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 28, 2022. I will now turn the call over to Carl Drake, Head of Public Markets Investor Relations for ARIES Management.

Good morning and thank you for joining us today for our first quarter 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 and 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 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 second quarter common dividend of $0.61 per share of its Class A and non-voting common stock. This represents an increase of 30% over our dividend for the same quarter a year ago. The dividend will be paid on June 30, 2022, to holders of record on June 16. Now I'll turn the call over to Michael Arrighetti, who will start with some quarterly financial and business highlights.

Thank you, Carl, and good morning. I hope everyone is doing well. During 2021, and especially the fourth quarter, the financing markets were incredibly active, which led to record investment activity for us across most of our strategies. During the first quarter of 22, the Fed stepped up its fight against inflation, and we saw a sharp rise in interest rates. The beginning of a protracted war in Ukraine and prolonged lockdowns in China added further uncertainty and volatility to the typically seasonally slow first quarter. As a result, across many markets, general transaction activity slowed, yet some financing activity that would typically have tapped the traded markets shifted to the private markets, where there's more certainty of execution and increasing scale to manage larger transactions. At Aries, it is part of our DNA to navigate volatility and to find opportunities in transitioning markets. To that point, despite the challenging backdrop, we continued our strong growth in the first quarter across all of our key financial metrics. On a year-over-year basis, our management fees and fee-related earnings increased 47% and 59% respectively, and our realized income increased 62%. Importantly, our fee-related earnings accounted for 93% of our realized income for the first quarter and over 81% for the last 12 months. Our core FRE growth of 59% is especially gratifying in the face of this volatility, and we believe that our prospects remain bright for continued strong growth across all five of our business groups. With a record $92 billion of available capital to invest, a robust fundraising pipeline over the next 18 months, and compelling fund performance, we believe that we have strong visibility for continued growth in earnings over the coming quarters and years. Despite increasing interest rates, the global search for reliable income continues unabated as investors are continuing to seek premium returns over the liquid market equivalent with less volatility. During the first quarter, we raised $13.7 billion of gross capital. as new and existing investors allocated funds across our broadening platform. Existing investors accounted for more than 90% of our direct capital raised during the first quarter, and we expect this general trend to continue as we remain largely under-penetrated with our existing investor base. We believe our continued strong growth reflects our investment performance, the continued scaling of our existing strategies, and our expanding offering of new investment strategies and solutions designed to serve our clients. We continue to aggressively expand in all three of our distribution channels, institutional, retail, and insurance, to add investors and to capitalize on the long-running growth trends in these markets. Notable highlights for the first quarter included additional closings for several commingled funds in the market, a $1.1 billion first close on our sixth European Real Estate Opportunistic Fund, $900 million for our sixth Asian Special Situations Fund, $1.1 billion across our two landmark secondaries funds, $600 million for our Special Opportunities Fund, and $400 million for our new APAC Direct Lending Fund. Our perpetual capital funds also continue to scale, and in the aggregate, we're 63% higher year over year, reaching $83 billion, or more than 25% of our AUM. One notable first quarter highlight was the reopening of our core alternative credit open-ended fund, where we raised an additional $1.1 billion. Our former Black Creek non-traded REITs, now branded as ARIES REITs, also continue to scale and benefit from being part of the ARIES platform. For the first quarter, our two non-traded REITs saw inflows totaling $900 million and performance continues to be strong. Our credit interval fund also continues to scale with more than a half a billion dollars of new commitments and collectively our perpetual capital flows totaled 5.8 billion in the first quarter. So looking out over the next 12 months, we expect to have more than 25 different commingled funds in the market, including several of our largest flagship funds expected to launch toward year end. We expect 2022 will be a solid year of fundraising. but the timing of these large flagship fundraisers will ultimately dictate the final tally for this year versus next year and in relation to last year's record fundraising levels. We ended the first quarter with $325 billion in AUM, 57% versus the same period a year ago. The vast majority of our AUM growth continues to be organic, but we have made strategic acquisitions in segments that we believe are experiencing significant investor demand, and that present attractive growth opportunities. A great example of this is the acquisition of our new infrastructure debt platform, which closed during the first quarter. We believe that infrastructure needs globally will be significant in the coming decade, driven by population and economic growth, increasing privatization of infrastructure assets, the global energy transition, and the shift to sustainable and digital infrastructure. The team is integrating well We're having positive fundraising discussions and we expect to have more to report on this next quarter. We believe that our infrastructure debt business is uniquely positioned to meet the need for capital in this space by offering a variety of credit solutions across industries and geographies. We continue to expand our Aries Wealth Management Solutions business, which we believe is the second largest wealth distribution platform owned by any alternative manager. The group now has over 105 professionals, and we are seeking to expand our geographic reach into new overseas markets and to enhance our capabilities. We continue to make progress increasing our distribution with wire houses and large private banks, and we expect to see this begin to reflect in fundraising later this year. On the new product front, we leveraged our secondary solutions experience to launch a new secondary private markets fund with more than $250 million, including the seed backing of several institutional investors. In addition, we filed for a new non-traded BDC, which is an area where we have significant experience as one of the largest BDC managers in the country. We continued our momentum in the first quarter, raising over $2 billion in the retail channel, and our retail AUM now stands at $56 billion at March 31. We expect retail fundraising will continue gaining momentum in the coming quarters and years. Despite the seasonality and volatility that I discussed earlier, we were still active making investments across our strategies during the first quarter. Certain markets were more impacted temporarily by volatility, and this created trading and special situations opportunities for us, whereas other markets remained active, just driven by strong secular trends. We demonstrated the flexibility, scale, and breadth of our investment capabilities as we invested more than $16 billion for the first quarter, which compares to just under $13 billion a year ago. In credit, we experienced a 30% year-over-year increase in deployment activity. We continue to focus on high quality franchise assets that we expect will continue to grow and perform well throughout market cycles. To that point, Earlier this week, we entered into an agreement where our credit funds will purchase a $2.4 billion middle market direct lending portfolio from Annalee Capital Management. As a major player in the direct lending sector, we knew this portfolio quite well, and this portfolio acquisition will serve to accelerate our deployment, provide incumbency benefits on new portfolio names, and further solidify our relationships with existing and new sponsors. Deployment across real estate was also strong in the first quarter, up 90% year over year, including the additional deployment we're seeing in our recently acquired industrial funds. In terms of fund performance, rising inflation and interest rates had only a modest impact on certain segments of our portfolio for the first quarter. Real estate continued its strong performance as the U.S. real estate equity composite generated gross returns in the first quarter of 10.4%, and 68.1% for the last 12-month period. And our European real estate equity composite had gross returns of 5% in the quarter and 32% for the last 12 months. Our U.S. and European real estate portfolios continue to benefit from an overweighting to industrial and multifamily properties with significant underweights in office, retail, and hospitality. In our non-traded REITs, the performance remains excellent with AI REIT generating a first quarter net return of 17.2%, and A REIT generating a first quarter net return of 7.5%. The performance in our non-traded REITs was driven by the strong trends in industrial and multifamily property types, sub-market selection across our portfolios, high rent growth and utilization rates, and higher new rental rates on completion builds above our underwriting base cases. All of these factors led to strong growth in net operating income across our assets. Within credit, our private credit strategies generated strong returns in the quarter. Our flagship U.S. direct lending fund, Aries Capital Corporation, generated a net return of 2.7% in the first quarter and 19.1% for the last 12 months. Our European direct lending strategy generated steady gross returns of 2.3% for the quarter and 12.7% for the last 12 months. Our performance benefited from our asset selection with a focus on defensive industries along with a predominantly senior secured floating rate portfolio. In liquid credit, we outperformed our benchmarks in our high yield and global multi-asset strategies for the first quarter and 12-month periods with slight underperformance in syndicated loans in the first quarter, driven by the inclusion of high-yield baskets in some of these portfolios. And in Asia, our special situations fund composite generated a gross return of 0.6% in the quarter and 18.1% for the last 12 months. Our private equity returns continue to outperform the volatile public equity markets. Our ACOF composite generated gross returns of negative 1% in the first quarter and positive 30% for the 12-month period, while Aries Special Opportunities generated gross returns of 2.4% in the first quarter and 36% for the last 12 months. Our secondary strategies also continued their strong performance, with private equity generating gross returns of 4.6% for the quarter and 43.5% for the trailing 12-month period, while real estate generated gross returns of 12.2% for the quarter and 54.5% over the trailing 12 months. And with that, I will now turn the call over to Jared to walk through the first quarter financial results. Jared?