10-Q: Ares Management Q2 2025: Strong Growth Driven by GCP Acquisition

Ares Management Corporation reports significant revenue and AUM growth in Q2 2025, largely propelled by the strategic acquisition of GCP International, despite a decline in consolidated net income.

Summary

• Total revenues increased by 71% to $1,350,128 thousand for the three months ended June 30, 2025, and by 63% to $2,438,933 thousand for the six months ended June 30, 2025, compared to the same periods in 2024.
• Assets Under Management (AUM) grew to $572.4 billion as of June 30, 2025, up from $447.2 billion as of June 30, 2024.
• Fee Paying Assets Under Management (FPAUM) increased to $349.6 billion as of June 30, 2025, from $275.8 billion as of June 30, 2024.
• Fee Related Earnings (FRE) rose by 26% to $409,111 thousand for Q2 2025 and by 24% to $776,387 thousand for 6M 2025.
• Realized Income (RI) increased by 10% to $397,814 thousand for Q2 2025 and by 23% to $803,738 thousand for 6M 2025.
• The acquisition of GCP International, completed on March 1, 2025, significantly contributed to the growth in Real Assets Group, adding complementary real estate and digital infrastructure investment capabilities.
• Consolidated net income decreased by 18% to $225,980 thousand for Q2 2025 and by 27% to $349,481 thousand for 6M 2025, primarily due to non-controlling interests and consolidation adjustments.
• Net income attributable to Ares Management Corporation Class A and non-voting common stockholders increased by 18% to $111,750 thousand for Q2 2025 but decreased by 20% to $133,607 thousand for 6M 2025, influenced by Series B mandatory convertible preferred stock dividends.

Sentiment

Score: 7

Explanation: The company demonstrates strong underlying operational performance and strategic growth, evidenced by significant increases in AUM, FPAUM, FRE, and total revenues, largely driven by the GCP Acquisition. While consolidated net income and net income attributable to common stockholders (for 6M) show declines due to accounting adjustments and preferred dividends, these are largely non-operational or financing-related impacts. The core business expansion and future potential from dry powder are highly positive, outweighing the short-term GAAP bottom-line fluctuations.

Positives

• Total revenues saw substantial increases of 71% for Q2 2025 and 63% for 6M 2025, driven by the GCP Acquisition and organic growth across segments.
• AUM expanded significantly by 28% year-over-year to $572.4 billion, reflecting strong investment and fundraising performance.
• FPAUM grew by 27% year-over-year to $349.6 billion, indicating a larger base for management fees.
• Core operating performance metrics, FRE and RI, demonstrated robust growth of 26% and 10% respectively for Q2 2025, and 24% and 23% for 6M 2025.
• 91% of management fees were derived from perpetual capital vehicles or long-dated funds, highlighting the stability and recurring nature of the revenue base.
• Available capital (dry powder) of $86.8 billion and AUM not yet paying fees could generate approximately $822.7 million in potential incremental annual management fees, representing 30% embedded gross base management fee growth.
• The Credit Group's management fees increased by 15% for both Q2 and 6M 2025, fueled by publicly-traded/perpetual wealth vehicles and private fund deployment.
• The Real Assets Group experienced a significant surge in management fees (77% for Q2, 58% for 6M) due to the strategic GCP Acquisition, which also enhanced vertically integrated capabilities.
• The Secondaries Group's management fees grew by 28% for Q2 and 29% for 6M 2025, supported by additional capital raised by APMF and other secondaries funds.
• Cash flow from core operating activities increased by 45% to $1,002,904 thousand for the six months ended June 30, 2025, demonstrating strong operational cash generation.
• The Credit Facility was amended to extend its maturity to April 22, 2030, and increase commitments to $1.840 billion, enhancing liquidity and financial flexibility.
• The company remains in compliance with all debt covenants and regulatory capital requirements.

Negatives

• Consolidated net income decreased by 18% for Q2 2025 and 27% for 6M 2025, primarily due to the accounting impact of non-controlling interests and consolidation adjustments.
• Total expenses increased substantially by 102% for Q2 2025 and 95% for 6M 2025, largely driven by acquisition-related compensation and general/administrative costs from the GCP Acquisition.
• Net income attributable to Ares Management Corporation Class A and non-voting common stockholders decreased by 20% for the six months ended June 30, 2025, influenced by Series B mandatory convertible preferred stock dividends.
• Carried interest allocation saw declines in Private Equity funds for both Q2 and 6M 2025, and in Secondaries funds for Q2 and 6M 2025, including reversals of unrealized carried interest.
• Principal investment income decreased by 63% for Q2 2025 and 10% for 6M 2025.
• Realized net performance income for the Credit Group decreased by 77% for Q2 2025 and 37% for 6M 2025.
• Realized net performance income for the Real Assets Group decreased by 20% for Q2 2025.
• Realized net performance income for the Secondaries Group decreased by 100% for both Q2 and 6M 2025.
• Realized net investment income (loss) for the Credit Group decreased by 80% for Q2 2025.
• Realized net investment loss for the Real Assets Group increased by 41% for Q2 2025 and 38% for 6M 2025.
• Realized net investment loss for the Secondaries Group increased by 76% for Q2 2025 and 82% for 6M 2025.
• Payroll-related taxes increased significantly due to higher stock prices on the vesting dates of equity awards.
• A contingent obligation of approximately $71.9 million in carried interest is subject to potential repayment if all existing investments were worthless, net of tax distributions.

Risks

• Exposure to volatility in global financial markets and economic/political environments, particularly in the U.S., Europe, and Asia-Pacific.
• Impact of shifting trade policies and geopolitical uncertainty on business operations and financial results.
• Fluctuations in interest rates, although the company's portfolios are positioned to manage this.
• Unpredictability of realized performance income and fund distributions, which can impact cash flows and liquidity.
• Potential for management fees to be impacted by slowdowns in capital deployment, declines in valuations, or negative fundraising trends.
• Risk that management fees may be subject to deferral and fee-related performance revenues may be subject to holdbacks.
• Challenges in extending the maturity or refinancing existing indebtedness, or obtaining new indebtedness with similar terms, under adverse market conditions.
• The possibility of being obligated to repay carried interest if funds do not achieve preferred return thresholds, with a potential repayment amount of $71.9 million if all investments were worthless.
• Taxes associated with Series B mandatory convertible preferred stock dividends are borne by Class A and non-voting common stockholders.
• Restrictions on the ability to transfer cash between different operating entities and jurisdictions due to regulatory capital requirements.
• Exposure to legal proceedings, regulatory matters, and investigations, which can incur significant costs and expenses.
• General risks outlined in the Annual Report on Form 10-K for the year ended December 31, 2024, which are not exhaustive.

Future Outlook

The company anticipates generating cost savings from the GCP Acquisition following its integration period. Interest expense allocated to the Real Assets Group is expected to remain elevated due to financing costs associated with the acquisition. Management expects primary liquidity needs to continue to include funding growth initiatives, investment commitments, operating expenses, debt service, taxes, and dividend payments. The company aims to pay dividends aligned with expected Fee Related Earnings after tax allocation, though there is no assurance of continued dividends at current levels if cash flows are insufficient. Future payments under the Tax Receivable Agreement are expected to be substantial. Management also expects management fees from its seventh corporate private equity fund to commence in the second half of the year.

Management Comments

• Our disciplined investment philosophy across our distinct but complementary investment groups contributes to the stability of our performance throughout market cycles.
• Our portfolios across all strategies remain well positioned for a fluctuating interest rate environment.
• Shifting towards value creation strategies emphasizing operational improvements, talent optimization and digital transformation is essential to ensure long-term competitiveness.
• We are well-positioned and our liquidity will continue to be sufficient for our foreseeable working capital needs, contractual obligations, dividend payments, pending acquisitions and strategic initiatives.
• The possibility of all of the investments becoming worthless is remote.

Industry Context

During the second quarter of 2025, global equity and debt markets experienced volatility due to shifting trade policies and geopolitical uncertainty, yet largely performed well. U.S. public equity markets recovered, while international markets outperformed, driven by interest rate cuts outside the U.S. Commercial real estate markets showed mixed performance, with increasing transaction volumes and steady valuations/capitalization rates. European real estate began to recover due to central bank rate cuts, while U.S. real estate slightly declined due to interest rate and trade policy uncertainty. Multifamily and industrial properties are expected to benefit from favorable long-term structural trends. The climate infrastructure market remained resilient, supported by clean energy deployment and digital infrastructure expansion, with surging power demand expectations driving investment opportunities. Private equity transaction volume slowed in the quarter, leading to a heightened focus on disciplined underwriting and value creation strategies.

Comparison to Industry Standards

• The company's performance is contextualized against various market indices, including ICE BAML High Yield Master II Index (U.S. high yield bonds), ICE BAML European Currency High Yield Index (European high yield bonds), S&P UBS Leveraged Loan Index (U.S. leveraged loans), S&P UBS Western European Leveraged Loan Index (European leveraged loans), S&P 500 Index (U.S. equities), MSCI All Country World Ex-U.S. Index (Non-U.S. equities), S&P Global Infrastructure Index (Global infrastructure equities), FTSE NAREIT All Equity REITs Index (U.S. real estate equities), FTSE EPRA/NAREIT Developed Europe Index (European real estate equities), and Tokyo Stock Exchange REIT Index (APAC real estate equities).
• Fund performance metrics (MoIC and IRR) are provided for significant drawdown funds such as ACOF V (Corporate Private Equity), ACOF VI (Corporate Private Equity), LEP XVI (Private Equity Secondaries), IDF V (Infrastructure), ACE IV (European Direct Lending), ACE V (European Direct Lending), ACE VI (European Direct Lending), Pathfinder I (Alternative Credit), PCS II (U.S. Direct Lending), SDL II (U.S. Direct Lending), and SDL III (U.S. Direct Lending).
• Performance data for non-drawdown funds like ARCC (U.S. Direct Lending), CADC (U.S. Direct Lending), ASIF (U.S. Direct Lending), APMF (Private Equity Secondaries), and various open-ended real estate and direct lending funds are presented, including their current quarter, year-to-date, and since inception returns (gross and net), allowing for internal comparison across the company's diverse strategies.

Corporate Governance

Legal Proceedings

• The company, its executive officers, directors, funds, and their investment advisers are subject to legal proceedings in the ordinary course of business.
• The company incurs significant costs and expenses in connection with such proceedings, information requests, and investigations.
• Management believes there is no potential liability related to any current legal proceeding or claim that would individually or in the aggregate 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 affiliated funds.
• The company is reimbursed by Ares Funds for certain operating costs and expenses initially paid by the company.
• Employees and other related parties are permitted to participate in co-investment vehicles, generally without management fees, carried interest, or incentive fees.
• Carried interest and incentive fees are distributed to professionals or their related entities, subject to repayment obligations, with professionals personally guaranteeing their proportionate share.
• Amounts due from affiliates totaled $1,134,516 thousand as of June 30, 2025.
• Amounts due to affiliates totaled $587,400 thousand as of June 30, 2025, including a Tax Receivable Agreement liability of $508,645 thousand.

Stakeholder Impact

• Shareholders: Impacted by net income attributable to the company, preferred stock dividends, and the stock repurchase program. Potential for future tax benefits from the Tax Receivable Agreement.
• Employees: Affected by compensation and benefits, equity-based compensation, and performance-related compensation. The GCP Acquisition significantly increased the full-time equivalent headcount by 844 professionals.
• Fund Investors (Customers): Directly impacted by fund performance metrics (MoIC, IRR) and the fee structures of the funds they invest in.
• Creditors: Affected by the company's debt obligations, compliance with debt covenants, and the collateralization of CLO loan obligations.
• Regulatory Authorities: The company is subject to SEC and other regulatory requirements, including maintaining minimum net capital balances within its broker-dealer and international subsidiaries.

Next Steps

• Integration of GCP International and execution of synergy opportunities.
• Expectation for management fees from the seventh corporate private equity fund to commence in the second half of 2025.
• Continued monitoring of the stock repurchase program, which is scheduled to expire in March 2026.
• Automatic conversion of Series B mandatory convertible preferred stock into Class A common stock on October 1, 2027.
• Evaluation of the impact of new accounting pronouncements: ASU 2023-09 (effective December 31, 2025) and ASU 2024-03 (effective December 31, 2027).

Key Dates

Recommendation

Ares Management demonstrates strong underlying business fundamentals and strategic execution, with significant growth in AUM, FPAUM, and core profitability (FRE, RI). The GCP Acquisition is a transformative move that expands capabilities and geographic reach, positioning the company for long-term value creation. However, the acquisition has introduced short-term headwinds, including a notable increase in expenses and a decline in consolidated net income, as well as net income attributable to common stockholders for the six-month period due to preferred dividends. While these are largely accounting or financing-related impacts, they warrant a cautious approach. The company's diversified portfolio and stable fee base provide resilience. Investors should monitor the successful integration of GCP International and the realization of anticipated synergies to assess future performance.

Keywords

Alternative Investment Management, Asset Management, Private Equity, Credit, Real Assets, Secondaries, SEC Filing, 10-Q, Financial Results, AUM, FPAUM, Fee Related Earnings, Realized Income, GCP Acquisition, Corporate Governance, Risk Management, Dividends, Debt, Capital Markets