Ares Management Corporation

Hello, and welcome to Aries Management Corporation's second 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 Wednesday, July 31st, 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 afternoon and thank you for joining us today for our second quarter 2019 conference call. I'm joined today by Michael Arrighetti, our CEO, and Michael McFerrin, our COO and CFO. In addition, David Kaplan, co-head of our private equity group, and Kip DeVere, head of our credit group, will be available for the question and answer 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. Please note that performance of an investment or 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. And these measures may not be comparable to like-total measures used by other companies. Also, please note that our management fees include ARCC Part 1 fees. Please refer to our second quarter earnings presentation we filed this morning for definitions and reconciliations of the measures to the most directly comparable GAAP measures. The 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. I'd 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 third quarter common dividend 32 cents per share, a 14% year-over-year increase. The dividend will be paid on September 30th, 2019, to holders of record on September 16th. We also declared our quarterly preferred dividend of 43.75 cents per Series A preferred share, which is payable on September 30th, 2019, to effective holders of record on September 13th. Now I'll turn the call over to Michael Arrighetti, who will start with some quarterly financial and business highlights.

Great. Thanks, Carl. Good afternoon, everyone. I hope everyone's enjoying their summer. As you can see from our earnings report this morning, our core financial metrics continue to steadily grow as Q2 marked our ninth consecutive quarter of sequential AUM, management fee, and fee-related earnings growth. On a year-over-year basis for Q2, AUM was up over 17%, management fees increased 22%, and fee-related earnings accelerated 24%. as our FRE margin expanded to 31 percent. A great indicator of our embedded future growth, our AUM already raised but not yet earning fees increased nearly 22 percent year over year. Our strong momentum in these core metrics reflects our fundraising success, our steady deployment around the globe, quality fund performance, and our expansion into new products. Before I briefly walk through each one of those areas, let me update you on the macro environment and how it's impacting our business. The markets have continued to steadily rebound into the second quarter, reflecting the Fed's dovish stance on monetary policy amid solid employment, a strong consumer, and generally stable economic performance. While corporate earnings growth is decelerating, credit trends generally remain stable. Default rates remain low by historical standards, and there's healthy liquidity in the system. Real estate fundamentals also remain stable and are constructive for selective investing across our broad geographic footprint and diverse investment strategies. In general, we're seeing increased competition for quality assets, but we're remaining active. In this environment, it's particularly critical to have deep self-origination capabilities, extensive industry and asset expertise, and trusted management relationships in order to be well-positioned to invest. Interest rates remain low and, after today, may remain lower for much longer. This should only increase the need for investors to find durable yield and differentiated investment solutions. With a high degree of current income, lower correlations to traded assets, and meaningful downside protection, we believe that our broad-based suite of alternative investment products will continue to resonate with our clients. To that end, during the second quarter, we continued our strong fundraising momentum, adding $7.3 billion in new gross capital commitments, bringing last 12-month commitments to $31 billion. Existing fund investors again provided over 70% of the direct institutional capital we raised, which highlights the stickiness of our client model and the strength of our client relationships. All three of our investment groups contributed to the new capital raised. In credit, we raised new capital in all of our major strategies across U.S. and European direct lending, in alternative credit and global liquid credit. In private equity, we held our first close in our special opportunity strategy at over $1 billion, which is over half our target of $2 billion for this exciting first-time fund. And since quarter end, we also held an incremental close in our inaugural energy opportunities vehicle, bringing commitments to date to our target of $1 billion. In real estate, we experienced inflows in our European equity strategy as we now near a final close on our fifth opportunistic fund with total funds raised of more than $1.5 billion and additional inflows into our U.S. real estate debt strategy. Looking forward over the next 12 to 18 months, we expect this fundraising strength and momentum to continue. In addition to add-on investments and continued growth in managed accounts and strategic partnerships, We expect to raise meaningful successor flagship funds in all three of our investment groups, including opportunistic and value-add real estate private equity, corporate private equity, and junior capital debt strategies in our direct lending business. Given the good visibility we have in our fundraising pipeline, our conviction for continued strong double-digit percentage AUM growth in the years ahead remains very high. During the second quarter, we invested $4.1 billion out of our drawdown funds across the entire platform. We were most active in European and U.S. direct lending as we selectively funded primarily senior loan commitments with an emphasis on funding the growth needs of our incumbent existing borrowers. We also invested approximately $600 million in private equity, which was diversified across our corporate infrastructure and power and special ops strategies. As I stated at the outset, we continue to perform well for our fund investors with steady positive returns for the second quarter. Our reported quarterly credit, PE, and real estate returns all range between 2 and 4 percent for Q2, with our corporate and real estate PE strategies leading the way. As you can see, we continue to expand our products and further diversify our platform. Several recent examples of successful product line expansions include our strategies and special opportunities, energy opportunities, climate infrastructure, junior debt, private senior lending, secured and enhanced income, broadening our alternative credit strategy, and so on and so forth. The latest product expansion that I wanted to highlight is in our insurance solutions business. As many of you may have seen, earlier this month, we announced the launch of Espida Financial, the next step in the evolution of our insurance solutions platform. Aspita has agreed to acquire a life insurance and annuity platform based in Michigan that has assets over $1 billion. This platform was responsible for more than $1.7 billion in annuity sales in 2018 alone. We believe that Aspita will enable us to grow organically as well as inorganically and continue to allow us to partner with our insurance clients through reinsurance transactions. And with that, I'll now turn the call over to Mike McFerrin to walk through the Q2 results in more detail. Mike. Thanks, Mike.