Ares Management Corporation

Welcome to Aries Management Corporation's second quarter earnings conference call. At this time, all participants are in listen-only mode. As a reminder, this conference call is being recorded on Thursday, July 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 our second quarter 2021 conference call. I'm joined today by Michael Arrigetti, our Chief Executive Officer, and Michael McFerrin, our Chief Operating Officer and Chief Financial Officer. We also have a number of executives with us today that will be available during Q&A. 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 second quarter earnings presentation available on the investor resources section of our website, for reconciliations of the measures to the most directly comparable GAAP 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 third 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 September 30th, 2021 to holders of record on September 16th. Note that we redeemed our outstanding Series A preferred stock on June 30th, 2021, and we also paid our last dividend on the same day. Now I'll turn the call over to Michael Arrighetti, who will start with some quarterly financial and business highlights.

Great. Thanks, Carl, and good afternoon, everybody. I hope you are doing well. As our second quarter's results demonstrate, we continue to hit on all cylinders in our core business with a record quarter of fundraising, AUM metrics, management fees, fee-related earnings, FRE margin, and realized income. During the second quarter, our top-line management fees increased 34%, our FRE increased by 52%, and our realized income grew 80% all on a year-over-year basis. Our fee-related earnings increased sequentially for the 17th consecutive quarter, which we believe speaks to the stability and consistency behind the growth trajectory of our management fee-centric business model. We raised more than $20 billion in new capital across the platform, which puts us at more than $30 billion raised for the first half of the year. This compares to our record full-year fundraising of $41 billion last year. Our quarterly fund performance was also the strongest quarter of fund appreciation in our firm's history. The second half of 2021 and beyond looks promising for us as our transaction and fundraising pipelines both remain elevated, and we believe that the market environment remains conducive for additional realization activity. We've also added several new growth engines to the platform, which strengthens our confidence in our ability to drive continued shareholder value and long-term growth of 20% or more in our FRE and dividends in the coming years. During the second quarter, we executed on our strategic vision to scale and expand our product suite, closing our previously announced acquisition of Landmark Partners on June 2nd and creating our new Secondary Solutions Group. We believe that the secondaries industry is at an inflection point and the combination of Landmark's industry leadership and our global sponsor and investor relationships will provide us with meaningful growth opportunities. We're focused on integrating this business and capitalizing on a range of revenue synergies and potential product expansions. Just after quarter end, we meaningfully scaled our real estate group by closing on our acquisition of Black Creek Group, which had approximately $13.7 billion of AUM as of June 30th. Black Creek is a vertically integrated real estate manager, predominantly offering core and core plus strategies with a long and successful track record. Adding a premier core core plus manager fills a product gap for us within our real estate product offering, and we can now offer a complete suite across the risk return spectrum to our real estate investors. The company is also one of the three largest industrial real estate investors in the U.S., which is ARIES' highest conviction global real estate sector and one with favorable long-term demand drivers. Black Creek's 100 investment professionals with locations across the U.S. will also meaningfully enhance our scale and visibility on transactions and market coverage. Importantly, Black Creek also operates one of the top non-traded REIT fundraising platforms in the country, which we believe offers tremendous upside as we use our relationships to expand through global wealth platforms and add new retail-oriented products across all of our business lines. We're very excited about the opportunities for these growth engines as we leverage the PowerBar platform to enhance investor distribution and eventually expand their products into new business opportunities. With these highly attractive and financially accretive acquisitions in place, We are intensely focused on recognizing the many revenue synergy opportunities in front of us, which we expect will enhance our earnings growth in future years. We also continue to progress with our insurance initiative. With Aspita's recently closed Global Bankers Insurance Group transaction, we added the marketing, technology, and infrastructure that will provide the foundation for underwriting new life insurance and annuity products, which we expect to begin next year. We also continue to add new flow reinsurance contracts, and we're seeing a growing number of sub-advisory management services for Aspita's portfolio across the firm. On the investor front, we continue to benefit from the strong secular tailwinds driving the demand for alternative private assets and investor thirst for durable yield. As we scale, more investors are coming onto our platform and then allocating additional funds to us. Investors are finding that we can provide solutions to meet their desire for consistent and attractive risk-adjusted investment returns throughout market cycles. Following our strong first quarter with $10.6 billion raised, we raised more than $20 billion in organic capital during the second quarter, with over 80 percent of the direct institutional capital coming from existing investors. We saw contributions across all of our investment groups with large closings in U.S. and European direct lending, liquid and alternative credit, real estate, private equity, including climate infrastructure, secondary solutions, and Asian secured lending. A perfect example of the strong demand that we're seeing is through our first closing of $5.1 billion for our second U.S. senior direct lending fund, which is already in excess of its $4.5 billion target and 70 percent larger than our predecessor fund size. On this first close, we had very strong participation from existing investors with 43 out of the total 54 investors as existing ARIES clients. Interestingly, our two largest investors in the first close are long-time ARIES investors making their first commitment to U.S. direct lending. We also saw significant support from the predecessor fund investors with over 20 committing and upsizing by 20% on average. Based on anticipated fund leverage, the total fund capital after the first close is expected to be more than $8.5 billion, and we're continuing our fundraising efforts and expect the final size to grow from there. Also within credit, we followed up with another meaningful close of $1.7 billion for our second U.S. Junior Capital Direct Lending Fund. bringing total commitments to 3.6 billion, also already ahead of our last fund. We continue to fundraise and expect to exceed our $4 billion target in the near future. During the second quarter, and as we previously announced, we also held our final close for ACE 5, which added another 1.5 billion euros in LP commitments. And by adding in a modest debt facility, ACE 5 is now over 13 billion euros, or $15.6 billion in size. ACE5 is off to an excellent start with more than 20% of the fund already committed with new investments. Our strong and consistent performance within our real estate group and our ability to source and manage off-market assets is translating into significant momentum in our real estate fundraising as well. We held a first close of more than $600 million for our 10th U.S. Value-Add Real Estate Fund, which is nearly halfway to our target. And we added more than 600 million euros in our third European value-add fund, including related co-investments. We expect both funds to meet or exceed their targets as well. We also held the final closing of SLO3, ARIES SSG's third flagship fund in secure direct lending. SLO3 closed on 1.6 billion in commitments, which was approximately double the size of the successor fund, predecessor fund SLO2, and above our target of $1.5 billion. Ares SSG continues to see very strong demand for its products due to its differentiated Pan-Asian private markets footprint. We're seeing strong momentum in capital raising through certain perpetual life open-ended vehicles. During the second quarter, Black Creek raised over $600 million of equity and an additional $700 million of debt in its non-traded REIT platform. And just after quarter end, we held a $1.6 billion first close on our new open-end core alternative credit fund. This complimentary fund, Pathfinder, is also managed by our alternative credit team, where they focus on a broad range of core investments backed by assets with contractual cash flows. Going forward, we continue to focus on launching more perpetual life and open-ended capital vehicles. Looking forward, we have a strong pipeline of funds in the market across all of our businesses, and we expect 2021 will exceed our 2020 record of $41 billion. In terms of larger flagship funds, we expect additional closings in our sixth corporate private equity fund, our second special opportunities fund, our inaugural climate infrastructure fund, our sixth Asian special SITS fund, our two aforementioned U.S. flagship direct lending funds, our U.S. and European real estate funds, our 17th private equity fund, secondaries fund, our ninth real estate secondaries fund, and our inaugural sports media and entertainment fund, just to name several. We also have several new strategies that we plan to launch over the next 12 months. Our broader platform has clearly set us up for a deeper and more diverse fundraising pipeline as investor appetite for our private market alternatives is increasing. The investing environment is very attractive, reflecting improving confidence on the part of businesses and investors. In that context, we had a strong deployment quarter with over $10 billion invested, with $8.1 billion in our drawdown funds versus $4.7 billion for the same period last year, an increase of 72%. Our ability to continue to find attractive deployment opportunities across our businesses illustrates the breadth of our extensive sourcing platform our incumbency advantages across our fund's almost 3,000 portfolio companies, and the meaningful competitive advantages that we've created with scale and flexible capital. In addition, we're seeing more companies and sponsors wanting to partner with us after seeing how many traditional sources of capital were less reliable during the pandemic. Many of our investment teams are seeing record levels of activity with strong future pipelines, while at the same time, taking advantage of our significant incumbent relationships to provide capital in situations where many of these transactions never come to the market for competition. And lastly, I'll touch on investment performance. As you can see throughout our earnings presentation, we had another very strong quarter of fund performance across our strategies, including quarterly gross returns in both our corporate private equity and our special opportunity strategies of 15% and U.S. equity real estate returns of more than 14% for the quarter. In our private equity group, corporate private equity and special opportunities achieved gross returns over the last 12 months of 55% and 58% respectively. Of note, the group's largest fund, ACOF V, fully crossed into the carry during this time with its since inception IRR in the mid-teens as of quarter end. We also saw strong direct lending returns with Aries Capital generating net returns of over 6 percent for the second quarter and more than 26 percent over the last 12 months, meaningfully outperforming the high yield indices. And our liquid credit loan and high yield composites also continue to outperform the relative benchmarks for the first half of the year. Overall, our strong fund performance more than doubled our accrued net performance income, as Mike will touch on in a moment. And with that, I'll now turn the call over to Mike McFerrin for his remarks on our business positioning and our financial results. Mike?