Ares Management Corporation

Welcome to the Aries Management Corporation first quarter 2019 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Thursday, May 2, 2019. I will now turn the call over to Carl Drake, head of public company investor relations for Aries Management. Please go ahead.

Thank you. Good morning. Thank you for joining us today for our first quarter 2019 conference call. I'm joined today by Michael Arrighetti, our Chief Executive Officer, and Michael McFerrin, our Chief Operating Officer and Chief Financial Officer. In addition, David Kaplan, Co-Head of our Private Equity Group, and Kip DeVere, Head of our Credit Group, will be available for the Q&A session. Before we begin, I want to remind you that comments made during the course of this conference call and webcast contain forward-looking statements and are subject to risks and uncertainties. Our actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. we assume no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results. Moreover, please note that performance of an investment in our funds is discreet from performance of an investment in Aries Management Corporation. During this conference call, we will refer to certain non-GAAP financial measures such as fee-related earnings and realized income. We use these as measures of operating performance, not as measures of liquidity. These measures should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to like-title measures used by other companies. In addition, please note that our management fees include ARCC Part 1 fees. Please refer to our first quarter earnings presentation that we filed this morning for definitions and reconciliations of the measures to the most directly comparable GAAP measures. This presentation is also available under the investor resources section of our website at www.aresmgmt.com and can be used as a reference for today's call. Please also note we plan to file our form 10Q by early next week. I would like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any securities of Ares or any other person, including any interest in any fund. This morning, we announced we declared our second quarter Class A common stock dividend of 32 cents per share, which is a 14% increase compared to our second quarter dividend a year ago. The dividend was paid on June 28, 2019 to holders of record on June 14. This dividend level represents a 5.2% annualized yield based on yesterday's closing price. We also declared our quarterly preferred dividend of 43.75 cents per Series A preferred share, which is payable on June 30th. 2019 to effective holders of record on June 14, 2019. Now we'll turn the call over to Michael Arrighetti, who will start with some quarterly financial and business highlights.

Thanks, Carl. Good morning, everyone. And as you can see from our earnings report this morning, our earnings and core financial metrics continue to steadily grow, and Q1 marked our eighth consecutive quarter of sequential FRE growth. We grew our fee-related earnings and realized income approximately 18%, and 45 percent respectively, and increased our AUM by over 20 percent year over year, driven in part by our continued strong fundraising momentum and our steady investing activities. Our first quarter fund performance was also strong, led by our corporate private equity funds, reflecting the strength of the public equity markets earlier this year. Before I go into more detail on the first quarter business highlights, I'd like to start just with a few comments about the credit and equity markets. Following the largely technical selling that we saw during the fourth quarter, the markets have rebounded meaningfully year to date. This is a reflection of the Fed's dovish stance, optimism surrounding the China trade talks, and a stable economic and employment backdrop. The recent GDP number was also encouraging. So while some corporations are experiencing slowing earnings growth, credit performance in general remains stable. Default rates remain very low by historical standards, and there's healthy liquidity in the system. While the level of transaction flows and competition varies by segment, we remain active, leveraging our inherent platform advantages to find value in transactions sourced by our 400-plus investment professionals. Interest rates remain low and are expected now to remain lower for longer. In this context, the demand for alternative assets remains robust as investors continue to seek opportunities for attractive returns with lower correlations to traded equity and fixed income investments. Our alternative assets often provide solutions for investors seeking higher current income or solving for funding gaps. For example, a recent study cited by the Center for Retirement Research at Boston College reported that, on average, a 28 percent funding gap exists between U.S. pension fund assets and liabilities, highlighting the increasing need for higher and more sustainable investment returns to fill this gap. With a high degree of current income, low correlations to traded assets, and meaningful downside protection, we believe that our broad-based investment products provide much-needed solutions for both our institutional and retail investors. In addition, the competitive market for quality assets places a premium on managers like Ares with extensive self-origination capabilities, large portfolios with significant repeat opportunities, flexible strategies, and broad relationship networks. Our expanding platform continues to resonate with our LP clients. Our current investors are adding greater amounts of capital to our funds. During the first quarter, we continued our fundraising momentum, adding $6.5 billion in new gross capital commitments. All of this fundraising was organic, and a growing portion, about $2.8 billion, came from add-ons to existing funds. Existing ARIES investors funded about 70 percent of the direct capital raised, which exemplifies a long-running market trend where investors are consolidating their assets with fewer managers that can offer broader capabilities. The new capital committed was diversified across our U.S. and European liquid and illiquid credit strategies as investors continue to demand less risky credit investments at the top of the capital structure given the extended business cycle. We also added more than $700 million in real estate capital during the first quarter, including add-ons to existing private debt and private equity funds and some managed co-investments. One noteworthy area of growth was within our alternative credit strategy, where we raised three new funds and added on to existing funds, all totaling $1.3 billion during the first quarter. We continue to see alternative credit as a meaningful growth area, and we continue to add resources to our growing team. We believe that alternative credit investments provide additional diversification and attractive returns ranging from 5% to 15% with strong downside protection through highly tailored and structured investments. We've now raised about $3.8 billion in alt credit funds over the last 12 months. Our forward fundraising outlook is strong with several new funds launched or to be launched this year and with several of our large successor funds likely coming up in all three of our investment groups in 2020. And given the good visibility that we have in our fundraising pipeline, we have high conviction for continued strong AUM growth in the years ahead. During the first quarter, we invested $6.4 billion out of our drawdown funds across the platform, and we're generally selecting the top 5% of investments we source as we concentrate on using a proprietary angle like a prior relationship or a particular familiarity with the company or management team. For example, our European direct lending team funded one of the first billion-pound sterling Unitranche financings in the European market to a repeat borrower that has performed well for us over a number of years. In our corporate PE business, we purchased a controlling interest in a leading national refrigeration and HVAC services company where we had a relationship with the CEO from a prior successful direct lending investment. We also provided rescue capital in a leading thrift retailer to unlock value for growth. And in this situation, similarly, we had a prior successful direct lending relationship with the company from 2006 to 2010. As you can see just from these three examples, we're using the breadth of our platform to source unique investments where we have a true edge. As I stated at the outset, we continue to perform well for our investors. Our direct lending strategies again generated strong relative performance with quarterly returns of 3% or better in both the U.S. and European representative strategies. From a corporate private equity standpoint, our ACOF composite rebounded sharply, up 8.7% for the first quarter, driven by the appreciation of our portfolio of public positions that was up north of 40%. Our real estate PE funds in the U.S. and Europe, which had annual returns in the high teens or better, for 2017 and 2018 had yet another solid quarter with our U.S. Fund 8 up more than 4%. Our fourth European Real Estate Fund, EF4, generated a 1.2% gross return for the first quarter and had gross appreciation of more than 15% over the last 12 months. And with that, I'll now turn the call back over to Mike McFerrin, who will walk through the Q1 results in more detail. Mike?