Ares Management Corporation

Welcome to Aries Management Corporation's first quarter 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, April 29, 2021. I will now turn the call over to Carl Drake, Head of Public Company Investor Relations for Aries Management.

Good afternoon, and thank you for joining us today for a first quarter 2021 conference call. We hope everyone is safe and healthy. I'm joined today by Michael Arradetti, 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, Kip DeVere, head of our credit group, and Matt Swartnick, co-head of our private equity group, will 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 filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. 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, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our first quarter 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 an interest in any ARIES fund. This morning we announced that we declared our second quarter common dividend of 47 cents per share, which is consistent with our prior quarter dividend and represents an increase of 17.5% over our prior year's quarterly dividend. The dividend will be paid on June 30, 2021, to holders of record on June 16. We also declared our quarterly preferred dividend of 43.75 cents per Series A preferred share, which is payable on June 30, 2021, to holders of record on June 15. Now I'll turn the call over to Michael Arrighetti, who will start with some quarterly financial and business highlights.

Thank you, Carl. Good afternoon, everyone. I hope you are all healthy and wish you well. As the economy recovers on the backs of significant fiscal and monetary stimulus, as well as progress on the healthcare front, we are off to a strong start this year across our business. Looking back at an unprecedented year of volatility and change, we believe that 2020 validated the resilience and durability of our business. The positive fundamental growth trends for our company and the strong secular tailwinds driving the alternative asset management industry. As we look forward to the rest of 2021, we see a constructive market backdrop and continued momentum in the four core drivers of our business. Strong fundraising, deployment, investment performance, and realizations. I'll speak to each of these specifically, but simply put, as we execute well on each of these fronts, we're confident in our ability to drive continued long-term value for our shareholders and to maintain our guidance of 15% plus FRE growth for the foreseeable future. We reported AUM well in excess of $200 billion, a major milestone for the company after reaching $100 billion just four years ago. Our AUM has grown nearly 40% year over year compared to the first quarter of 2020. The first quarter also reflects our 16th consecutive quarter of sequential FRE growth, with FRE up 38% year-over-year, and we achieved a new record margin of 38%, which reflects a nearly 500 basis point expansion in our margin year-over-year. Following a record year of capital raising in 2020, we've continued our strong momentum with over $10 billion of capital raised during the quarter. We held a final closing for our flagship illiquid alternative credit fund, ARES Pathfinder Fund, with total commitments of $3.7 billion which was oversubscribed and at its hard cap. We were very pleased with the investor acceptance for this global flagship fundraise, which brought in 50 new investors to ARIES and over 80 unique total investor groups. We're also proud to deliver on our purpose-driven commitment to philanthropy by donating at least 10% of the ARIES Pathfinder Fund's carry to charity with the hope of inspiring others around the industry. We also announced the successful final close of our Real Estate Opportunity Fund 3, which raised $1.7 billion ahead of its $1.5 billion target and more than 70% larger than the predecessor fund and related co-invest vehicles. This fundraise, coupled with our fifth European Opportunistic Fund that we completed in 2019, are great examples of how we're meaningfully scaling our core real estate funds by at least 50% and our overall real estate platform. In the public markets, we raised $1 billion in our first SPAC, Aries Acquisition Corp. We also continue to raise capital in our permanent capital vehicles with $1.6 billion in debt and equity for Aries Capital Corp, our BDC. And we raised $640 million in debt and equity for Aries Commercial Real Estate, our publicly traded commercial mortgage REIT, which continues to have strong growth prospects in the commercial mortgage sector. As you may have seen in our separate press release this morning, we announced the final closing of our fifth European Direct Lending Fund, ACE5, which was oversubscribed and also hit its hard cap of 11 billion euros, representing the largest European Direct Lending Fund raised to date. With strong investor support, ACE5 surpassed its 9 billion euro target in only eight months after fund launch. The final fund size represents an increase of approximately 70 percent versus the predecessor fund. The fund attracted strong backing from a diverse group of nearly 180 investors, including 65 investors new to ARIES. With more than 80% of commitments from existing ARIES investors, ACE5 receives strong support from the firm's broad and growing investor base. The ARIES European Direct Lending team manages 45 billion of AUM pro forma for the raise and has approximately 70 investment professionals, which we believe makes Aeries the largest capital provider in the European direct lending market. Including anticipated leverage, the total available capital for ACE5 will be approximately 15 billion euro. The fund is already off to a strong start, benefiting from Aeries' market leadership position, having committed 1.7 billion euro across 11 investments to date. Looking forward, As we mentioned on our last earnings call, we have a strong pipeline of funds either in the market or coming to the market later this year across all of our businesses. And we continue to think that 2021 could shape up to match or exceed the record fundraising that we had last year. Our broader platform has set us up for a deeper and more diverse fundraising pipeline as investor appetite for our private market alternatives are increasing. Next, I'll touch on deployment where we had a strong quarter with over $10 billion of gross invested capital, including nearly $9 billion of deployment from our drawdown funds, which represents an increase of over 60% from the first quarter of 2020. Our ability to continue to find attractive deployment opportunities across our business illustrates the power of the platform and the meaningful competitive advantages that we've created in sourcing and deal execution. And lastly, I'll touch on our investment performance. As you can see throughout our earnings presentation, we had strong returns in Q1 across our strategies, including gross returns in corporate private equity of over 16%, special opportunities of 9.9%, U.S. real estate equity over 7.5%, European real estate equity of nearly 7%, and continued strong performance across our U.S. and European credit strategies. I'd also highlight the continued strong performance of our fifth Pan-Asian Special Situations Fund that launched in 2018, having a gross IRR in excess of 60% through Q1. As I mentioned earlier, we believe the market backdrop is constructive and sets us up well for increased realizations as the year progresses, as well as growth in our net performance fee receivable, which Mike will touch on a little later. In addition to the continued strong momentum in our existing strategies, we're very bullish on the opportunities being created by our more recent organic and inorganic strategic initiatives. In mid-2020, we held our final close of our inaugural Special Opportunities Fund with over $3.5 billion of capital raised against a $2 billion target, and we're launching a subsequent fund in this strategy in the near future with a larger target. I already mentioned that we had the final close in the quarter of our inaugural Alternative Credit Flagship Fund Pathfinder, which similarly raised $3.7 billion against the $2 billion target. With respect to Asia, we could not be more pleased with the great integration and collaboration that has taken place with our ARIES SSG colleagues. Their strong momentum has them well positioned for the planned launch later this year of our sixth Asian Special Situations Fund. Longer term, I'm excited about the growth opportunities for us in Asia and believe that the development of strategies across the different asset class in Asia will complement and enhance our long-term growth overall. Let me also touch on our recently announced acquisition of Landmark Partners, which we expect to close this quarter. We believe that this transaction is very timely as the secondary market for alternatives scales to catch up with primary market volume. Furthermore, the industry movement towards GP led transactions plays to our strength. With our market leading global private credit platform, which has nearly 300 investment professionals calling on more than 850 private equity sponsors, we believe that we have one of the largest direct sourcing opportunities given these relationships in the market today across North America, Europe, and Asia. We also believe that the synergies with Landmark will be exciting for us over time as we introduce products to each other's respective client bases and collaborate on new product extensions. On the heels of the landmark announcement, we raised $828 million of equity. Combined with our pre-existing strong liquidity position, we have ample liquidity to close this transaction, support our active pipeline of organic and inorganic strategic opportunities, and to retire our currently outstanding 7% preferred equity, which is redeemable starting at the end of this quarter. We believe that our strong organic growth, supplemented by synergistic strategic acquisitions in large and growing markets, positions us very well in an evolving global asset management landscape. The alternative asset management industry is transitioning through globalization increased retail investor participation, manager consolidation, changing investor behavior and appetite, and rapid product evolution. We continue to believe that size will be a significant driver of success and outperformance as these markets grow and evolve. Scale across markets and products allows us to invest more aggressively in asset sourcing, allows us to make better relative value decisions across markets, allows us to attract and retain better talent, and in turn, offer attractive and differentiated investment solutions to our clients. Today and well into the future, it will be critical to have the capability to offer the broadest set of solutions across the risk-return spectrum to both retail and institutional clients. Now I'm going to turn the call over to Mike McFerrin, our CFO, for his remarks on our business positioning and financial results. Mike?