Earnings call transcript Q2 2023

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Operator

Welcome to Ares Management Corporation's Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode.

As a reminder, this conference call is being recorded on Tuesday, August 1, 2023.

I will now turn the call over to Carl Drake, Head of Public Markets and Investor Relations for Ares Management.

Carl Drake

Good afternoon, and thank you for joining us today for our second quarter conference call. Michael Chief Chief Financial by Jarrod Officer; today our Phillips, Officer. joined Aragetti, Executive our and I'm

We will Q&A also us today have a number will available of be during the session. who executives with

to in Before we this contain our identified and SEC statements forward-looking in you risks comments are to including made filings. call subject remind and uncertainties, begin, during that the want I those risk factors

note forward-looking this that And undertake results performance no and obligation an statements. purchase interest could Please sell any update nothing an offer actual a also Our not an of to we in such past results. is a guarantee call differ to future Ares solicitation any or to offer materially, of constitutes on Fund.

to not the available which refer refer or most Principles. website the for financial During to in reconciliations isolation measures from Accounting second we certain be presentation section measures. directly a in with quarter this the should GAAP on to substitute for of measures accordance Please comparable of our Investor our as Resources prepared will measures, considered Accepted non-GAAP Generally call, earnings

common that Note declared this month. record announced XX-Q that our ago. file later the of plan non-voting morning, per we dividend third A holders we Form This share $X.XX will and of to an our for on September dividend XX% year quarter XX on Class of increase we company's quarter common to a The Representing the be stock. over XX. our same dividend September paid on

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

Michael Arougheti

doing good well. and afternoon. everybody Karl, I is Thanks, hope

a U.S. resilient and generated investment During strong the months. the interest returns despite as in markets economy the credit increase XX over rates quarter, past equity second remained rapid the

improved year, of cycle. last than Fed the slower in with hiking transacting market more modestly remains as is it to activity transaction the visibility participants gain recovering confidence While end

for capital, and like, us it we'd managers well-known good and scaled it's and private as relationships capital broad than still environment with flexible believe favors significant a capabilities slower is activity Although brands. we sourcing deep

our first pipelines picked fact, compared are ago. deployment In notably and versus to quarter, X generally our up months higher the

are Credit our more across As I'll detail, equity our corporate averages fundamentals private debt a quality later and to estate be historical stable. little portfolio in credit, portfolio flow and cash continued portfolios. seeing positive across growth continues discuss and real above solid we're

XX% deliver with During to earnings strong and the fees, year-over-year or better basis. our around growth a management second quarter, business after-tax fee-related continued consistent on income all and realized

billion from momentum strong continued second existing over very Our strong see and with continue our follow-on $XX fundraising quarter, demand raised we clients. in the to

investors the strategies long-standing our Our private our our capital opportunity, recognize with track successful the scaled and market growth consolidate managers continued and credit attractiveness to drive of advantages competitive record. credit as

In for Lending European total sixth QX, the raised we an initial Direct our to fund, additional billion. closing $X.X $X.X billion bringing

subsequent closing expect early the several in closings over with XXXX. next large the several likely final months We held

we target. at closing few billion quarter $X currently will next at We're total initial and expect fund's billion prior in the size We fund for raised additional billion will we an continue credit of bringing alternative $X.X that of second that In vintage. to this the $X.X the billion the the $X.X initial fund, expect end. QX, exceed weeks, to exceed commitments also our

$XXX and real co-investments. strategies, fund billion, estate in nearly closings estate equity partial through million our first second to next oversubscribed of be close expect cap our final included highlights infrastructure equity a including and second in within $X.X $XXX funds additional hard debt real U.S. nearly of million of million notable billion. Other close X We our the quarter estate months at fund $XXX the real opportunistic climate the including $X.X fundraising in

capital strong We banking the return levels estate sector to demand continue the and real inject reset to due outsized conservative institutional the opportunities risk-off to see in sentiment at debt for with general valuations.

addition direct well. had we've in here to third additional significant the quarter fundraising the as credit alternative lending, in some In and subsequent European closings

the Friday, we our coming as previous we on fund, will our vintage, total the capital size to senior investor base Last total in a more $XX excess close investable of equity including capital. $X.X aggregate, than held anticipate of billion of third well raised $X first commitments from $X.X of expected received U.S. the leverage which the investors would approximately total and which translates and this we and needed, in in pipeline, gradually close existing quarters lending current direct billion Based in fund investable billion. subscriptions fund-level be commitments the in the anticipated billion

the told, third of call, billion as on all of date of thus billion in raised the quarter So we've first the of of $X.X half in far the this capital year. the more $XX approximately raised than top

a REITs inflows net both Exchange quarter, update on our private efforts including the the important raised wealth raised channels. we capital solutions. through We for bank and third across diversified recently nontraded for an million provide now as well our and a QX, XXXX REIT for the positive our to global wirehouse REITs. as added on me continue Let in in $XXX X management We insurance strategically over be

wire recently late channel million added management to BDC, additional $XXX from institutional the QX approximately several we capital inflows house ASF initial this launched of a alongside expected product. new Our that was wealth and investors month, into nontraded from expect in early

personnel the and launch later this and management the wealth markets We have to APAC European products year next ambitious year. global and into and made into product expansion infrastructure credit certain in plans, we've investments

Aspida platform formally billion that offers Aspida, thought wealth we grown insurance comprehensive approximately of issued and saw billion affiliated also billion from reinsurance product in premiums has half segment in Ares, online inflows for platforms our new in premium retail a $X $X.X the AUM. launched XXXX, annuity and has content our In Within $X.X quarter. to channel. Access educational annuity second agnostic We first of the both leadership through and the and

generate us spread the fees the it continues efficiencies demand to operational We as nearly annuities scales. continue business and Management to notable over attractive see year, to tripled past gain significant allowing opportunities. for have

For our total notably $XX to billion XXXX, be we on last above fundraising remain year. from track

secondaries have closings We in expect about And and in addition XX our different funds in I progress earlier, year, inaugural of the the the second to outlined half market. we updates credit fund. in the

infrastructure along secondaries additions third Opportunities Corporate fund, perpetual accounts CLOs. smaller and funds, seventh with Our managed from capital vehicles, our Fund

would launch a the closed-end European several to equity fund number real on over fund, U.S. depending forward, deployment, our series, and special largest the fourth value-add debt of and fund. next third quarters Looking opportunities we our our commingled fund our estate third pace including of expect junior

is market, deployment larger we we direct of led alternative our seasonally With increase activities, in quarter, and we're slow participating that XX% the first look at clearly deployed the private versus particularly a our taking a to credit. lending respect our believe credit more we than investing and market. quarter, strategies credit that versus in a billion leading second share $XX Private the by in trend U.S. when

winning solutions as continue strong our private in new brand our transaction provide see advantages to We for mandates. credit reputation and demand

banks particularly are we benefit alternative Deployment in credit deployment environment and been for to an across driving M&A regional strategy significant with in light, at With of our volumes well regional near available focus a positioned elevated new asset-backed our origination attractive future. for capital has partner group is strong incumbency this on the and credit remain banks. levels where to for is the provide activity. In both anticipate thousands borrowers solutions in and and Alternative its significant investments investors deployment, to

acquired finance funded which billion in investments. of commitments $X.X $X.X example, billion totaled For PacWest our and credit June, alternative in portfolio, lender funds

are that with asset-backed billion believe player and track Our and scale, we team the advantage private approximately from easy professionals enables to group replicate. in nearly this finance, is scale in credit to With continues largest that group, us investment segment XX alternative its credit flexibility transact benefit in we to our not size AUM credit and the strong deep of record. and alternative $XX large

In quarter. attractive Due in we're slipped closed softer quarter private picked opportunities European for credit third has the was deployment relative and as certain and competition from Direct managers, third pipeline seeing to well early little weaker considerably. value up bodes Lending, and a the structures. with quarterly the certain companies This and significant large high-quality pricing transactions banks terms in

opportunities, debt interesting differentiated we very slow, finding while the estate and sectors operating platform real and we have estate, in particularly we're real In capabilities. sourcing in volumes selective and where remain remain across

interest quality despite overall slightly rates see remains X,XXX and the Non-accruals is and Ares Turning in to direct portfolio which in for a well companies Capital the the firm-wide, increase at in historical XX-year certain historic they quality. market fundamentals. more remain our pressures. we strong U.S. inflationary stable than remain resilient Corporation, averages, remarkably Credit below the lending In Across and barometer levels. amendments continue business, pace the to portfolio of portfolio quarter, good second declined

direct EBITDA at recent the of in were portfolio, average the single a high XX%. lending loan-to-value Across invested weighted most and period U.S. remains reporting digits growth the over

risk. fund markets reduces contributing capital Our of as we ago meaningfully to significantly equity been improved amounts loan-to-value were has greater sponsors to and XX the have from years which where private XX our equity transactions,

our across portfolio our similar rates. is we lending Europe, In performance with and direct non-accruals, XX% from EBITDA to while growth continue portfolio higher floating benefit limited

industrial also our another triple well, supported estate the lease market's global of rental. sectors favorite significant real collectively XX% assets sectors, weighting and portfolio's to best for single-family in gross invested Our of self-storage, and estate portfolio account XX% alternative performing multifamily which global in including perform our net continues with our by real

vacancies demand negatively decelerating aggregate rates rent our growing cash the continued seeing growth we're some remain While higher portfolio cap flows, in have and positive valuations limited fundamentals impacted properties. with for and

growth largest in In seeing and months. the growth we're our last X.X% segments, comparable multifamily industrial in year-over-year rent above XX of rent over XX% remained same-store X

in related generated is Sabre's year-over-year, meaningful position Across flat generally Village the valuation EBITDA certain EBITDA portfolio quarter, and the and quarter-over-quarter. IPO to to grew a continued multiples partially primarily which ASOF remained ACOF growth portfolio, equity returns while due in successful private the XX% funds. of Value Our strong

investment fundamental opportunities continue strong portfolio, see across our private groups. we interesting particularly and in credit deployment across fundraising performance overall, our demand, to So strong

close in our to most hand Ares I and assets before strong the Point firm cultural billion acquisition over insights, we assets now across excellent equity platform. been years. Point to in the adds XX Point, Asia on market Crescent additional of Crescent we've which courting an expected a believe investment deep great our record fourth and the several into transaction, quarter and Pacific With strategically and $X.X with our track team have touch announced like recently Asia-focused and This a through a I'd Jarrod, is significant team fit and professionals, that private in we financially to under leading credit, importantly, with platform. Capital. management is that region, Asia sourcing for to private platform our capabilities accretive Crescent And including presence direct real we have a equity call

We the view expand helps Asia our future the us, the as acquisition in growth significant a area region products Pacific breadth for of region. and this

And turn on to call results. comments our Jarrod like now Jarrod? I'd over to for the financial

Jarrod Phillips

us Thanks, Thanks today. joining Mike. Hello, for everyone.

quarter, we metrics, FPAUM strong fees, second the realized compared our to fee-related experience management growth earnings, of and income, financial quarter AUM in XXXX. This to continued including

despite continues model business growth experienced significant past rich the market over FRE volatility deliver to year. consistent XX%-plus we've Our the

performance year-over-year, in driven realized income European to XX% by income a leading pickup also year-over-year. our XX% a realizations in increased funds, from increase realized Net waterfall

operating quarter attractive have margin ability fundraisers investors With on sight by second billion Our line FRE years. with of track exceed fundraising a our for and $XXX market cycles. was our we in $XX of us the billion and AUM, invest $XXX to due our few assets ended with and strong the several of to more or entrust of next efficiencies consistently performance meet the us, more second We and growth strength in ahead we're as deliver continue capital capital, highlighted again throughout quarter large great on billion target to of and XXXX. available to

market up to fees infrastructure transactions totaled fees source in XXXX, of that fees over market the quarter From participate which second by period additional structuring as debt, fees additional year, in broadly XX% an capital primarily more fee Other well of quarter, same direct us recently at compared an last of licensed driven approximately and driven by and our was the to revenue as lending may our $XX increase deployment our perspective, structuring broker-dealer, advisory management prospectively. for the income capital a was in available provide capital our of group. million $XXX credit from XX% million revenue

increase fees lower FRE an a of characterized XXXX, in and as XX the totaled last from $XXX from well to half hiring that by volatility transaction quarter months, XX% first In slower over million, a deployment the as driven second volume. by of environment the pace continues market higher management be of XXXX. of

in through to and is XXXX. strong ability growth We better ability management maintain remain our significant differentiator demonstrate consistent FRE confident fees Our a for XX% in FRE annually growth Ares. to or

Excluding as our call REITs we in non-traded the from FRPR on the discussed February.

from first in a point the in was quarter XX.X%, Our XX and the slight the XX.X% year improvement the second second quarter last of roughly quarter from margin FRE XXXX. of basis improvement a

occurring stable that enable growing in plus of to of the expansion half Deployment dictate rate margin us will the will we but XXXX XXXX. we expansion, to the guided our margin model in back and speed X margin management see and to years expect XXXX XXXX target the remain confident pace continuing fee end ago. of XX% ultimately We run that FRE reach by

this it of strategies year's. be return we forecast a from subject the We're of seeing to quarter total Currently, full ahead the well relates credit to rate market year, continue in fourth values. tightening still last experiencing changes of while our spreads. the in some to FRPR FRPR tracking of the year. year, in XX% potential environment, the the modest approximately expect FRPR As is for including benefits funds the performance the of our interest higher to This is realized

the June REITs accrued Regarding had the nontraded FRP incentive fees on of XX as balance not from our real sheets. estate group, their X any

second to a picked slow year. realization in the start up quarter Our activity after the

last funds waterfall expectations in we and realized style European performance more quarter, predictable quarter's $XX net totaled outlined Our second stable income million the from on the above modestly call.

realizations performance we and income recognized from American performance $XX XXXX. our in income, funds. credit of second had addition, realized another million million total, In group $X crystallized realized and fees alternative equity increase totaling a million funds the $X private net In quarter from incentive in of style net from we net XX%

we and waterfall As more year quarter consistent before our realizations in we expect our we European call, on throughout this do year generating revenue. discussed first some next lumpiness begin performance

European expect of remainder waterfall XX% to the the year, For over our recognized realizations in remaining this quarter. be we of fourth

For in in as the above higher of approximately or credit compounding Notably, our we're from funds. fundamentals Where along receivables net versus XXXX, interest rates $XX year-to-date. the million XX% with increase waterfall up Even credit potential quarter X.X% more than up we realizations, remain this our performance first benefits higher confident to million million, our of European seeing realizations -- our solid and accrued the expectation earlier. the $XXX comes fixed of Mike $XXX upside. with with grew rates, described credit

above assuming a assets fixed credit more This the for believe European stable generate capital growth. underlying predictable style fee driven multiples increases clear fees and waterfall one accrued generate consistent in rates, in style fundamentals. Credit market we difference funds yields where on by Unlike of are performance and performance Ares. is funds based our reasons EBITDA predictable differentiator appreciation, when income equity the are funds, hurdle growth

billion were have $XXX past in the million reinvestment waterfall $XXX funds XX% eligible of and our performance Of now nearly million AUM or over farms. European $XXX $XXX are accrued funds, that is of of periods. their which million receivables, European-style or net waterfall We from XX% incentive style

of of senior our up this income raise of the higher additional ago XX% in European quarter to the alternative A level of direct our second realized we others. period. will per the $X.XX, funds, and sixth the fund Realized than quarter in stock million, largest share fund, capital our several income second our lending grow XX% $XXX totaled year as Class fund, lending expect direct including common from third After-tax XXXX. continue We was balance credit second

third Class dividend on share next of for with quarter we XX% per X mentioned, we stock, and objective and dividends up of common XX% track Carl remain of $X.XX providing declared a in annual growth in the year-over-year, the non-voting A our As years. our

and $XXX our June totaled of AUM XX, totaled billion. As AUM fee-paying $XXX our billion,

We at million and has continue quarter amount to beginning from fees potential grow $XX.X over the at available deployment our billion our fundraising XX% AUM incremental increased our yet as and not paying stands This future outpaced for This management represents future $XXX fees. of in now the year. end deployment.

our attractive returns credit credit to and XX%, of relative from both performance XX quarterly generated each which and second strategies returns across equity, gross we over the private performance, strategies, strategy ranging primary quarter generated of in months. both X% fund for our strong our investment Regarding generated core composites, last

Our in special over months. XX the and X.X% of last returns opportunities composite generated quarter the XX.X% gross second

corporate last returns X.X% X.X% cash up estate, gross in U.S. in was growth rates. the XX the composite Within largely XX quarter by equity essentially Our equity of offset our months for flat trailing flow composite in the the cap increases months. for and X.X% estate quarter second generated private gross real as is return and real

Mike it back closing turn to for remarks. I'll that, With

Michael Arougheti

the helped the asset-light face resiliency showing portfolios balance business and of Thanks, earnings of FRE market significant financial We fundamentals have the the model market uncertainty. our to volatility very credit and based even are sheet fundamentals believe year. over past are strength Great. our Jarrod. economic the sound and in across from experienced quality insulate The and and

best been it's transaction considerably also repayments than volumes slower to remain and easier market market our protect While are assets. slower typical,

be our that which capabilities continued we environments. robust we're on for continues capital for amount promising this can available is for demand pent-up share to wallet environment earnings positioned driving that transactions margin in sourcing as that capitalize capital a of due and large add The direct deployment, share for coming to very gain And we're we diverse large growth and growing funds years. markets believe the demand believe expansion dividend ultimately visibility well to gain advantaged improves. meaningful in when sharply And We these our provides the and clients. the growth, new and

shareholders confident fund Ares we that remain delivering picture. strong short, both to our economic for business In positioned and of is continue investors the our results regardless

grateful the globe of and for always, appreciate I support the around and dedication investors' our As company. for hard teams our work I'm our continuing

think Operator, line I up for can the open with that, we now questions.

Operator

Instructions]. [Operator

Our comes America. the from Please proceed Craig Bank first question line with question. Siegenthaler of your with of

Craig Siegenthaler

you how has the that, the bank crisis. And is Ares bank? this forming interaction which if question might that seeing the -- U.S. First have been is chain partnerships. most with businesses be then And are And the opportunities from can includes post also, industry you deployment helpful. your quantify March you

Michael Arougheti

of just as that back the to in. of us to about nice days still road the a world, your think partner but of they the in to attention of as banks talked direct formalization kind like transaction on map the I partnerships, for terms new the a prepared would It's we and others remarks that early we're good all any I maybe transition living PacWest Ares structured be can types regional how

banking in early the more we'll market. is consolidation. we're to continue in the transition expectation of stages the I think My still see

will some and capabilities purchase larger secondary increasing, our in competition we with executed we'll types our conversations up, to number right access think PacWest with the new credit see showing that which their leverage and we the of that reduced around partner been has grapple say would married look sheet of and to to the it's opportunities also with cap, we're With origination equity. in transactions think of as and having transaction. I I business, they first these balance alternative is where primary on foremost them the I us market. framework can banks the where asset and consolidation,

pipeline and would I not month I still to next early, still theme big. but this it's So X, for is the or a expect X, or be the think year

Craig Siegenthaler

in just that all in a credit has I the My front. pickup been just restructuring interest portfolio quality the following follow-up of it we if corporate help data some easy has get some and from and company. think on also there lending, restructuring, have But is you was And coverage the the to sponsors more seen deliver economic declines to resilient. been know how cash quite

Michael Arougheti

have simple pickup. underperformance. not the fundamental are stabilization as we've about So ARCC call talked answer meaningful well that are being XX-year and seen Kipp bulk in historical driven Defaults seen the and and on the is, actually the I of modifications conversations still say, cost non-accruals below opposed of we even a to capital averages. a would amendments by

I'd prepared a assets we owners portfolios about low powder. capital these that bulk There's lot U.S. credit a structures of subordination the a significant in what equity XXs, in equity in that highlight of talked institutional in real are the XX% and the dry loan-to-value sitting the remarks corporates of the have the in hands of in amount of

So and happy have our continue. the performing expect that clients, to companies structure support capital been and in seeing to with I'd that support from of I'd we're down. terms pleased willingness drops very say we've that

Operator

of Our next line Goldman from with Blostein Alex question the comes Sachs.

Alex Blostein

you I So higher it is tracking you said X than pipeline ago. months your mentioned believe that deployment was,

next So can that months XX out the and interesting, unpack which going maybe across I bit heard super broaden Alt maybe Credit, just a can what's more opportunity deployment expect banks you little we strategies on prior relative type on but the which broadly. to bit little with given XX the the is you you obviously a deployment over of of the that pace months? the

Michael Arougheti

Alex. moving bit, It's a around Yes.

lot of opportunistic deployment that I in capital give say, we're I'm to and play give seeing our as either well, it's by on a And growth seeing liquidity need to portfolios. existing good market, investment. not even tuck-in would businesses you M&A as their inwardly equity activity generally, So defense. business. and amount to of the slow specifics business in we're into the going a landscape are landscape in I in our fair private of you And and finding are -- can't true any acquisition the across a broadly clients or portfolio bring focusing environment, offense credit we're

proxy, ARCC look quarter, deployment was at the XX%. in of quarter, That historical is the portfolio. levels to you in if compares a the roughly the high which into relative as So with our

So the of given benefits our even incumbency when one of stay we we and down. M&A can positions we number around have this the portfolio active have environment the globe like that is an is in

seeing build XX% quarter-over-quarter, are We quarter-over-quarter pipeline logged the deals growth.

I think transaction year. towards of my view back activity pickup going the is own we're the half see a to in

a slowdown. there's people think to we're a to of of the and because willing to are the of think tough question end getting to amount pent-up naturally more the middle transact. demand hiking August I It's cycle, always going there's now I that fair be answer in

But biggest credit sense growth next feeling So credit see is of And all and are your the to into how are I to shadow my best its the week half alternative developing. proxy. is in think where probably we're going going this probably year. of back and the people opportunistic forms the is week the not point, pipelines

Alex Blostein

wealth the prepared out remarks. and in outlined around dynamics My your you maybe thinking zooming is that second through question channel

of guys on quarter. about are large frames. you ASIP said maybe million net see us last that sounds think platforms from It on But sort give pace $XXX how in guys how evolving there. of saw getting about you little maybe you time Early thinking days, got you platform of inflows of like I a other So road here. a one of you bit map

have channel -- are that investing particular credit you familiar parts advisers within you maybe of with that other wins the are the the new are the in far so these to from And FAs spectrum? coming that products that kind of Or private set? that do product are that find seen already

Michael Arougheti

specifically Wealth in Obviously, to heels wealth Black been Management, progress and the ACIS development the So transition pleased we've and growth distribution. channel product investments the meaningful with broadly. we've in Creek been and more the acquisition of in making very Ares on the

So and fund our business. PE secondary’s we've markets around our added private

we building seeded traded REITs. I'd Obviously, spot real institutional continue grow with our BDC you of track is the that And year. a record. off fund commitment to a bright remind that earlier the ASOF in non-traded meaningful we

number the in just $XXX wealth the the of as half distribute. million here to out this we coming initial we saw of was the that inflow And began back of so quarter

continue the quarter So number QX pretty strong the that's to we for this is My of expectation globe partners cause new optimism. actually a add around that we'll add And my to probably will expectation gives another me wire that begin and in is XXXX distribution fourth of the year. U.S. of then in product.

kind and the I a pretty is brand that we that well of through think In those my the terms mean and REITs mortgage that obviously -- -- say. the think product strong the invested BDC non-traded adviser across see brand behavior, are the rolls uptake. track is somewhere as ACAS the are sense market and investing credit as probably to and in record given I the private that it's hard developed have penetration we'll REIT I But think I of Ares else brand the initial our BDC out. deeper with

Operator

comes line with Budish the Barclays. Please go of Our question next ahead. Benjamin from

Benjamin Budish

more informational Are distribution. Can growth do cross-selling Crescent you existing see you there it advantages of to How what fitting contributing into sort the are you there to adds Point. picture, more talk does, mentioned first it the sort high about the Asia the of opportunities? on there? business maybe and what earlier, besides of maybe acquisition kind business Maybe level set this

Michael Arougheti

Sure.

you our meaning the calls, on look by lot geography. private our in capabilities the in have filling the each a business have. goal private remarks, secondaries has As what from as us entire what the classes real Ares business, I you markets credit, originate mentioned in the articulated, across private Telling assets to like does still from representation able equity evolved prior and and know, this European a equity our are sleeve that less mature, existing and Asia U.S. time we've private prepared standpoint. over given less those is asset probably to now acquisition invest And we of

so And order to while these scale we that markets the for have develop of to in for need here. continue to growth, we have those type meaningful expectations markets see us in

debt that's geographies a a I What decade of pieces list a quarters, us in more business than in of which create where does that Southeast India about we're seeing to all top China, other not What in meaningful synergy that what world. is, we with can very us of right platform, addressing is are notably interesting So trend dissimilar of think markets, it it's parts equity the and this and but for India, in our now. gives Asia the type the of particularly market, it's place. capability, probably couple are

the But in development of given those markets. stage

and equity think in of world. I and are lines that fundamentally structured debt and the the between debt equity blurrier part

capabilities credit. with our the sheet adding And opportunistic marry investment sourcing to so deeper down and balance

think meaningful actually I synergy pretty a sourcing have we'll emerge.

it quarter. next about hope to expect pretty So to and excited close see it

Benjamin Budish

for more Maybe just Jarrod. one

to opportunity. of to Or leads might what potential way color upside to floating any give You spoken from way European the think about sort of has any Is and that any the context Is look help us curve remarks up that there's of kind to kind debt? any the rate that? waterfall of mentioned kind in since rate that upside that other from incremental or realizations matter prepared it give size we've a you gone to the the can at like. of there

Jarrod Phillips

rates you you over that the European what against outlined stage year, the accrue increases, these that I of remind allows see rate in kind reset for to we early this of lot a and just fixed those that it's we gave the -- see there time. as still hurdle rate that we're we waterfalls. really expect And of guidance more

then duration we them moving upside, European maybe bit expect those quarter is entering waterfall little these rates, then paying increased that XXXX and more we by a assets see off their where driven the around to of during an it that into XXXX. into fourth upside and centered So then or on full extended see and is

of lot upside. what's that's a the driving So

up see And on and net performance balance the in where accrued manifesting itself you can gone the really sheet that's that's year-to-date. fees

Operator

question with question. next proceed from JMP Brian with Securities. Please McKenna line comes the your Our of

Brian Mckenna

a just bit drilling into performance So here.

a was had quarter, strategies including Asia that X%, was XX% which about then increased north up special credit, the opportunities really You alternative of during outperformed few and X%. nearly up credit

of So underlying could these about the just you for some strategies. trends talk

then the these drove what the in Specifically, And of the back for outperformance? the what's outlook half year? all

Michael Arougheti

Yes.

mean the I of those -- with self-explanatory. think investing is hopefully, it's I credit bulk are focusing what largely if rate you on strategies opportunistic pretty instruments. floating

of for trend the in I in So of if capital. rates coupon strategies, those flexibility is increased impact. to and a invest up. very think two, capital the getting need go as think thematic And of having sit One just example, and ASOF being terms special for you're benefit Asia rescue the situation strategy, twofold you on the about special that's ability

but in the I would bases expect the on going make the denominator what's terms highlight as some people's of market in in U.S. you trend well. equity imbalance last their you credit example, I significant pretty supply-demand that at X% out, if composite quarter, capital continue to is longer. that would which direct and put strategies, effect regular for look to -- pretty need up lending, a liquidity, also and of those of return way the called Given

market for it's So a of rates. increasing product base and the combination I think right

Brian Mckenna

a credit just look within the then mid-XXs. follow-up on the And the When across is FRE margin you margin. businesses, in the

of in the margins segments range. XX% While have other low the most

margin So they is to time? other over to so, of expand any these could some And businesses? guess, in if where increase the there I opportunity

Jarrod Phillips

a I Go simple think really it's answer ahead, Mike.

Michael Arougheti

Go Go ahead, ahead. Jarrod.

Jarrod Phillips

No, Yes. that to out. say all it's I laid was XX% guidance in with going line the we've really

that the out we've that than over business prior business to probably of scale. deployment of certainly at the largest lot most credit As vintages. It's the build and platform the larger being time, the is A using fundraising to built subsequent scale. our become continue on assets it

and the provides the and what that's margins. those deployment occur, fundraisings that As really tailwinds uplift

areas the the you margin on said, of we of, is So it's when of plus XX% backs still about coming the end run talk those in really of like expansion we lot at a XXXX, rate our invest you in of a areas that increase we in. margin platform, as believe see that the itself and there's well. different expansion of lot revenues And can growth in manifesting across the in that the that

Operator

Our next line from Patrick question of the comes David Autonomous with Research.

Patrick David

better lending It versus pipelines sounds much trend U.S. direct quarter-over-quarter in a there's European the happening like

beginning lens, there idiosyncratic growth of up could this reason? any potentially market lending have blip happening some of change longer-term with be do the in share U.S.? more that the there, that for is an indications Or a step catching you direct through So

Michael Arougheti

idiosyncratic. it's nothing interesting. there's Yes, I mean

probably U.S. effectively have in were our Our as sound, a size as first I scale the and may few come and think, crazy advantage people, position market that that close position created here is in We market stronger this have to. Europe, than very in

that but we just and the by unique. as fund, indicated recent deals, think, meaningful direct most pretty lending would is as just success some I of mentioned, highlight, of quarter-over-quarter, some I this So our deals speed timing, European is slipping think of I franchise,

the you ultimate of been U.S. could seen the and Similar have us pretty APAC just we more, growth of I last XX a it but continue. I over market has said as think significant U.S., If grow XX that's to the to years. even track about see relative its to the behind there, market share, going the was to U.S. more the taking look market position it develops to and the and growth I terms fairly in it's what And we've region. up. at that development, size Europe well catching business

Operator

UBS. Beatty from your question next of Our with comes question. Adam Please line with proceed the

Adam Beatty

credit perspective. to I funds and about of cost kind ask from just borrower of the wanted private pricing

given wondering, rate we believes resilience cost get despite out funds, in might is that some maybe cut to or rates, there Just the just a the -- of you either still issuers react differently economic elevated level sometime there you're of seeing cohort there's noted, a the that whether 'XX. hesitate pivot or

off those days? folks, with wondering, our or that for just maybe So pricing to reacting differentially otherwise flexibility, obviously, financial these holding

Michael Arougheti

is your expectation and you the what the to capital rate the it's rapid extent for capital. created that capital. the is of And I cost by hamper and cost cost Obviously, Sure. now to and of to Obviously, need being a cost financial that in on now those of change done going to driven valuation And deals, at slow, really in real think, meaningfully largely funds, transaction that's that's more a flexibility. or corporates, have look stack XX% and to assets a equity. environment you put of cap leverage whether new the volumes place that's an want a it's transact, with obviously, X% put the of lower funds,

so equity XX%, a contributions huge if in the at you look And today, which historical approaching is market level relative standards. they're to

for so with it And that to those transact, equity. bridging want they're

that the those what of there's get of to The highlight flow over that's to is from and while about can on I capital give pick classes, benefit I obviously a should one tend we play you asset rate. investments, this up. structured can way why it want a but relief capital you our rates accept up, to down. deal protection thing higher It's cycle to willingness as on to would And see floating private credit think have offense call to is that see everybody come you I the their And a given modest and the hiking for agreement flexibility it's painful think prepay lot should once down. cost we of underwrite obviously the cost into they the some

Adam Beatty

pickup just that. loosening waterfall just market European what Ares to carry, turning particularly maybe American carry, equity. And sort structure, that then for of what of the to outlook style away extent some wondering to realized might the in be some of the And from private medium the around suggests a the realized there, maybe in short in you saw term

Michael Arougheti

to Jarrod, handle do want you that one?

Jarrod Phillips

think in had positions some the absolutely. I this we Look, quarter, sales No, private for we portfolio in while. had our we public Yes. equity what have of that had did a group some in,

extremely primary see so didn't IPO back was quarter. But will monetizations the Savers assets. those happens of additional and Village some the of but a was that that selling private Value didn't to offering, in the of was there result it half Overall, excited that we as half are that the it portfolio year. in to any That the back IPO So have towards equity great IPO be successful.

take and But taking that there's intelligent being a that the we'll continue monetization of for markets at and advantage sales a to they to as It's turn been say advantage happen, for they come. there's Otherwise, with on look look I that. opportunities. are we opportunities of There opportunities accretive huge and at what forefront. look the of when opportunistic we're and lot looking and wouldn't

Operator

Cyprys Our question. with comes Please Stanley. Morgan line the proceed your with next question Michael of from

Michael Cyprys

despite If broadly a have discoverage. a base would to XXX many than in industry, lighter credit we rates, we but seem the and increase seen across have expected losses look be basis in lot points deterioration plus

around that, and do defaults curious XX next trend you XX losses months? you to your to views look how just So as expect the out

have those to that's portion you companies us how what credit of out risk, And can roll you timing hedged And how evolved? on off? hedges remind think just interest portfolio do their rate maybe for the the

Michael Arougheti

Yes.

So historical the as performance I mentioned to credit below be earlier, continues averages.

the as they prior crisis. we in I the levels to get will and that will think see you don't lag the think we we've to that seen cycle tick I of later up, rate effects naturally get increases, defaults have but

again different big this and dry had we've if levels around, what a interest different highlight is the there's subordination prior to coverage go equity You've stabilize. than powder And in that I fundamentally seen of is market equity amount cycles. think thing the is exists in

a expect from on the the that the generally would lot with seeing seen a this in challenges through we've saw that debt expectation companies as opposed or to defaults. performance generally behavior resolution the deteriorating are to these that what of will I is equity transfer side cycle, spike either and own we coverage largely So continue. what my That's value COVID. in slowing come to in early the given losses It's through growth

private is to but debt of credit landscape rates higher equity environment. it result the a for transfer up, I So defaults rate of as the actually think from go to not that there's concern bridge order will in across that cause value lower a could return in to the

Michael Cyprys

on interest the then just And rate hedges.

Just curious around any that. color

Michael Arougheti

hedges. running a really It's terms the rolling panacea But Yes. been on structure that, say private of not just I the those side. XX% that's in around would of

the cycle, early than bit today. think benefit I we that a more little think are where rate I in So was a of

Michael Cyprys

guys could. that I believe excuse And wanted I Cove. to if a on Blue or I Point, Crescent one. On you just me, minority taken had ask follow-up a question,

your I'm that guys in Blue You to took might be about hoping platform clients? credit a in bit rationale about behind your Cove capabilities talk quarter. be and little that's, minority a the think stake the strategic systematic minority shop. the just how think, might able you and you stake, a how additive to I their

Michael Arougheti

They early. fixed still scientific a are it's Yes, manager. income

create technology, to both on opportunity to of could was So they're for world in the applying our high-grade liquid that felt what innovation understand important growth income evolving this and side it and in business. for for disruption, technology we us what it the credit traditional terms management tools for largely us of and fixed technology that quantitative of opportunities was

will scientific part in they world the continue will But and track have from develops particularly that They of one market. what are that I grow. that that of us of management, in partners. time investment into. Blue of Bay. time very tell And the of around for income business innovators the at leaders world the fixed great their real to of the building the a thesis record is part They're strong terms think And market high-grade

Operator

your comes next question O'Shea from proceed Our Fargo Wells question. of the Finian Securities. with line with Please

Finian O’Shea

market relationships in back, corporate pulling do those banks in what how from opportunity credit they to on Another and new you've comparison borrower what seen credit. the extent are you say acquire and to alternative durable

Michael Arougheti

Fin. question, great a It's

they're durable. quite I think

are finance assets if correctly. we'll If PacWest you time. needs originating individual platforms close that requirements lender they while transaction, And that borrower were financing and it's those XX over example, the within new my book, and have just discrete me platforms for book, a new to take, are serves loan memory

there client an to element the base. should is grow our that So assets transition of this

they're earlier, thing, be mentioned we partners to that how -- to partners all I focused think going on other mindful of to because The good be want as our is bank I are we what is that do that the do that I I most capital I the based order partner on to effective maintain way. with my client have? And like how my in relevance with Ares support capital client friendly providers in

is think And coming every about of wholesale and don't Ares. transactions these I a one so that clients bank leaving to

how more we're in about we I generally early days, it. to time. think least it's can together that's how the And work that support experiencing at client over

Finian O’Shea

the sheet. to a just small on small then a investment balance change relates if Noticed you in on insurance strategy there? touch the Can any on And it and jump that follow-up.

Michael Arougheti

change No, to no there's

Jarrod Phillips

it saying what support the growth. a It's it and Mike. us in to insurance and strategy. change thing, in business at the to its look We're doesn't just best taking a in No, relate the same how there [Indiscernible] is timing

to that sometimes extremely sheet remain capital. to using we're when same, want of and goals less overall grow ultimately our it's balance support product attractive we can, XX% as than be in it at we an we Our sure the around to owner it. But a marketplace, Aspida best time as that's make the able

Michael Arougheti

too, performance the reflective highlight, platform. that's increase given underlying the of of the that in investment value an also I'd of

Operator

next Please proceed our with with Worthington of Ken question. JPMorgan. line the from comes your question And

Ken Brooks

think around here. the prior a more questions, a couple of A focus side but this for opportunity, I with credit questions on on couple than the direct alt danced bank we've partnering of side, the lending

in the might lending. this banks direct persist? collapsed partnering the Like with do in to ultimately And collapse the has longer-term First, lending have resided within banks? mid-cap fit the see that ultimately, business aftermath bigger that there may terms opportunities in within direct time been banks Ares any have weakened you logically does changes pursue -- of changes the lending all of seen some of of to some markets then Second, that direct the within the or credit or over of where opportunity Ares? in in

Jarrod Phillips

Sure.

lending small of meaningful those sheet, consumer business, business uptick be bank say are wouldn't in there's at and So if A going in result a regional the real of commercial as them, you challenges. to direct the estate I of largely business, terms some of a been that balance lending. lot around look

the be banks, we're That the consolidation, about real see of gets estate in be us to free commercial that lending said, real expect the the we'll primary platform. talking and us. and going opportunistic regional that So could of commercial around for imagine that would for bulk would is I portfolios market interesting opportunity created loan up with if estate side that equity our some I

broader is largely increased to wrestle to they alternative opportunity The for larger And banks credit. that as also going regulatory going be with in think the be a story capital is requirements. I

again, see, partnership. You'll opportunities for

be we you'll capital certain market maybe exiting share businesses maintain look they've where there. or but been certain I I can relationships, banks and think see a good client partner think and overexposed to over-indexed

a So beneficiary. credit, least disproportionate vis-a-vis be will think the banks I larger alternative at

the private of of loan market are and way and transactions then environments. the years And more last the difficult pronounced their and obviously out gets finding that lending, regard trend a with in direct to market. number that there's been place for larger in into high-yield more market

is environment we're exception. in current So no the

look you the as last think quarter private financing activity, quarter, this well. activity I markets of and leverage happened at buyout buyout If XX% in

private when And issuers challenged. to markets so are market loan value the this theme offering of and high-yield

and think of half year. we full continue, we'll display first I the in the in that saw

Operator

Our the Please BMO your with proceed with Capital next question. Markets. line Hone question from of comes Rufus

Rufus Hone

could was greater and know fees fees you extent. able around build? ambitions thoughts have the for potential don't hoping how in can participate that start those transaction a to to quickly to now around out if capital I I any lay be markets to higher get your you that might fees early you'd that

Michael Arougheti

over as our level. contributors time in would product highlight, peers, out into that of unlike those see funds quarter. IRRs play a their the finding to our some way began lot type higher say though, this and modest distribution are they be I underlying of driving you will fees at I actually would

certain sharing of we the Ares in of reasons fees obviously made strategies relative benefit investors the do with one maybe distribution on in our those is of while why side. we're so And we we're comparative and fundraising for on were driving clients, such really think have I origination Which where development that early higher our the and the fees return. determination the enjoying success

So think it that on I an it you'll time, the the think number will structure scale today. become business just but don't over see large of based overwhelmingly I

Operator

closing And it we I reached session. have will for Therefore, over the hand question-and-answer to the remarks. end management back of

Michael Arougheti

again catching next quarter. you. had We your We and Thank and thank up Great. further. for enjoy rest look continued forward the you summer, your the of We to time today nothing you support. hope we'll

Ares Management (ARES) 1 Aug 232023 Q2 Earnings call transcript