Ares Management Q1 FY26 earnings call ARES

Ares raised $30B of gross capital in Q1, its highest-ever first quarter (+46% YoY), with three-quarters of its $644B AUM institutional. Management stressed a consolidation theme — large, sophisticated investors are concentrating allocations with fewer scaled GPs, benefiting incumbent platforms. Three of Ares' largest institutional private-credit funds are in market over the next 12 months, two already launched with momentum, and the firm hosted 1,100+ attendees at its Global Annual Meeting the prior week. The forward investment pipeline reached a new record, with strength across European and US direct lending, alternative credit and infrastructure.

Wealth AUM grew 54% YoY to $68B, with $4B gross / $3B net equity raised (matching Q4). While US private-credit wealth vehicles saw moderating and elevated redemptions, over 95% of non-traded BDC investors did not request redemptions and requests concentrated among a limited number of family offices and smaller non-US institutions. The non-traded BDC has returned over 10% annualized (Class I) since inception, and its 5% quarterly repurchase framework approximates natural portfolio repayments. Demand is accelerating in the other six wealth products — core infrastructure raised $1B (now >$3B AUM), non-traded REITs took in >$640M, and European direct-lending wealth products drew ~$1.2B.

Deployment exceeded $32B, above Q1 2025, led by real estate, alternative credit, European direct lending and private equity. US direct lending was the soft spot as industry middle-market M&A deal count fell 41% YoY on the Iran War and shifting rate/inflation expectations, though activity has begun picking up in recent weeks. Management drew an analogy to April 2024's tariff-driven pause that preceded a record deployment back half. A recurring theme is 'liquidity-generated opportunity' — companies needing creative liquidity through opportunistic credit, secondaries and recap solutions — with wider spreads, higher fees and better terms available.

Ares' software exposure is 6% of overall AUM and under 8% of private-credit AUM, focused on senior lending (~40% LTV) to core-operational, systems-of-record and regulated-industry software. A top-three global consulting firm conducted a nine-week independent review, concluding 86% of the software-oriented portfolio is low AI-disruption risk, ~13% medium and only 1% high; medium-to-high combined is under 2% of US and European direct-lending AUM and well under 1% of firm AUM. Only one software company is on non-accrual, with contractual revenues still growing and ~10% EBITDA growth. Weighted-average remaining maturity is about three years, implying a slow, deal-by-deal resolution rather than a near-term shock.

Management argued private-credit growth is a multi-decade structural evolution driven by private-market expansion, bank consolidation and tight bank regulation, and the syndicated/high-yield markets' focus on larger companies — leaving middle-market firms (about one-third of the economy) underserved. Over 25 years, US private credit contracted once (a decade ago) versus eight bank-sector contractions. Ares holds over $100B in credit dry powder against an estimated $500B+ industry total, and asserts private credit is not adding aggregate leverage to the economy since corporate credit as a share of GDP is unchanged over the past decade.

Ares is raising a global data-center equity fund to capture the multi-decade supply-demand imbalance from hyperscaler cloud/AI demand, targeting a significant first close this summer. Blair Jacobson noted Ares has invested in digital infrastructure for 10-15 years across real estate, infrastructure, special situations, asset-backed, direct lending and secondaries, with over $10B invested historically; the GCP acquisition added development capability with an attractive seed portfolio (~$2.5B raised last summer for initial Japanese assets). The firm sizes the third-party market opportunity at around $900B, and management framed the broader theme as spanning data centers, GPUs and power/energy — tying in Ares' renewable/energy-transition platform and the X-Energy IPO.

Management fees exceeded $1B for the first time (+22% YoY) on 19% FPAUM growth; FRE rose 26% to $464M with margin up 90 bps to 42.4%. Realized income grew 24% to $503M ($1.24 after-tax per share, +14%), and realized net performance income rose 84% to $75M. The effective tax rate was 13.5%. Management reaffirmed longer-term CAGR goals of 16-20% FRE, 20-25% realized income and 20% dividends, and expects FRE margin expansion toward the upper end of its 0-150 bps annual target, aided by GCP integration efficiencies and the data-center business turning FRE-positive.