to generation, on the that’s fee – or the were experience. hurdle Fees the rate been meaningful the

to the and Kipp team the see the track about things just within record gains yesterday the the of we gains One that historical ARCC. call length earnings on talked continue at and ARCC that momentum was

out So, opportunity aggregate carried coming large hurdle Ares. large with dollar eventually AUM not part on terms but there of interest into but number, fees opportunity continued to number for an gains the it’s is the get a in a of X, incentive

in the overall look disproportionately incentive at billion of to are are reconciliation obviously That’s performance. AUM is people focus largely when not relative in eligible where given that So fee earnings that the presentation, AUM, they is the core ARCC the the size of high good of incentive we obviously number portfolio of $XX.X a the fund. having terms credit gains

Michael Cyprys

Okay, thank you.

Operator

gentlemen, conference Well, concludes ladies and call our today. this for

Investor XXXX of all call, June XXX-XXX-XXXX call those area international call. and An today’s replay located to dialing part be code numbers any website. number conference of the replay you Please on by XXX-XXX-XXXX conference international by have link code for on day. missed you conference callers Again, area section also of a replays. Again, homepage XXXXXXXX. XXX-XXX-XXXX callers X, an available great care on this will Resources the reference are archived we or all be archived and XXX-XXX-XXXX. today’s dialing for through a of Take webcast for thank will available our participating If

Ares Management (ARES) 5 May 182018 Q1 Earnings call transcript