Ares Management Corporation

Welcome to ARIES Management Corporation's fourth quarter and full year 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, February 13, 2020. I will now turn the call over to Veronica Mayer from Investor Relations for ARIES Management.

Thank you, Sarah. Good afternoon, and thank you for joining us today for our fourth quarter and full year 2019 conference call. I am joined today by Michael Arrigetti, our Chief Executive Officer, and Michael McFerrin, our Chief Operating Officer and Chief Financial Officer. In addition, Bennett Rosenthal, co-chairman of our private equity group, is with us and available for questions. 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 and investment in our funds is discreet from performance of and investment in Aries Management Corporation. During this conference call, we will first judge 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-titled measures used by other companies. In addition, please note that our management fees include ARCC Part 1 fees. Please refer to our fourth quarter and full year 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. 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 Aries or any other person, including any interest in any fund. This morning, we announced that we declared our first quarter common dividend of 40 cents per share, representing an increase of 25% over our prior year's quarterly dividend. This dividend will be paid on March 31, 2020, to holders of record on March 17, 2020. This dividend level represents a 3.9% annualized yield based on yesterday's closing price. We also declared our quarterly preferred dividend of 0.4375 cents per Series A preferred share, which is payable on March 31, 2020, to holders of record on March 13, 2020. Now, I will turn the call over to Michael Arrighetti, who will start with some quarterly and full-year financial and business highlights.

Thank you, Veronica. Good afternoon, everyone. Our fourth quarter's results capped off a record year for ARIES with top-line management fee growth in excess of 20% and fee-related earnings growth in excess of 25%. Our strong management fee-related earnings also supported realized income growth in excess of 25% in the year as an active year of modernization supplemented our base core earnings. 2019 was yet another solid year for AUM growth as we raised $24 billion representing year-over-year growth of 14%. We continue to benefit from a broad consolidation trend as limited partners shrink their number of GP relationships to achieve economies of scale and invest more with their preferred managers. To illustrate this point, our existing LPs represented more than 80% of our gross capital raised as they re-up into successor funds or invest in other strategies across the platform at an impressive rate. During 2019, over 150 LPs invested with us directly, including 100 existing and 51 new to ARIES. Interestingly, existing LPs invested more than four times the capital than our new investors. Growth of wallet share from our existing clients continues to be a great opportunity for us. We continue to broaden and deepen our relationships with our investors. Today, 80% of our AUM from direct investors is invested in more than one ARIES fund, and over 50% is invested in two or more of our investment groups. With all that said, we believe that we're just scratching the surface and we're growing in all of our major investor categories, particularly with global pension funds, insurance companies, sovereign wealth funds, and private banks. Heading into 2020, we're embarking on a meaningful period of capital raising with several of our largest flagship funds either in the market or soon to be launched. We currently believe that 2020 fundraising could surpass the record $36 billion that we raised in 2018. We're currently in the market or planning to come to market this year with several flagship funds across our three businesses, including our sixth corporate private equity fund with a target of $9.25 billion, our fifth European direct lending fund, our second U.S. junior capital direct lending fund, our third opportunistic real estate fund in the U.S., where we've already held initial closings in excess of $700 million, our third European value-add real estate fund, our inaugural alternative credit and climate infrastructure private equity funds, and we'll be completing the fundraising in the coming months of our inaugural special opportunities fund which is now at $1.6 billion against a target of $2 billion. We've discussed in the past, generally speaking, based on historical experience, successor funds are one and a half times larger on average than predecessor funds. In addition to all of this activity and possibly other commingled funds that we may launch later in the year, we expect to remain very active also with CLOs, open-ended funds, and strategic separate account mandates. As our core business continues to expand and perform well, we're constantly investing for future growth. We're expanding into new areas beyond our core business that we believe will provide meaningful AUM and earnings growth in the future. These strategic initiatives include our insurance expansion via the launch of Espida, the launch of Aries Australia Management with our joint venture partner, Fidante, and our recently announced planned expansion into Asia through our pending SSG capital transaction. I do want to spend a minute on SSG. With $6.2 billion in AUM, SSG is a leading Pan-Asian alternative asset manager focusing on credit and special situations investing. SSG has strong investment performance, a global investor base, extensive relationships, and significant infrastructure built across several countries in this high-growth strategic region. We believe that SSG is a clear market leader in the Asian private credit markets, and when added to our leading U.S. and European franchises, cements our global leadership position in private credit. While we haven't provided financial details, this transaction will be modestly accretive out of the gate, but more importantly, it provides a strong foundation to build something meaningfully accretive to us, both strategically and financially in the years to come, and we couldn't be more excited. During 2019, we also began to recognize more of the benefits from our 2018 C-Corp conversion, which drove more institutional investors to our company and a significant rise in shareholder value. The structural changes made in 2018, including providing our shareholders with voting rights, facilitated a growing roster of not only institutional investors, but also index and passive investors. We believe that we're still in the early days of our shareholder transformation, based on the demand that we continue to experience. Next, to touch on performance, we had another strong showing across all of our businesses in 2019. Starting with credit, we had a great year, generating low to mid-teens returns across our significant funds in liquid and illiquid credit. Our loan and high yield strategies in particular demonstrated outperformance versus their benchmark since inception. and delivered top decile and top quartile performance in 2019 with 10% and 16.1% gross returns. Our significant real estate funds had another strong year with our U.S. and European equity funds generating gross returns of 16.8% and 12.7% respectively. And from a private equity standpoint, our corporate private equity fund composite posted a gross return of greater than 20% for the year. From an investing and deployment standpoint, we had an active year with total drawdown deployment of approximately $22 billion, up from $17 billion in 2018, with growth across all three of our investment groups. In today's competitive market, we use our broad platform of over 450 investment professionals to source quality assets where we have an informational and experienced edge and where value can be created. I'd now like to turn the call over to Mike McFerrin, who will walk through our results in more detail and talk about the outlook on future earnings. Mike?