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    ARES
    Earnings call· Mar 2025(Q1 FY25)

    Ares Management Q1 FY25 earnings call ARES

    May 5, 2025 Source

    Executive summary

    Ares Management Q1 FY25 — Record Fundraising and AUM Growth Amidst Market Volatility

    Ares Management delivered strong Q1 FY25 results, achieving record fundraising of over $20 billion and surpassing $0.5 trillion in AUM, driven by broad contributions across strategies and the GCP acquisition. Despite increased market volatility and a slowdown in liquid markets, the firm leveraged its significant dry powder and flexible private market strategies to deploy over $31 billion, positioning it to gain share during retrenchment. Management remains optimistic, emphasizing the resilience of its management fee-centric, asset-light model and defensively positioned credit portfolios.

    Highlights

    6

    • Management fees grew 18% year-over-year to a record $818 million.

    • FRE grew 22% year-over-year to $367 million, with margins at 41.5%.

    • Raised over $20 billion in gross new capital commitments, the highest Q1 fundraising on record.

    • Total AUM crossed $0.5 trillion, reaching $546 billion, up 27% year-over-year.

    • Deployed over $31 billion in the quarter, with private credit strategies' gross-to-net deployment ratio improving to 49%.

    • Declared a quarterly dividend of $1.12 per share, a 20% increase year-over-year.

    Concerns

    4

    • Increased market volatility and growing uncertainty following April 2 tariffs and geopolitical events.

    • Activity in liquid credit and equity markets dropped off significantly, with banks and liquid market investors moving to a risk-off position.

    • GCP integration caused a modest drag on FRE margins, which totaled 41.5% in Q1.

    • New M&A transactions and activity levels are likely to be slower until there is more certainty on tariffs and economic impact.

    Guidance & targets

    3
    CategoryTargetConfidence
    Net realized performance income from European-style funds
    $225 million to $275 million
    high materiality
    High
    FRE Margin Expansion
    0 to 150 basis points
    medium materiality
    High
    GCP Fundraising
    somewhere in the neighborhood of about $7 billion
    medium materiality
    Medium

    Operational metrics

    39
    Quarterly dividend per share
    $1.1220% increase over dividend for same quarter a year ago
    Q1 FY25

    Declared for Class A and nonvoting common stock.

    Gross new capital commitments
    $20 billionhighest level for the first quarter fundraising on record
    Q1 FY25

    Significant fundraising momentum.

    Capital deployed
    $31 billion
    Q1 FY25

    Strong deployment activity.

    Total Assets Under Management (AUM)
    $546 billion27% year-over-year
    Q1 FY25

    Surpassed $0.5 trillion milestone.

    Available capital (Dry Powder)
    $142 billion
    Q1 FY25

    Significant capital for deployment and future management fee growth.

    AUM in credit-related products
    72%
    Q1 FY25

    Overweighted in credit assets, which are senior to equity.

    Fundraising from institutional investors
    63%
    Q1 FY25

    Across more than 30 funds and numerous SMAs.

    Wealth channel equity commitments
    $3.7 billionrecord
    Q1 FY25

    Part of strong momentum in the wealth channel.

    Wealth channel total commitments
    $5 billion
    Q1 FY25

    Strong momentum in the wealth channel.

    Wealth channel equity commitments
    $1.2 billionsquarely in line with the recent pace of flows
    April 2025

    Encouraging inflows despite market turbulence.

    Accrued net performance income (unconsolidated)
    just over $1 billionrose modestly
    Q1 FY25

    Reflects strong fund performance.

    Realized income
    $406 million40% year-over-year increase
    Q1 FY25

    Overall realized income.

    Effective tax rate on realized income
    8.1%
    Q1 FY25

    Expect lower range of 8% to 12% for remainder of year due to GCP transaction and equity vesting.

    Gross return
    2.4%
    Q1 FY25

    Part of strong credit strategy performance.

    Gross return
    2.9%
    Q1 FY25

    Part of strong credit strategy performance.

    Gross return
    3.2%
    Q1 FY25

    Part of strong credit strategy performance.

    Gross return
    4.4%
    Q1 FY25

    Part of strong credit strategy performance.

    Double-digit returns
    5 out of 6
    LTM Q1 FY25

    Generated double-digit returns over the last 12 months.

    Portfolio company EBITDA growth
    over 11%
    YoY

    Underlying credit quality remains strong.

    Loan-to-value (LTV)
    42%
    Q1 FY25

    LTVs remained low.

    Loan-to-value (LTV)
    48%
    Q1 FY25

    LTVs remained low.

    Nonaccruals
    1.5%decline
    Q1 FY25

    Remains well below long-term average.

    Nonaccruals
    90 basis points
    Q1 FY25

    Below 1%.

    Interest coverage
    2x
    Q1 FY25

    Improved.

    Net return
    2.4%
    Q1 FY25

    Seeing improvements in property values.

    Net return
    2.4%
    Q1 FY25

    Seeing improvements in property values.

    Net annual return
    13.6%
    Since inception (2012)

    Newly acquired Japanese REIT.

    New investment capacity
    over $20 billion
    Q1 FY25

    Well positioned following equity raise.

    M&A activity decline
    25%
    CY22

    Context for Ares' ability to grow FP AUM despite market slowdown.

    M&A activity decline
    24%
    CY23

    Context for Ares' ability to grow FP AUM despite market slowdown.

    M&A volume and value decline
    15%
    Current

    Context for Ares' ability to grow deployment despite market slowdown.

    Invested equity in the market
    about $3 trillion plus
    Current

    Compared to $1 trillion+ dry powder, indicating strong incentive for equity owners to support portfolio companies.

    LTM return
    12.5%
    LTM Q1 FY25

    Strong performance.

    LTM return
    15%
    LTM Q1 FY25

    Strong performance.

    LTM return
    25%
    LTM Q1 FY25

    Strong performance.

    LTM return
    12%
    LTM Q1 FY25

    Strong performance.

    Deployment increase
    5%
    Q1 FY25 vs Q1 FY21

    Modest acceleration in deployment.

    Deployment increase
    20%
    LTM Q1 FY25 vs LTM Q1 FY21

    Modest acceleration in deployment.

    Headcount
    80-plus
    Current

    Large experienced team.

    Industry KPIs

    4
    MetricValueDetails
    Fundraising inflows$20 billionUSD
    Performance revenue$28 millionUSD
    Fee related earnings$367 millionUSD
    Deployment realizations$31 billionUSD

    Product announcements

    2
    ProductTypeDetails
    Open-end infrastructure fundlaunch
    Open-ended sports, media and entertainment productlaunch

    Deals & partnerships

    2
    GCP InternationalAcquisition of a real estate investment manager.

    Integration is going well, with encouraging early fundraising momentum.

    European bankPurchase of a loan portfolio focused on digital infrastructure.$1.3 billion

    Announced publicly in January, example of Ares' role as a partner to banks for capital relief and risk management.

    Risks & headwinds

    5
    Increased Market Volatility and UncertaintyQ1 FY25 and remainder of year.

    Liquid credit and equity markets dropped off significantly; M&A activity likely slower.

    Mitigation: Ares has record dry powder ($142B) and flexible private market strategies to take advantage of retrenchment; management fee-centric business model; defensively positioned credit portfolios (72% AUM in credit, 92% senior loans).

    Impact of TariffsOngoing.

    Limited direct exposure in corporate credit portfolios; tariffs could drive up construction costs.

    Mitigation: Focus on domestic middle-market service-oriented businesses with less international exposure; actively monitoring portfolio companies; tariffs could improve real estate values and spur transaction activity due to constrained supply and lower interest rates.

    GCP Integration Drag on FRE MarginsTemporary, over the next 12 to 24 months.

    FRE margins totaled 41.5% in Q1; GCP's FRE margins are modestly below Ares' margins.

    Mitigation: Expect significant synergies from the business; expect improved operating margins as new funds are raised, particularly in the data center business.

    Slower M&A ActivityRemainder of the year.

    M&A volumes down 15% (volume and value) currently.

    Mitigation: Investment teams are seeing significant opportunities in opportunistic credit, alternative credit, and secondaries; direct lending seeing interest from larger companies/sponsors; real assets seeing opportunities in data centers and power generation; private equity and secondaries businesses showing positive momentum.

    Potential Delay in European-style Performance IncomePotentially in 2025.

    Over 75% of European-style AUM in credit-like funds.

    Mitigation: Interest income from underlying loans continues to compound, potentially increasing the ultimate amount of performance income; management reaffirms FY25 target range of $225M-$275M.

    What to watch in Q2 FY25

    5

    GCP integration synergies

    Next 12-24 months
    CurrentModest drag on FRE margins in Q1 FY25
    TargetProgress towards offsetting drag and realizing significant synergies

    Why it matters

    Successful integration and synergy realization are key to improving firm-wide FRE margins and profitability.

    Currently, GCP's FRE margins are modestly below our margins, but we believe this is temporary for 2 reasons. First, over the next 12 to 24 months, we expect to realize a significant amount of synergies from the business.

    Q&A highlights

    5

    What are the expectations for private credit quality (defaults, nonaccruals, realized losses) for the rest of 2025, especially with potential negative GDP growth?

    Michael Arougheti highlighted the defensive positioning of credit portfolios (96% senior loans, low LTVs of 42-48% in US/EU direct lending, significant equity subordination). Nonaccruals are low (1.5% at cost, <1% at fair value), and there's no irregular borrowing behavior. He argued that widespread private credit losses would follow significant equity market losses, and private equity firms have strong incentives to support portfolio companies given current capital structures.

    “If you were to look at that 42% to 48% LTV, what that basically says is you have private equity firms, institutional real estate equity owners institutional infrastructure owners that have put cash dollars below our loan.”

    asked by Craig Siegenthaler (Bank of America) · answered by Michael Arougheti

    2 min read6 chapters

    Detailed Narrative

    01

    Market Volatility and Private Market Opportunity

    The quarter saw increased market volatility🌐 and uncertainty, particularly after April 2 tariffs, leading to a "risk-off" stance in liquid credit and equity markets. This environment, however, enhances the value of private markets, where Ares, with its $142 billion in dry powder, is well-positioned to gain share. The firm's flexible strategies allow it to invest opportunistically when traditional capital providers retrench.

    02

    Resilience and Defensive Positioning

    Ares emphasizes its history of resilience through market dislocations (GFC, COVID-19) due to its management fee-centric, asset-light business model, low balance sheet leverage, and long-dated, match-funded third-party capital. Over 72% of total AUM is in credit-related products, with 92% of these in senior loans, providing a defensive posture against economic changes. Corporate credit portfolios are performing well, with limited direct exposure to tariff changes.

    03

    Record Fundraising and AUM Growth

    Ares achieved its highest first-quarter fundraising on record, raising over $20 billion in gross new capital commitments across all major strategies. This contributed to total AUM surpassing $0.5 trillion, reaching $546 billion (up 27% YoY), including $45 billion from the GCP acquisition. Fee-paying AUM also grew 25% YoY. Key fundraising drivers included opportunistic credit ($4.6B), BDCs ($4B), European direct lending ($630M), and real estate ($3.1B).

    04

    Wealth Channel Momentum

    The wealth channel continues to be a significant growth avenue, with Ares raising a record $3.7 billion in quarterly equity commitments and $5 billion in total commitments across its 8 perpetual semi-liquid products. These products accounted for approximately 25% of gross inflows. The firm is expanding its product set with new open-end infrastructure and sports, media, and entertainment funds, and saw continued strong inflows of $1.2 billion in equity commitments in April despite market turbulence.

    05

    GCP Integration and Synergies

    The integration of GCP International is progressing well, with early fundraising momentum described as encouraging. While GCP initially presented a modest drag on FRE margins, management anticipates significant synergies over the next 12-24 months and improved operating margins as new funds are raised, particularly in the data center business. The acquisition added $45 billion to AUM and enhances vertically integrated capabilities in real estate.

    06

    Credit Quality and Portfolio Strength

    Ares' credit portfolios are positioned for strength, with 96% of global credit exposure in senior loans. U.S. private credit LTVs average 42%, and European direct lending LTVs average 48%, indicating significant equity subordination. Nonaccruals are at 1.5% (cost basis) or below 1% (fair value), well below historical averages. Portfolio companies in U.S. direct lending showed over 11% YoY EBITDA growth, with interest coverage at 2x.

    AI-generated summary of the company’s earnings call. Not investment advice.