10-Q: Ares Management Corporation Reports Second Quarter 2024 Results

Ares Management Corporation's second quarter 2024 results show a decrease in net income attributable to common stockholders compared to the same period last year, despite growth in management fees.

Summary

• Ares Management Corporation reported a net income attributable to Class A and non-voting common stockholders of $94.9 million for the three months ended June 30, 2024, a decrease from $144.5 million in the same period of 2023.
• For the six months ended June 30, 2024, net income attributable to Class A and non-voting common stockholders was $168.0 million, down from $238.6 million in the same period of 2023.
• Management fees increased to $721.7 million for the quarter and $1,409.4 million for the six months ended June 30, 2024, compared to $615.3 million and $1,215.8 million, respectively, in the same periods of 2023.
• Carried interest allocation was negative $51.2 million for the quarter and negative $83.6 million for the six months ended June 30, 2024, compared to positive $418.5 million and $570.0 million, respectively, in the same periods of 2023.
• Total assets under management (AUM) reached $447.2 billion as of June 30, 2024, up from $377.6 billion as of June 30, 2023.
• Fee-paying AUM (FPAUM) was $275.8 billion as of June 30, 2024, compared to $242.4 billion as of June 30, 2023.
• The company's effective tax rate is influenced by the amount of income tax provision recorded for any affiliated funds and co-investment vehicles that are consolidated in the company's financial statements.

Sentiment

Score: 5

Explanation: The document presents mixed results, with strong growth in management fees and AUM offset by a decrease in net income and negative carried interest allocation. The overall tone is neutral, focusing on factual reporting rather than expressing strong optimism or pessimism.

Positives

• Management fees showed strong growth, indicating a healthy core business.
• Total AUM and fee-paying AUM both increased year-over-year, demonstrating the company's ability to attract and manage capital.
• The credit group experienced significant growth in management fees, driven by capital deployment in various funds.
• Part I fees increased due to higher net investment income generated by ARCC and CADC, and the inclusion of ASIF and AESIF.

Negatives

• Net income attributable to common stockholders decreased compared to the same periods in 2023.
• Carried interest allocation was negative for both the quarter and six months ended June 30, 2024, compared to positive figures in the same periods of 2023.
• The company experienced a decrease in net realized performance income due to lower tax distributions from certain funds.

Risks

• The company's results are subject to fluctuations in global financial markets and economic conditions.
• The value of investments may decline due to general market conditions or factors affecting specific industries.
• The company is exposed to exchange rate risks due to investments denominated in foreign currencies.
• The company is subject to credit risk in the event that counterparties are unable to meet the terms of agreements.
• The company's ability to make cash dividends is dependent on a myriad of factors and there is no assurance that dividends would continue at the current levels or at all.

Future Outlook

The report contains forward-looking statements regarding future events, operations, and financial performance, which are subject to various risks and uncertainties. The company does not undertake any obligation to publicly update or review any forward-looking statement.

Management Comments

• Management believes that the company's disciplined investment philosophy contributes to the stability of its performance throughout market cycles.
• Management believes that the company's portfolios across all strategies are well positioned for a fluctuating interest rate environment.
• Management believes that the company's liquidity will continue to be sufficient for its foreseeable working capital needs, contractual obligations, dividend payments, pending acquisitions and strategic initiatives.

Industry Context

The report notes that global markets continued to perform positively in the second quarter amid modest inflation and optimistic signaling by central banks. It also highlights the continued growth of private credit due to reduced lending activity by banks and limited capital accessibility. The private equity markets continue to experience a prolonged slowdown in deal activity.

Comparison to Industry Standards

• The report provides returns of selected market indices, including high yield bonds, leveraged loans, equities, and real estate equities, to provide context for the company's performance.
• The company's AUM and FPAUM growth are compared to prior periods, but not directly to specific competitors.
• The report notes that many of the terms used, including AUM, FPAUM, FRE and RI, may not be comparable to similarly titled measures used by other companies.

Legal Proceedings

• The company is subject to legal proceedings from time to time, but management believes that there is no potential liability related to any current legal proceeding or claim that would materially affect its results of operations, financial condition or cash flows.

Related Party Transactions

• Substantially all of the company's revenue is earned from its affiliates.
• The company has investment management agreements with the Ares Funds that it manages.
• Employees and other related parties may be permitted to participate in co-investment vehicles that generally invest in Ares Funds alongside fund investors.

Stakeholder Impact

• Shareholders will be impacted by the company's financial performance and dividend payments.
• Employees will be impacted by compensation and benefits, as well as the company's growth and expansion.
• Customers (investors in the funds) will be impacted by the performance of the funds and the company's ability to manage capital effectively.

Next Steps

• The company will continue to monitor market conditions and their impact on its business.
• The company will continue to focus on capital deployment and fundraising.
• The company will occupy its new corporate headquarters beginning in the third quarter of 2024.

Key Dates

Keywords

Assets Under Management, AUM, Fee Paying AUM, FPAUM, Management Fees, Carried Interest, Incentive Fees, Private Equity, Real Assets, Credit, Secondaries, Alternative Investments, Financial Results, Net Income, Perpetual Capital