ARES - Earnings call transcript Q1 2019 | Ares Management Corporation

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Operator

Welcome to the Ares Management Corporation First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode.

As a reminder, this conference call is being recorded on Thursday, May 2, 2019. I will now turn the call over to Carl Drake, Head of Public Company Investor Relations for Ares Management. Please go ahead.

Carl Drake

you. Thank morning. Good joining Conference for for first our Thank us XXXX call. quarter you today today our Chief I'm and Michael by joined Arougheti, our Operating Michael Chief Chief Officer Officer. and Financial McFerran Officer; Executive

deVeer, Q&A Kaplan, David will Private and Credit of In Head for addition, our the Co-Head of available Equity our Group; Kipp session. be Group

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

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

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

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

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

Now Arougheti, quarterly start highlights. will I'll business the turn call some who financial over to Michael and

Michael Arougheti

quarter core investing of steadily consecutive Good growth. Thanks earnings to QX And our We grew continued our increased sequential this part you XX% fundraising approximately from realized see FRE metrics earnings morning, can Carl. everyone. continue our AUM marked and and our our and earnings our strong grow and as income momentum over morning, financial report in eighth by year-over-year, fee and our XX% related driven XX% respectively by steady and activities.

equity performance the our of the corporate also private reflecting public was this led fund funds, Our strong, equity year. earlier markets strength first quarter by

to with about like into go start the business detail on and comments I'd few quarter I the credit highlights, a just equity more Before first markets.

recent rebounded economic a surrounding quarter meaningfully stance the GDP Following trade stable the backdrop. and also the year-to-date. This number markets selling we is the was optimism talks during China The Fed's saw a fourth technical that of largely reflection encouraging. have the and dovish employment

some standards stable. historical liquidity remains low there's Default experiencing while remain in by healthy rates are growth, So very general earnings and in slowing performance the credit corporations system.

returns demand our now While in traded the for by to by level correlations XXX of In transaction remain transaction to leveraging remain to inherent active, context, this for expected longer. Interest lower robust segment, plus sourced remain value find and advantages to continue seek alternative income platform as competition investments. in fixed flows and equity opportunities our rates the varies remains assets for investors investment lower we professionals. attractive are with low

for Our alternative higher seeking solutions solving gaps. current assets often or investors provide funding income for

fill investment Research low returns With Boston higher believe cited a much and investment income, the gap. U.S. and protection; degree average and for high institutional of on products this traded investors. by to assets for and both fund increasing meaningful more to that a that reported pension retail gap our solutions For Center XX% broad-based the provide correlations current for we funding between assets our nimble needed at liabilities, downside study example, College need a highlighting Retirement recent exists

In addition, assets with networks. for a with relationship self-origination large like opportunities, on managers capabilities, and extensive market significant Ares, places broad the portfolios repeat competitive quality premium flexible strategies

platform expanding our with resonate LP continues to clients. Our

Our funds. current of investors are our capital adding amounts greater to

in gross During quarter, continued the momentum, we billion capital adding our fundraising first new $X.X commitments.

credit demand was offer from consolidating portion, the long-running given cycle. funded that European capital new less as capital add-ons committed broader raised, and strategies, the investments are direct Ares top XX% across a with fundraising was $X.X investors liquid our exemplifies The growing trend can extended existing managers about billion at their business investors market the organic continued to assets the structure of funds. fewer where Existing illiquid credit and this of capital U.S. of came which risky capabilities. All about and diversified investors a to

alternative also our credit funds within billion million on One quarter. first real we funds quarter strategy, some existing We totaling and and all to during the debt where added three private private and existing noteworthy $XXX $X.X first the funds growth add-ons managed during more in estate added including than raised of to capital equity area co-investments. was new

add continue We've credit to growth We attractive We to alternative continue additional XX% to downside months. investments growing raised about X% a ranging provide Alt we funds now alternative the with tailored resources credit to highly our structured and over and billion protection as XX that investments. team. see last returns strong diversification, credit meaningful believe through from area, $X.X in

our this Our forward coming of good strong funds for several fundraising large launched our outlook up conviction and launched ahead. visibility in funds high investment likely And in with the pipeline, the we have we that in our or continued in all be is XXXX. successor groups strong, several growth new given with to of year fundraising AUM years three have

platform. familiarity $X.X During the proprietary angle like company And management particular a we drawdown first or invested X% source we're quarter, or out generally top investments funds the selecting relationship, as we using we across prior of the with of team. our concentrate a billion on a

the refrigeration where our the a we we PE a a European had relationship example, CEO, market prior For that years. investment. with controlling billion of repeat from European to national direct lending number leading In first sterling lending in for borrower financings one funded in the our direct HVAC of has company, a a successful and interest purchased services pound business, a corporate unitranche over us well team performed

value we rescue We in this retailer to a XXXX. with similarly in a relationship and situation for lending from prior unlock leading thrift had successful the XXXX growth capital also company to provided direct

a As have source you can edge. true see, unique we the we're just three platform our using investments examples, where to from these breadth of

As I stated continue for at the to we perform well outset, investors. our

up standpoint, ACOF relative driven up strong X% performance a for of positions strategies equity X.X% rebounded or sharply the of north Our that XX%. the European U.S. with private generated the strategies. direct From and quarterly first in lending composite public of quarter both our appreciation portfolio better again of returns by representative corporate our was

PE U.S. quarter annual up funds Europe and X%. in our another Fund and the U.S. with solid than Our XXXX for real estate had or which the in more high-teens yet better XXXX VIII, had returns

return And turn the call over estate walk results generated the Mike? in quarter. than over who that, QX detail. Our more fourth had XX now IV, X.X% to with more appreciation first And the will gross gross XX% for back last through the EF McFerran, real Mike months. of I'll European a fund,

Michael McFerran

Thanks Mike.

These earlier, Mike earning stated to are visibility strong Ares potential driving activity. the As with double-digit raised, and earnings position fees and growth not is in we income. factors yet convert strong, but continuing topline earnings investing fee are to fundraising as strong new AUM benefit performance a future related and from on

now a XX% catching to continues growth fee-paying year-over-year the is AUM growth Our trend in year-over-year. AUM And up high teens on our basis. over

limited run $XXX driven approximately reached by fundraising, new market and end at Our quarter AUM appreciation billion off.

largely and for over the respectively growth as XX XX-month from fundraising once in past also related billion invested fee-paying driven year it deployment the benefits activity. compared to Management last of AUM and and AUM XX% fee-paying increased XX% our a first fees redemption amount prior intra-quarter $XX meaningful from XX% earnings the fee both and and of XXXX Our by limited XX% is months to converts quarter period. AUM the to is

to consistent the in be to to AUM our rates. mid Our objective continues historical our teens corporate annually growth fee-related grow earnings high with and

to realized turn our income. now me Let

last $XXX realized drive Our period. XX-month up of to XX% quarter realized prior helped income million XX% first months $XXX the up million last to XX income

to direct our incentive from the driven in monetization's some earnings portfolio growth the realized accounts in annual by lending. strength & addition income Decor In Floor private in equity related fee was underlying with along our managed primarily fee-paying QX in

last after-tax basis, over on income per quarter first realized XX-month a XX% of levels. share prior year-over-year a per $X.XX increase share, XX-month XX% full Our increased common and was $X.XX,

foundation related the accounted income a of first dry levels AUM. realized powder Shadow solid fee eight our the which average income and quarter We has last with about in XX% realized our and on of for over growth steady growing ended significant Our quarters growth. earnings, for provides

ARCC from to any ARCC Our invested continue quarter to the does available fees the expect $XXX.X another reached fees also would of billion, I the in to billion, XXXX. $XX of deployment its to we with increased end at yet of in available include expect XX prior income first Of quarter impact we future billion. fee potential record not leverage and billion XX% totaling earn year-over-year. I the deployment, per capital future strategies, year generating that available from to from any our $XX up XX% fees, year totaled of AUM quarter Shadow and this fees XX% waiver Please on earn expect annual amount XX% $XXX.X in the about the potential the billion, of $XX.X ranging we is or underlying prior management total. $XX.X of management note additional to for million is incremental AUM million. XX third $XX million into $XX that material in $XX eligible quarter approximately years. future from not current the in corresponding management translate deployment performance our should realized expiration Based our the Part is approximately up horizons for of Of ARCC Incentive incentive future excess Part first billion upside which This months.

is AUM incentive Our Part portfolio is comprised amount fees increased equity debt the invested II AUM capital and performance the eligible XX% That's in $XX.X strategies ARCC on XX% generating private the credit oriented that XX% billion over of largely gain strategies. fees. XX% incentive excluding currently of generating Of in year-over-year.

and to quarter derived management with fees locked permanent Our funds continue management including total or up of Approximately capital than were closed capital XX% fees end XX% are fees generated more our of our structures. long-dated from represent permanent first from vehicles.

lines, minutes do earnings Before a spend related to think have composition about better this. of Mike, a handing and fee so call the the our how back of business we margins on appreciation few our I you want to

scaled We expect XX% – and assuming that line operate a believe should a businesses business margin. our and between XX%

XX% included and Real from margin Credit margins our will margin; margin, management incur had operations Estate future strategies, presentation, in drivers our our for group will groups Private capabilities the a quarter our within results expenses are all see Equity had can a and/or XX% and our earnings group we growth. businesses any At before develop overhead a that had Group Group first the XX% you that calculate corporate future segment expenses. you given be of to respective our continued point, As embedded

we For over developed teams. example, years, one two most talented the of what believe we past special the is opportunities

and including in – us We we situated our have revenue, commitment broader is XX growth to capital not manage. of private that special join collectively added distressed invest is the manage with example strategically future capabilities expand within to raising but opportunities rather us stressed group This did unique world who broader our equity which incremental identify a ongoing assets. our This platform over dedicated those in which one professionals invest in and enabled the of behind of are to and on Ares. just team,

witnessed double-digit it Estate fee earnings. and billion demonstrated new not strong core track leveraging Group is our achieve. can to At our As revenue a through of we $XX consistent products eventually history, launch ability the you our we scale and which to have capabilities contributed strategies assets of in related deliver has growth just management fee turn to management, Real have in under scale our believe and record at AUM under

scaled in margin lower operates Private it Credit a more and result, a than Equity comparatively Groups. our As

great and related the to note of will our margin with asset ago, tomorrow. compared equity for be we strategies and would along success had XX%s exclude eight across the Group, initiatives If I is performance to the our line we Real and to We sight class that, we team Shadow making this debt we earnings Estate in U.S. where continue estate margin have ongoing quarters first strategies as we in investments, expansion have our we our the estimate evident real the mid continued and were the for deploy had our fee XX% to margin our as a quarter. scale and are through conviction Europe. we strong AUM XX% in about our real-estate

of his ability positioning all thoughts realized data dividends; assets, future metrics been outlook. earnings, have important related we doing us. Before we will the of while now and measure grow Mike margins moving on, are on our point, to hopefully is key our most a with profitability, to as to monitor And consistently. a income fee which you close and

Michael Arougheti

Thanks Great. Mike.

ahead making in summary, believe investment promising. that continued where well-positioned these that is capitalize growth at the exciting we're investments that on we is for across strategic the market making We're and growth we the every years investments the group future opportunities outlook the So believe is business incredibly to Ares, ensure and we in platform. in

of fundraising across fund results, to and the see continue business our core is a have fundraising, and share clients our investing, existing performance and suite, us their can you with realizations the momentum continue strong give capital As from great performance, we fund momentum. and appropriately greater expanding product to

think line also We And a in attractive next collaborative we've the And structure stronger. flow and turn for months. I XX continue of culture line-up to and breadth clients we shareholders. and to and our don't originate the our to of our unique leverage platform a in deal generate for culture and have large personnel been successor funds over our promising from that ever standpoint, queue -- the returns

that, for your continued like Ares. the and up questions. support appreciate with to we line And always, open operator, we'd for As time

Operator

Thank question your ahead Michael of Carrier you. first with today question. [Operator Please America Bank And Merrill our comes from go Lynch. with Instructions]

Michael Carrier

think Thanks. the it but the seems the Good strong business, But, took Thanks one, the just by first like dip, morning. I Maybe side quarter. I of question. AUM think a returns credit for driven on it were ARCC. taking incentive in the was

there, seems So a counterintuitive? that because was from it just little nuance anything more an environment,

Michael McFerran

if to what in So, generating we've recall Part based is considered -- II billion AUM a fee. have I'm including about the and nature of the And was ARCC's on we ARCC QX, non-recurring past the of highlighted recall you this had debt -- portfolio. in if -- Michael, you guessing we $XX relating incentive

for as regular that while that that QX, a QX you being was So something of should wouldn't really -- kind would QX compare beneficial I included. we think without with on of against number basis. include

Michael Arougheti

at managed had see equity incremental to incentive the is, we Michael you're institutional continued from you private platform credit through line and other the a if accounts grow we've mature. as while our those across to realizations the large as fees I'd starting comment additional RI make look pickup one RI come raise

Michael Carrier

the And Okay. second then base. on helpful. investor That’s one, just

have come investor shifting base over the the guys the conversion a way you and past year. So, long with C-Corp

float guys You also because little a you some a unique, are from there. challenges standpoint, bit more have

just So group? longer broaden maybe float and strategy line the with more increase term, to investor what's in peer the that base the

Michael McFerran

will because one we with float, don't the I you Why Yeah. on. that start with disagree

I a years think few was case. that ago the

which couple of from north billion float of XX% look you to over means the we If has traded. moved years of company, us, the last have $X.XX X% our at

look think daily volumes, you north of our I at is the If average $XXX,XXX.

have able feedback positions recent base to once in float institutions whereas stock. targeted So heard obstacle was, it the to but quarters we not that I in investor an actually think the was the now accumulate are

there's growth we and sort as in some to unnaturally end, next taxes. to the will ever float. So, feeling I it will our don't for of awards as have the floats again, the if here the employees need pretty do good to Over that think or employees' time to the volume -- the think today continue from shares increase vest be about float extension of any sell over sold were modest stock. to time sit But I shares anything

Michael Carrier

Okay. Thanks a lot.

Operator

Fargo. from comes question Harris your Please with ahead next go question. our Wells with Chris And

Chris Harris

Thanks, guys.

Ares' you're particular does respect it business presumably the that to time, cycle how interest how Fed anything if the for change rates new or changes With you're from about in perspective, capital hold, thinking wondering reserve on some with today? investing and

Michael Arougheti

in high or level can credit specific. PE view, and with a chime give the can Yeah, I Kipp, David,

investments X,XXX you is our middle when Fed generally and irrespective in have corporate I fundamentals of positioning real over in think asset what market at is across positive portfolios look news Ares, we're seeing companies, the we very economic the good portfolios. and

of fundamental every across flow. or solid platform, do and of now whether control balance a the it their got our The cash we're job would companies, evaluate we equity would quality this it's where you the imagine, is healthy then the durability As underwriting to economic I pick in good you've highest buyout really describe direct way loan, a growth. private part is,

any flow the GDP pushed seeing and X% expect that You're deterioration And has service of and debt coverage in with continue. cash on our positioning, growth underwriting free to we'd X% we and rate had new to back. concerns been

I I remarks, the as to the So, want how going drive prolong said Kipp specifically continue the invest thinking prepared in the change the cycle to you But perspectives investment any or assets going and you're alternative is of time, same type to what in. that investor community to think does about if terms to we it's this David in environment. about maybe of the talk at

David Kaplan

Sure. Fed's is those known would This today of sort list reasonably I of position say moderates factors -- The one is long factors. risk David. of macro the the The level. risk remains on

in environment ourselves the going we whether it's X%, So, benign think X% or GDP today is that continue. growth we X%, find X% -- plus X% to to

Chris Harris

or I attractive follow-up. the view question related that sub that vary in debt would suppose make a And potentially Does little here bit to a credit-to-credit. Just more answer not necessarily? your

Michael Arougheti

large, always credit-to-credit risks. you're Yes is it's again credit business the company-specific and underwriting while very

where the take support the high the call, to we capture private we ARCC rates as just are of share the as there. generally seen incredible equities. yield relative yield markets And we're where the environment been relative income value even and traditional we're excess return think credit some continue seeing they've value coming experienced able rate from do and away to away from I what the with from I just structure across or about fixed I I up in this, given opportunities volatility to I market talked Ares. the highlighted keep attractive investments, think just when would for Fed interest capital think alternative doing is to and People move we've companies we've maybe that look space looking say structured larger spreads will to four global are flows high going the second-lien base is on where pause. on this

companies a I leverage So, debt, where in in position to sheet the part drives to appropriate. wouldn't capital been sub we this and of provide to we've we have the in where but middle our say able been bottom us balance scale larger see

Chris Harris

Thank you.

Operator

ahead. our question O'Hara And comes Gerry next from with go Please Jefferies.

Gerry O'Hara

Thanks for Great. my question. taking

curious is thoughts fundraising. of on a maybe target outlook FRE of function story, XX% of much kind future sort the expansion or that of Just on your get how margin to

is mentioned what's irrespective or main You of the of just market sort Thank XXXX being the funds and drawdown that going in you. funds on? those perhaps currently

Michael McFerran

this we and clarify XXXX is current to margin. plus just FRE all So, margin the had XX% of the our quarter through

of as have our raised And a of about performance the you on growth the of management growth, being that is most on had just in tied that Shadow account that that as think million if to online that how view fees We capital, -- fee deployed. for it the raised a report refer capital, and or management of management AUM. derived all we've AUM so from and get we the what are that fees today of we potential a -- of coming unique a little and capital about made capital Shadow we we're which What's paid to expressed timeline $XXX the lot again invest advance capital; on investments reminder made be to on already the as going to this bit is those invested. raise capital

as So, do continue to Shadow expand. margins we we to deploy our expect AUM,

I our to in really have hope we thinking continue notwithstanding would over -- look quarter XX%, from was grow. that's at ago do time over anything growth the of which we and will is But absent us So, else, into this at scaled points -- is the the earnings think three XX% that low back years think remarks real about couple you Ares. want to reasonable scale highlighted of businesses next and at I've of the that XX%s into I be XX%; and years two to which will trajectory say to always going portion given estate operates to for thing and margin less we of prepared point we is points our I long-term lower our a continue future would a any margin, versus the is but emphasize business worth four invest right

Michael Arougheti

as So, if about with XX% the Gerry one just look at concluding growth that other you in forward segment you in see look as the scalable on margins PE. at mature remark fund of are XX% is talked through, still funds fundraising funds. financials We'd going that you'll to and Those some come that Mike our pipeline and buyout the novel to the back next the our vintage vintage direct into direct you likely with expect now U.S. lending we're of of sixth see coming see asked European around. likely next XXXX lending

as mature and scale obviously the don't need businesses are overhead to larger coming those at add to pools same already those vintages we manage are So, through.

I is think in XXXX. queue there develop So, we as fundraising going into that inherent scalability the that margin do

Gerry O'Hara

or comments to instructive. the last you. year. current through be sort as perhaps thoughts be forward? might on environment on might progressing any be Are cycle witnessed or that perhaps how Thank of might any that the just Just of there was in That's high opportunities can drawn selling comments -- credit level that revealed that be we helpful. kind And some going a as follow-up to of insights that technical there some late your

Michael Arougheti

Yes.

And markets talk -- the of we I timeframe the changed and the Number very two makers the end sub-investment in the crisis are what's framework capital risk that think market beginning and very the about Reminding regulation credit about banks interesting that those in just markets year. credit active regulatory of we just traded weakening and traditionally in important were interesting is who a structure the was seeing as role what the ways. the the playing on selling October financial based market makers active in the see fourth those grade The through less particular, in intermediating change the market, like step out Ares the absence go been at markets tends of the flow, as price way rates opportunity structural pretty that there's represents have in capital so to were people for was managers don't big is quickly. post accelerating opportunity about when you of opportunity Ares. think through quarter markets one, we it volatility. has selling kind return gap that a a and institutional when is we that going have that to for the in back positioning to long-term that of provider attractive to banks very in and

those in structural either daily if change is a In market, now look loan daily market you XX% is is at with second The to high about of the market high-yield percentage ETFs. held leveraged significant markets the funds or to of in liquidity yield liquidity and funds structures loan daily with is liquidity. XX% loan in XX% in XX% magnitude, the of order of the funds

opportunity us. factors pretty take violent without see together you two huge action. those a the when can So some market That's opportunity for as orderly much for have and you retail selling making, price you

now our So both market what very you is very pushing technical deployment surprisingly, when that's not selling businesses, private come into activity public obviously our and as look there in active and was back. we at obviously credit deployment were

markets, the So that have in A you develops. markets it source And have that for big of sure us for can it quarter capture big that the been focused going structure so that's flexibility public that done when -- to outperformance us. forward obviously the when to first and that they the we develop. lot arbitrage, on funds things to both we be those what now in what be we're year-to-date of markets means private in and and -- it a making have is provide those when are us we the flexibility see

Gerry O'Hara

you. Thank

Operator

And our Craig Credit Suisse. Please Siegenthaler go ahead. from comes with next question

Craig Siegenthaler

from the competition cylinders on morning. really are lending is also business on it's direct more active The but good other all Hey, asset front. hitting here, attracting fundraising managers, which four European also

and So this exists Number your how you share help one what to still? defend in business, do business moats this protect

Michael Arougheti

Sure.

U.S. news I we've as good in think the position evolution level. we've to type try it and to defend the well market I'll of seen here and is keep high this our been competitive able

through offering direct of capital both and very your is you your Two investee we of your how through more size more up see the yourself straightforward you think competitive in is more flexibility be of stack. and position about your through scale selective. advantage but lending, the originate ways. the down is terms and balance clients couple flow flows, and the And capital to sheet, create product a breadth in the As three One LPs. of of capital origination;

So to doing is maturity but deal in talked better on these is way our frankly more you've position. in leadership we've of we that offices businesses at do our in calls, value the talked flow capital people that we in now establish we've created XX% ARCC; and given we're market the And of also seen develop the more that the both with hugest products. more have that incumbency we once it Europe U.S. lending and and The about advantage franchise gets the is a existing -- borrowers. as direct size over of

monthly have deploy companies on capital. management these So is because don't been statements, deep easier, teams. a relationship sitting those They're we've to to of financial in living level the having the underwriting aggressively as borrowers are seeing the board, trust observing where borrowers we or with with where compete

in of the new business, that in private So the average competition size funds is where largest believe lastly deploy from look of little But and new very the small. with know the in the is for capital of about the lending, Europe incumbency Europe, very as entrants number the that you to entrants one credit in moats particularly million. at $XXX size average around if able fund that it's borrowers probably direct fund I emerging market. the into we benefit we're

seeing in that up either product the you two selected with risks competitive a from of position get club And a so potentially on where end disadvantage to focus million going you're think else is not -- at $XXX non-institutional on or in market; credit. when certain you and to intermediated quality you're you're investing and either someone upper the adversely borrower, we in puts potentially which of it fund, forced larger comes which a itself a or buy to transactions forces we're

obviously of mindful we're So the liquidity.

think I in competitive creates asset folks have for the us liquidity also and whatever it space who values and real advantage. returns like for supports competitive tension ultimate promotes it

Craig Siegenthaler

Thank comprehensive. you, Michael. Very

potential see he follow-up new the part sizing Just Fund of to Oaktree? as I'm see when you success if the help he the was could here. Scott wanted you you I and around at over looking with us just to can Distressed was if Graves, my think replicate

Michael Arougheti

and and be in move attractive, this So we the very look credit fundraise a the When multi-billion as and and a you fund has tradable about public know will opportunity growth leveraging two but sizing at private private don't platform of strength dollar talk returns I think leveraging that type this to across you private they've the and that guys credit. for generated years over us engine. markets also continued full last the of equity, out the been team

fundraise, the business optimistic prospects which optimistic about is this such and answer the we're the why have it's we the very showing now. for up conviction right So about returns, long-term very in is

Craig Siegenthaler

you Thank

Operator

with Alex next comes And question our Goldman from Sachs. ahead. Please go Blostein

Alex Blostein

guys. Hey, morning good

one Just from question me.

really next every about to the upsize market the new in flagship about predecessor past increase -- I'm flagship in just As was other from opportunity significant opportunity fund relative set today the thinking you're not funds robust we be in and how as similarly the these should to that set Should a curious you've size thinking as or think you the funds? the able is fund about highlighted, we a the relative in prior been words predecessor vintage? to it

Michael Arougheti

excess scale believe answer think of average a you XX% to at XX% in in But vintage. is vintage. those in flagships the I have at been if simple Historically, of able coming true look yes. prior I closer the on the we've been excess to minimum prior successor funds

capital credit just and in our and scale, breadth size investment relationship developed you I expect the we the go increasing XX% would a by about is sustain market. of think when a and that of business of networks up lot in I are growth the we already articulated experience some continuing is think can we to historical terms particular harvest these origination we've articulated in So When of forward XX% I to moving well. that what average just on I businesses advantages, as funds growth in basis think the the that where competitive just

ticket and to we a growth So marginal our that investment of a scaling a of different or of lot add things is average have not lot marginal don't with size. do comes people really really just

Alex Blostein

Great. that. Thanks for

Operator

go next RBC question from ahead. with comes our Please Lee Capital. And Kenneth

Kenneth Lee

Hi, question. taking for thanks my

on off key if margins. and ongoing they detail so. into just sounds wondering a some can ongoing Just could or time there's you the to they're investments that Wondering going go the are as but what taper be bit it over follow-up as the if Thanks. next an expectation FRE year more little for to quite if

Michael McFerran

team Kenneth, I different capital was and our use -- remarks ongoing one that's developing our new the opportunities businesses. are strategies across special team prepared we around. raising had we're example, investments I clearly in think again

of have publicly from we resources, as the we've where that not that's do So future something so to other is those develop aside There spending have in our into from we'll and it any accompany which example, meaningful capability revenue debt then did we're about talked something that we the growth really evolves historically money capital real estate private and funds, managed. periods.

types across Mike his and long added adjacent about geographies ago remarks alternative terribly broad the participate you. touched capabilities whether always want to history our a the investing of again opened we do Ares earlier have to I core that is But thing the asset of Ares we one leveraging that investment The the question is in. what we asset in in wasn't classes it raised classes, taper leading Europe, So prepared meaningful London without it can of future it's and billion on a we player office contributor assets and scenario London we've the around I off there team meaningful around bottom and and we've the continent quarter. it's revenue in think our to now be capabilities to highlight line. manage a over on swath the did had and out into products, what that we $X or we're in built across a we of That credit though, this expand will mention

things to have we and add to we're doing the them So in today, evolve they of but expect the grow our growth, will and teams then tomorrow investing it.

a continuing to us. be for going that's story think I

Kenneth Lee

talked helpful. the Very new as could And Wonder private that's for of Thanks. if follow-up you've you may. past, funds? and banks new you. to distribution Got well made if about In expanding non-U.S. -- the channels, I those been on one just that's about geographies. being two talk some progress example potentially

Michael Arougheti

Sure.

to other raised. of probably of key of Last retail growth. about XX% So behind represented bank you resources meaningful distribution. year, types continued order We've capital highlighted a make distribution, we that couple the the for investments private in put magnitude of meaningful areas

we're product. high continued our in in RMs, company and IR bear is Europe in East seeing IBDRAA fund, Middle net scale dedicated to through of made So is that insurance the and creating fruit investments funds to by Asia region fundraisers. We've in all and worth our our the begin we've insurance, to distributed related being credit our fundraising which and and meaningful Internationally, scale. adding continuing teams existing channel interval fairly in distribution nascent

investment and global out were our to and the So IR size are and today, again, come that made see development made that we've now business through building at of versus back we've it footprint is starting the to investors complexion you're if that the the you go of the investments pre-IPO back look to on obviously platform. team where meaningful a

Kenneth Lee

Thanks. Very Great. helpful.

Operator

question And go Stanley. with Morgan ahead. Please comes our next from Cyprys Michael

Michael Cyprys

Hey, and good color fee added related on the morning. Thanks margin. the earlier earnings for

little a follow-up that. to wanted Just bit on

mentioned today. XXs you yourselves think operating mid it's see margin I I you where think

If I you're and of still seems the little mid guess, bit real the investments peers. making, you below the estate remove business some a XXs

what's a little of hoping could million talk $XXX is be just the your was And will with you through you deployed. about of coming maybe being structurally peer bit capital that versus management fees different mentioned some then if that maybe I So business sets?

close the put made? margin to just incremental XXX% given margin that actually the terms it's to that on what curious the work capital already you've in Just as on it of Is investments that operating there?

Michael McFerran

it getting credit and part and start million Europe. of second relates we're of on me U.S. invested capital let $XXX the in private is driven So by mostly that that. most to paid the

XX% the the the think incremental you if that, about in think I margin. Credit I So at Group said on prepared is remarks, margin operating a

how So coming that mid is capital. as capital that for probably fees the think invest XXs margin cap a I the we for rational -- proxy management that those online

-- on we if peers our very actually things to don't lines, at most look peers, how business. from I real think compare it we I we when notably to to perspective to these the actually XXs, our there's in the two well XX%. when I points. rest your Going -- compared think back think of XX% of estate performing I with Mid we business our question look a line the some margin adjust we're for industry. then And the think at

our anything think expense time reflective don't do we I is load greater, of that and a a at looking lot So standpoint. from spend

aspiring that time I of last it's our through is think model is happy passing the very and it achievable about us for for So business what with is which you're on -- in clearly looking our peers you our some of we're businesses fine at But is point us. certainly some for depending But don't. the that margins we fee when XX% is businesses have very when overall, think just us.

Michael Arougheti

more to our to conviction ability flow. our view differentiates I the that cycle very think business I is and has originate deal the unique Ares in a that the aggressively local would network sourcing say, high us you've invested as comment And as much have very, us a seen is what which and overlay through ultimately over one that people relationship make advantage, I'd years when just like of When sustainable have. than sustain example, competitive the it's you investment at peers the as of made. lending just growth network put the people we've something of just our number number in place in of haven't peers offices it's you to that growth look direct our about drive -- to and franchise, some think our type our we one

we So is margins for value us. a think as a that to what behind meaningful invest little we bit does differentiated constrain continue prop

Michael McFerran

up that since them. not pile beat the and want to is clear. We’ve is be or we attention growth expense are important. but discipline pay this Margins We And margins to on important. this question around to very on third the margins,

related However, realized important ability to the earnings resulting grow fee the income thing is our most those. numbers and

have or fee So had four if single-digits the prefer XX% point higher we're we earnings would all investments for of at grow – XX% to not but would a and you sure we I'm related able and as in make low-teens we growth year-over-year a that margin obviously, -- show high growth margin, that FRE.

count. to So our going the modeling, top to understand it's because important the investors matters to grow and of important is but they're appreciation. is the which growth is dividend, going stock the margins are I growing I on think ultimately in bottom FRE what's for the true Again all what's that benefit line

Michael Cyprys

point the Great. so to maybe And on business. investing guess a quick around latter follow-up I Thanks much. the just in

you out capacity how a little specifically on in the Just side, flesh more credit that hoping you're bit could there. invest maybe to continuing creating

mentioned out You going flesh teams, you headcount the years? maybe that see the and that today couple to where of of is can terms you over where next reference in

Michael Arougheti

assets opened footprint Madrid can to because opportunities and finco in the entire are core opened and European you up CMBS continue the be articulating we of specific can't couple like asset-backed transportation to up adding Amsterdam we our examples. office asset and In around we the In spectrum an obviously an we've specific capability credit push over months, we so and our but in base markets. give of markets add business, I grow our financing pan-European and we've in lending. last direct headcount headcount as office places and a we as the space, keep continue change, RMBS there. in lending Sure, XX alternative But and

to there need a -- the be adding capability that's to continue and us. area big big we to growth that going expectation people So with -- we're go obviously for

we you push headcount in saw six estate months growth. senior as equity to think us I business for last continue our adding real the over

XYZ. that capabilities to -- network. But So XX forward the in not it's base to strategy we're we as next as well hard XX people push origination add again scale to say the months we're the continuing in going continue as to capital the

Michael Cyprys

Thank you. Great.

Operator

Robert today our comes question ahead. Please KBW. Lee from final And with go

Robert Lee

Hi. my for question. taking Thanks. Thanks

bit that more Just speak lot. the I on reasonable wanted in if things you timeframe? little need investing you guess, some and getting really a place it to obviously up scale or you you enough of versus that seems it's kind that a I so I like struggle little with can on point feel to to like to real get to maybe been for thinking you I bit grow. it starting are ask before estate a you're about a know a aggressive inorganic are business. the you've focal in be but how more And at clearly growth mean that like there? look But, growth certainly space done been maybe really businesses mean, you that that it's to the other feel are hopper of there there there in acquisitions inorganically

Michael Arougheti

Yes.

as institutional is, you us space. XX about What is what's puts globe it. asset a on local the $XX couple about you very up the real Ares and so is it probably with in a And of competitive exists like In that alternative in depending about global addressable about real estate which managers alternative real the it the like we it What a market. $XX trillion means still XXth it's generally of business to the competition and largest terms probably is and give of So at the like it interesting assets, think least for it's business, frame also how Ares estate market it estate ways I'll sitting today end billion fragmented. landscape is fairly somewhere between managers we

you market opportunity is, the a us competitors. size aren't way, that it And just fact the many there's for opportunity the it think huge really that of scaled given so, about that consolidation, when to share market says what and addressable there

businesses, opportunity The business. internal businesses we've noticed much our all as develop advantages we're an disappointment as as is seeing originations over do, more of core So investment the having in the size we of and view a about in and outperformance our scale huge are we that said, time. more driver scaling, the of growth returns. as That any

on focused up real estate scaling very So business. our we're

as of the healthy so, probably that buy real spending a obviously both. a of at we're be I say, to scale, looking growth versus time lot result And of in build. desire And would estate will a combination

We a the very we'll have grow strategies, But fund core so existing us our in also business. for debt that performance businesses franchises. there been to has through opportunity best meaningful is I momentum think class, in our good continue to equity that leverage grow acquisition across and to

Robert Lee

to just in follow-up at impact conversion, with quick a of those as just I'm opportunities. conversations, tone sure C-Corp that, Maybe And to on if the you're in with -- has talks thanks. -- that an And the change willingness or to anyone's talking I'm constantly you? topic. curious, inorganic engage all if people, a potential

Michael Arougheti

I the all a think an securities. shareholders think M&A it's public some it's easier, it private because to traded for made made owners do business to standpoint complexity for reasons own same for -- is -- the from there yes. partnership. it just There own complexity I think I was publicly

say, some would margin that the of I helped at conversations. the So

I Brookfield-Oaktree we're the conversion, a think that we is it but the that didn't like transaction, business you The of highlight, broader retail think I compelling bring value and benefits proposition the investor more you to but see moving the it ultimately inorganic confident community. market I recognition feel announced continue would think that the pretty up, of transactions continues the growth I And of and if delivering this at are also scale, scale in combination platforms other thing demonstrate a going look to institutional to to the more to opportunity.

Robert Lee

question. taking for Thanks Great. my

Operator

question-and-answer I this session. for would will And closing the conference our Michael over Arougheti remarks. turn back like conclude to to any

Michael Arougheti

wanted next Great. support just gratitude us continued reiterate don't guys any, in everybody's to We you have to I quarter. we'll talk and confidence our for and

Operator

this gentlemen, and concludes Ladies conference today. our call for

by If you archived X-XXX-XXX-XXXX. missed of international XX, call, callers June XXX-XXX-XXXX any available will to through by dialing today's be part an dialing conference XXXX, of replay call and this

conference For located replay of archived XXXXXXXX. the our webcast the the on please website. number be Thank homepage link section a soon An Investors replays, of our will at reference available you. Resource

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Ares Management (ARES) 3 May 192019 Q1 Earnings call transcript