Ares Management Corporation

Good day and welcome to Aries Management Corporation's fourth quarter and year-end 2020 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 11, 2021. I will now turn the call over to Carl Drake, Head of Public Company Investor Relations for Aries Management. Please go ahead.

Good afternoon, and thank you for joining us today for our fourth quarter and 2020 year-end conference call. I'm joined today by Michael Arrighetti, our Chief Executive Officer, and Michael McBaron, our Chief Operating Officer and Chief Financial Officer. In addition, Bennett Rosenthal, Co-Chairman of our Private Equity Group, Kip DeVere, Head of our Credit Group, Bill Benjamin, Head of our Real Estate Group, Scott Graves, Co-Head of our Private Equity Group, and Blair Jacobson, Co-Head of European Credit, will also be available for the question and answer session. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filing. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statement. Please also note that past performance is not a guarantee of future results. During this call, we will refer to certain non-GAAP financial measures that should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. In addition, please note that our management fees include ARCC Part 1 fees. Please refer to our fourth quarter and full year 2020 earnings presentation available on the investor resources section of our website for reconciliations of the measures to the most directly comparable gap measures. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase in interest in any area's funds. This morning, we announced that we declared our first quarter common dividend of 47 cents per share, representing an increase of 17.5% over our dividend for the same quarter last year. The dividend will be paid on March 31st, 2021 to holders of record on March 17th. We also declared our quarterly preferred dividend 43.75 cents per Series A preferred share, which is payable on March 31st, 2021 to holders of record on March 15th. Now I'll turn the call to Michael Arrighetti, who will start with some quarterly and year-end financial and business highlights.

Great. Thanks, Carl, and good afternoon, everybody. I do hope that everyone is healthy and wish you well. This morning, we reported exceptional results for our fourth quarter, concluding a very strong year for ARIES, despite the challenging economic and market conditions brought on by the global pandemic. We achieved records in nearly every financial metric, with full-year growth in AUM and and fee-related earnings, both exceeding 30%. Our AUM growth was driven by nearly $13 billion of gross fundraising in the fourth quarter and $41 billion for the year, both all-time records. As investors continue to entrust more of their capital to Ares, and as we continue to demonstrate our ability to generate strong returns throughout market cycles. Our 44% fee-related earnings growth for the fourth quarter and 31% for the full year were driven by strong top-line growth, coupled with margin expansion from economies of scale. We were able to accomplish this while still investing substantially for future growth through the incubation of new products, new platforms, and new strategies. Our FRE margins expanded throughout 2020 to a record 37% in the fourth quarter, an improvement of over 500 basis points year over year. Our strong growth in the face of a global health and economic crisis demonstrates the durability and resiliency of our business model and highlights the strong secular tailwinds supporting our business. Our management fee-centric business model generates consistent and recurring earnings from a growing capital base even in volatile markets. This was demonstrated in 2020 as management fees represented 89% of our total fee income and our fee-related earnings represented nearly 75% of our realized earnings. The resiliency of our earnings is also illustrated by the fact that nearly 90% of our management fees are derived from permanent or long-term capital. In our view, the long-term secular growth trend in alternative investing is as good as we've seen and we expect it to continue for the foreseeable future. In a world of very low interest rates and elevated valuations and volatility in traded markets, investors continue to view investing in private assets as a means to earn premium returns and higher current income with less volatility. We believe that there's a significant opportunity for further market share gains for the industry and for ARIES based on the value that we are bringing to our investors. As I mentioned, in 2020, we had a record year of organic fundraising. We took commitments in from more than 350 institutional investors, raising a total of $41 billion, surpassing our previous annual record of $36 billion. To achieve these results, we executed effectively on both large flagship funds and new first-time flagship fund strategies, in addition to our ongoing capital raising in permanent capital vehicles, managed accounts, CLOs, and open-ended funds. We held closings for 20 distinct commingled funds during the year, demonstrating the breadth of scale and diversification in our fundraising efforts. In 2020, we saw unprecedented demand for our leading European direct lending flagship fund as we closed on €9.4 billion, including €2.4 billion in Q4, a little more than eight months after our launch. We're nearly 50% ahead of our predecessor fourth fund of 6.5 billion euros in commitments, and we're already ahead of our target of 9 billion euros. Going forward, we expect to reach our hard cap of 11 billion euros, or up to 15 billion euros of total available capital for the fund, including anticipated credit facilities. We're also well on our way with our second junior capital direct lending fund, holding a first close on $1.9 billion during the fourth quarter. Our sixth corporate private equity fund has now reached more than $4.1 billion of commitments and is off to a great start with respect to deployment. Specifically, we committed approximately $1.5 billion to new investments in 2020 on behalf of our sixth corporate PE fund, largely executed in the midst of the crisis with about half in traditional investments and half in distressed investments at attractive entry points. We continue to raise two larger flagship real estate funds as well with our third US real estate opportunistic fund reaching more than 1.3 billion. And we expect to exceed our one and a half billion dollar target. And our third European value add fund ended the year at nearly 600 million euros on its way to its 1 billion euro target. During 2020, we also demonstrated successful raises in our newer product lines led by teams of proven business builders. A good example of this is our private equity group's inaugural Special Opportunities Fund 1, or ASOF 1, where we closed at our hard cap of $3.5 billion in mid-2020, which compared favorably against our $2 billion target. Our Special Opportunities team started investing ASOF 1 in 2019 and was very active during the pandemic. ASOF 1 is now approximately 70% invested and committed in distressed and other special situation investments, As I'll touch on in a moment, the fund's strong performance demonstrates the efficacy of this strategy, and we now expect a larger successor ASOF fund to be launched later this year. In alternative credit, our inaugural flagship fund, which launched with an initial target of $2 billion, now stands at over $2.7 billion, and we expect it will hit its recently increased hard cap of $3.6 billion shortly. For the year in total, the private equity group raised $6.2 billion and the alternative credit team raised $5.5 billion in total across all funds. We expect the special opportunities and alternative credit strategies to grow into even more significant businesses for us going forward. Looking forward, we expect 2021 to be another strong year of fundraising with the opportunity to exceed our 2020 record of $41 billion. In addition to our ongoing fundraising across new and existing managed accounts, permanent capital vehicles, CLOs, and other funds, our pipeline includes more than a dozen flagship funds targeting a billion dollars or more across each group, including a few new strategies such as our inaugural sports, media, and entertainment fund and a new evergreen income fund focused on alternative credit. Importantly, we're much more diversified with more than four times the number of commingled funds in the market targeting a billion dollars or more compared to five years ago. We also have larger permanent capital vehicles today that continue to scale, more open-end funds, and a more robust strategic managed account platform. The breadth and diversity of our platform have evolved us to be in continuous fundraising mode versus the old model of being in a quote unquote fundraising cycle. As a result of all this going forward, I'd expect our annual fundraising totals to exhibit less variability year over year than in the past. I think 2020 also underscored the importance of having extensive relationship networks, flexible capital, and large incumbent positions to drive differentiated investment. With the exception of the fourth quarter, private market transaction levels were comparatively slow in 2020, making relationships, deep industry expertise, and flexible capital solutions even more important in sourcing attractive investments. That said, our 2020 deployment nearly matched our 2019 record levels, as we invested approximately $27 billion, including more than $21 billion in drawdown funds, with $7 billion in Q4 alone. For the year, our deployment activities were led by our European and U.S. direct lending platforms, where we funded over $10.5 billion in nearly 200 middle market companies, with about half of our transactions supporting incumbent portfolio companies. The alternative credit team had its busiest year ever, deploying $2.8 billion across its strategies and trading more than $6 billion in liquid securities. Our global liquid credit team also had its most active year with tactical trading and securities of $45 billion and deployment of $4 billion from its new funds. Within private equity, the group invested $5.4 billion in 2020 about equally split between traditional and distressed investments, with most investments in our corporate private equity and special situation strategies made during the height of the pandemic at very attractive entry points. Our real estate team invested $2.3 billion, primarily focused on their high conviction sectors of industrial and multifamily in both the U.S. and Europe, as well as increased exposure to other alternative real estate asset classes, such as single-family rental and student housing. Aries SSG also took advantage of the market dislocation and deployed $1.7 billion in its senior lending and special situation strategies across its Asia-Pacific footprint. Despite the volatility, we also experienced a solid year of realizations, most notably within private equity, where we had more than $5 billion of exits in both the private and public markets. On the public side, we were able to capitalize on the growing stay-at-home trend, with our portfolio companies, Floor & Decor and the Azek Company, which went public in mid-2020. The success of these public companies enabled us to monetize a portion of our public portfolio and, together with selected exits in the private markets across strategies, deliver attractive, realized performance income to our shareholders. The public markets remain conducive to additional opportunities into the new year. In the first quarter of this year, our ACOF portfolio company, MyTheresa, a leading European luxury e-commerce platform, completed a very successful IPO against strong demand. The stock has responded very favorably with strong appreciation since the company's debut. With the AZEC company up 70% since its IPO last year, we were also able to monetize a portion of our holdings in January. And finally, we're pleased with the strong market reception for our first SPAC, Aries Acquisition Corporation, which was upsized to be one of five SPACs currently active in the market to reach the $1 billion mark in its debut last week. Assuming continued favorable market conditions, we would expect SPACs to be a new product line for Aries and hope that this is the first of a number of generalist and targeted SPACs that we raise in the future. In our view, our strong fund performance for both the fourth quarter and 2020 highlight the many advantages of our platform. Our credit strategies delivered strong returns for our investors with minimal loss rates. Despite going through a severe economic downturn, credit returns were positive for the year across our major credit strategies. Gross returns ranged from 3% to 4% in syndicated loans and 6% to 7% for high yield, outperforming their respective benchmarks by 30% and 10% respectively. Our European direct lending returns were more than 6%, and Ares Capital generated strong net returns of 8% for the year. Our special opportunities fund within our PE group was a standout in 2020, ending the year with a 54% gross return for 2020, as the team invested meaningfully during the market volatility, particularly in the first half of the year, and since inception returns were greater than 70%. on a gross fund level basis at year end. Our corporate private equity returns within our ACOP composite appreciated strongly in the fourth quarter with a gross return of 8.5%, ending the year up just under 10%. Our real estate private equity group materially outperformed the public real estate market indices for the year. In a year where the U.S. and European public REIT indices were down 8% and 13% respectively, Our U.S. and European equity composites generated gross returns of 15% and 2%, respectively. Our real estate outperformance was due to our strategic focus on the two best performing asset classes in real estate for 2020, multifamily and industrial, with significant underweights in both the hospitality and retail sectors. Another focus for the year was on our strategic initiatives. We closed on our strategic acquisition of Aries SSG in July, and we closed F&G REIT for our insurance affiliate, Aspita, at the end of the year. We believe the growth opportunities in Asia and across the insurance sector are both significant and highly strategic for our longer-term plans as we roll out new products in these areas. Both businesses are off to a great start with talented leadership in place and identified promising growth prospects. ARIES SSG expects to launch its sixth flagship special SIDS fund in the second half of this year, and they're collaborating actively with our strategic partner SMBC in developing certain new products in Asia Pacific. Our ARIES Insurance Solutions Unit is supporting the growth of Espida's reinsurance business, and it's also focused on building out the infrastructure to offer onshore insurance products to the retiree market. With our leading non-investment grade credit platform with more than $145 billion in AUM, we believe that we're well positioned to help the speed of scale in the insurance sector by leveraging our distinct competitive investing advantages and distribution relationships. And lastly, from a personnel standpoint, we continue to enhance our talent across the platform with net addition of 200 employees in 2020. This helps us maintain our leading direct sourcing platforms across the globe that have become so valuable as we scale and serve our investors. As we grow, we continue to attract talented professionals who want to join areas to make an impact across both our investing and non-investing areas. Two additions to highlight in non-investment areas are our new head of ESG, Adam Helzer, who joined in April, and our new head of diversity, equity, and inclusion, Indira Arrington, who joined last month. Indira will help us build upon the great strides that we've already made in DEI over the last several years, including in 2020, where we served as a founding signatory on ILPA's Diversity in Action Initiative and were recognized by Exelon on their 2020 Inclusion and Diversity Honor Roll. In the fall of 2020, we also achieved the certification as a great place to work from our employees, and in January of this year, we achieved a 100% score on the HRC Corporate Equality Index. We're also very active in our communities in 2020 with more than 300 employee volunteers participating in 10 nonprofit events. ESG and DE&I are critically important to us and our stakeholders, and we expect to be at the forefront of change in our industry in the years to come. Let me now turn the call over to Mike McFerrin to walk through the fourth quarter and full year financial results. Mike.