Ares Management Corporation

Welcome to ARIES Management Corporation's fourth quarter and year-end earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Friday, February 11, 2022. I will now turn the call over to Carl Drake, Head of Public Markets, Investor Relations for ARIES Management.

Good afternoon, and thank you for joining us today for our fourth quarter and year-end 2021 conference call. I'm joined today by Michael Arrighetti, our Chief Executive Officer, and Jared Phillips, our Chief Financial Officer. We also have a number of executives with us today who 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 fourth quarter and full year 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 first quarter dividend of 61 cents per share of its Class A and non-voting common stock, representing an increase of 30% over the same quarter a year ago. The dividend will be paid on March 31st, 2022 to holders of record on March 17th. Now I will turn the call over to Michael Arrighetti, who will start with some quarterly and year-end financial and business highlights.

Thank you, Carl, and good afternoon, everyone. Hope everybody is doing well. Our strong fourth quarter results capped off a transformational year here at Aries. We generated record results across nearly every key financial metric. We saw tremendous growth across our global platform and our best fund performance since we became a public company. As we outlined at our investor day last year, we are operating in expansive and rapidly growing end markets, and we're gaining share through our scale, product and geographic expansion, and new distribution. We believe that our global platform and our unique culture of collaboration and innovation are key drivers of our firm's success. We ended the year exceeding $300 billion in AUM. 55% higher than the near $200 billion in AUM at the end of 2020. The vast majority of this AUM growth was organic and driven by a record $77 billion in gross fundraising, including $25 billion in the fourth quarter alone, well ahead of our expectations. Our strong organic growth, which we believe to be among the best in our industry over the past three years, reflects our investors' satisfaction with our fund performance, and the continued expansion of our capabilities and strategies. On top of this strong organic growth, we added $33 billion in AUM from the strategic acquisitions of Landmark Partners and Black Creek Group. These businesses are performing very well and have positioned us for significant future growth across an increasingly diversified set of strategies. We're already seeing exciting revenue and earnings synergies with Black Creek and Landmark under our ownership, as we collaborate to positively impact fundraising, investing, and fund performance. In addition, in December, we agreed to acquire AMP's infrastructure debt platform, which is one of the largest global infrastructure debt platforms with approximately $8 billion of AUM and with a strong and long-term investment track record. We were pleased to announce the closing of this transaction last night. and we're excited with the extraordinary support that we received from the Infrastructure Debt Platform's existing LPs. The addition of the InfraDebt team will expand our investment capabilities across the digital, utilities, and transportation sectors, and will enhance our existing capabilities in the renewable energy space. The growing scale and breadth of our investment capabilities were on full display as we invested more than $80 billion for the full year across more than 25 different strategies around the globe. Our deployment, record fundraising, and two strategic acquisitions all helped drive a nearly 50% year-over-year increase in our fee-paying AUM and a 65% increase in our full-year fee-related earnings, which accounted for more than 80% of our realized income. Our FRE margins continue to expand throughout 21, approaching 40% in the fourth quarter, an improvement of over 250 basis points year on year. And over the past five years, our FRE margins have now expanded by more than 1,200 basis points. Our prospects for continued growth across all five of our business groups remain bright. With $90 billion of available capital to invest and a robust fundraising pipeline, we have strong visibility for continued growth in earnings over the coming years. Given our high conviction on our outlook, we're increasing our quarterly dividend by 30%, as Carl stated. This conviction is supported by a promising long-term view on the secular growth in alternative investments as institutional, retail, and insurance investors are all seeking differentiated sources of income with less market volatility. Each of these channels is expected to support the double-digit annual market growth in the alternative asset sector over the next five years as alternatives continue to take share from the global pool of hundreds of trillions of dollars of investment assets available. Inflation concerns and expectations for higher rates have no doubt generated some recent market volatility. In the past, we've demonstrated our ability to achieve significant growth even through volatile periods like the global financial crisis, and the recent COVID pandemic. We've also effectively navigated interest rate volatility in past cycles, and we continue to believe that ARIES is well positioned given the generally floating rate nature of our credit assets, the growth orientation of our private equity portfolios, and the inflation protection inherent in our real asset book. We continue to see investors consolidating their manager relationships with broader platforms to gain efficiencies and strategic insight. To that point, over 80% of our direct institutional fundraising in 2021 was derived from existing investors either re-upping into one of our existing strategies, which accounted for 45% of direct institutional fundraising, or investing in other ARI strategies across our platform, which accounted for 39% of direct institutional fundraising. Today, 62% of our institutional direct AUM is from clients that are invested across our platform in two or more investment groups, up from 49% of our clients five years ago. We also continue to attract new investors onto the platform. Out of the total 427 direct institutional investors who committed to new funds in 21, 41% of them were new to ARES. Our goal is to bring new investors onto the platform, deliver a best-in-class experience and performance and then earn additional trust and wallet share in subsequent fund offerings. We saw this play out in 2021 as the average investment size for existing investors increased 35% year over year and was over three times as large as the average investment size for new investors. This increasing momentum with our investors culminated in a record fourth quarter of fundraising with more than $25 billion of capital raised. This included 3.7 billion for the final close of our second Senior Direct Lending Fund, SDL2, bringing total fund commitments to approximately 14 billion, including leveraged and unleveraged sleeves. We believe this single fund is one of the largest ever private funds raised in the U.S. direct lending market. We held a final close for our inaugural Climate Infrastructure Fund, ACIP, raising 1.2 billion in the quarter, and bringing total commitments to $2.2 billion, including related vehicles. Investing in renewables through the energy transition remains a significant focus and a great opportunity for us in the future. We also closed on commitments for several newly launched vintages of existing funds. In our second special opportunities fund, we raised $4.9 billion in the fourth quarter and are well on our way to the hard cap of $6 billion. In our secondaries business, we raised nearly $800 million of initial commitments following the launch of our ninth landmark real estate secondaries fund. And in Asia, Aries SSG raised over $800 million of initial commitments following the launch of our sixth special situations fund. We also continue to experience significant fundraising momentum in our perpetual capital funds with more than $5 billion raised in the fourth quarter, including $3 billion raised in the retail channel, and $2 billion in the institutional open-ended channel. Our two non-traded REITs and the institutional open-end industrial real estate fund that we acquired from Black Creek are all running well ahead of our expectations with more than $2 billion raised in Q4. So looking back over 2021, our record $77 billion of fundraising far exceeded 2020's record of $41 billion. During the year, we held final or meaningful closings on over a dozen flagship funds, totaling nearly $35 billion. Interestingly, our flagship funds that held a final closing in 2021 increased their committed equity by approximately 50% in the aggregate over prior vintages, highlighting the embedded growth potential that we have from scaling existing funds. But even with an impressive year in flagship fundraising, we raised more funds outside of our flagship commingled products including $21 billion in our perpetual capital vehicles, which now represent over 25% of total AUM. We're seeing accelerated growth across our various distribution channels, particularly in retail and insurance. While aggregate fundraising increased 86% year-over-year, fundraising in our retail channel increased over 150% year-over-year to $14.5 billion. And AUM from our retail and high net worth channel stood at more than $50 billion at year end. Fundraising from insurance clients increased over 100% to $11.7 billion as we continue to develop products and expand our client service teams to target these investors. In the retail channel, the formation of Aries Wealth Management Solutions is enhancing our ability to drive additional flows into our existing funds and has now positioned us to launch new perpetual capital funds. We are rebranding the Black Creek funds, including the Diversified Property Fund, which is now Aries Real Estate Income Trust, or AREIT, and Black Creek Industrial REIT IV, which is in the process of being rebranded as the Aries Industrial Real Estate Income Trust. Our Aries Wealth Management Solutions team is also actively working to expand product distribution with wire houses, regional broker dealers and RIAs in the U.S., Europe, and Asia. In late 21, our insurance affiliate, Aspita, completed the acquisition of an additional insurance company, enabling Aspita to begin writing new annuity and insurance contracts, which is expected to begin late in the second quarter of this year. While there will be a ramp-up period, we expect to see stronger growth in Aspita over time as our organic sales organization will complement our reinsurance flow arrangements, and potential block acquisitions. At year end, Aspita had $3.4 billion of assets managed by Aries Insurance Solutions with more than 40% sub-advised across the Aries platform. Looking forward to 2022, we expect to have more than 25 different funds in the market, including the launch of some new fund strategies. We now have 23 commingled fund series that have closed on $1 billion or more in their latest fund vintage. This is up over four and a half times from only five fund series in 2016. While we expect another strong year of fundraising in 2022, we don't expect to approach our 2021 record, particularly given the record amount of available capital that we have to invest. Our global origination footprint and increased scale is enabling us to invest in larger transactions across more geographies and across broader strategies. In addition, the private markets continue to scale, which has created an opportunity to serve larger companies and sponsors as the global markets expand and evolve across the waterfront in direct lending, alternative credit, real estate credit, infrastructure credit, and special situations, among others. So as these markets go through transformational change, we feel confident that we're gaining share and addressing investor needs with flexible solutions. For the fourth quarter, we had gross capital deployment of $32 billion, another record quarter and nearly double the $17.3 billion of gross deployment in Q4 2020. For the full year, we deployed over $80 billion in flexible capital with an emphasis on industries and assets that are cycle resilient, like healthcare, software and technology, business services, and other service industries on the corporate side. industrial and multifamily properties and real estate, and renewable energy within infrastructure. Of note, we invested more than $48 billion in our US and European direct lending and alternative credit strategies during the year. Our full year fund performance across every investment group was some of the strongest that we've experienced as a public company. Private equity returns in both our Aries Corporate Opportunities Fund series and Special Opportunities Fund were excellent and meaningfully outperformed the broader U.S. equity market indices. Our ACOF composite generated gross returns of 7.5% in the fourth quarter and 52.6% for the full year, while Aries Special Opportunities generated gross returns of 4.5% in the quarter and 45.9% for the full year. Real estate continued its outstanding performance as the U.S. real estate equity composite generated gross returns in the fourth quarter of 10.7% and 62.3% for the full year. And our European real estate equity composite had gross returns of 5.8% in the quarter and 34.2% for the full year. In our non-traded REITs, for the full year, Black Creek Industrial REIT 4 delivered a net return of 29.7%. for its Class I shares, and ARE generated a 13.8% net return for Class I shares. Our secondary strategy kept pace with strong performance across the board. The private equity secondary strategy, which reports results on a one-quarter lag basis, generated gross returns of 13.9% for the quarter and 60% for the trailing 12-month period, while real estate secondaries generated gross returns of 18.7% the quarter and 49.7% over the trailing 12 months on a one-quarter lag basis. Pathfinder, which is our flagship alternative credit fund, has generated a very strong net IRR of 49% since its inception in 2020. What makes this performance particularly exciting is that 10% of the incentive fee income from this fund has been donated by the portfolio managers and by ARIES to support charitable initiatives such as global poverty, health, and education. Our flagship U.S. direct lending fund, ARIES Capital Corporation, generated strong net returns of 4.6% in the fourth quarter and 22% for the year. Our European direct lending strategy generated gross returns of 2.5% for the quarter and 14.5% for the year. In liquid credit, our syndicated loan and high-yield bond composites generated gross returns of 6.3% and 6.9% for the year, respectively, outperforming their respective benchmarks by 16% and 29%. Our flagship global multi-asset credit strategy also generated a gross return of 12.8% for the year. And lastly, in Asia, our special situations fund composite generated a gross return of 6.8% in the quarter and 30.2% for the full year. Hopefully these returns illustrate that we have highly talented, motivated people driving differentiated investment outcomes for our clients across all of our strategies and highlight why we continue to enjoy a sticky and growing client base. And with that, now let me turn the call over to Jared to walk through the fourth quarter and the full year financial results. Jared.