Ares Management Corporation

Hello and welcome to Aries Management Corporation's fourth quarter and year-end earning conference call. At this time, all participants are in listen-only mode. As a reminder, this conference call is being recorded on Thursday, February 9th, 2023. I will now turn the call over to Carl Drake, Head of Public Markets Investor Relations at Aries Management. Please go ahead.

Good afternoon and thank you for joining us today for our fourth quarter and year-end 2022 conference call. I'm joined today by Michael Arroganty, 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 and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any ARIES fund. During this call, we will refer to certain non-GAAP financial measures, which should not be considered an isolation from or 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. Note that we will plan to file our Form 10-K later this month. This morning we announced that we declared our first quarter common dividend of 77 cents per share of its Class A and non-voting common stock, representing an increase of 26% over our dividend for the same quarter a year ago. The dividend will be paid on March 31st, 2023 to holders of record on March 17th. Jared will provide additional color on the drivers of this significant increase in our quarterly dividend later in the call. Now I'll turn the call over to Michael Arrighetti, who will start with some quarterly and year-end financial and business highlights.

Thanks, Carl, and good afternoon. Hope everybody's doing well. Despite significant volatility and uncertainty in the markets throughout the year, we generated exceptional growth and strong performance across our financial and operational metrics. Year over year, we grew 32% in management fees, 40% in fee-related earnings, and 30% in after-tax realized income for Class A common share, while also delivering a strong year of fund performance for our investors. This financial outperformance during challenging markets isn't new to ARIES, as our management fee-centric business model and flexible investing approach have enabled us to accelerate our growth during past turbulent market cycles and recessions. The strong relative performance of alternative investments last year compared to the publicly traded equity and fixed income markets only further reinforces our belief in the benefits of private market investing. Investors remain significantly under-allocated to alternatives, which represent just over 10% in total global AUM. With a robust fundraising pipeline and our expanded investment capabilities heading into 2023, we believe that we're well-positioned for continued strong growth as we expect investors to increase their alternative allocations. While 2021 was a transformational year for our platform with multiple strategic acquisitions, 2022 was a year of integration and platform building to position the company for future growth. During the year, we added approximately 450 professionals with 150 in origination and investing and 85 in fundraising and wealth management. including new senior wealth management heads in Europe and Asia Pacific. We also spent the year enhancing our retail platform through product expansion, growing our distribution capabilities, and deepening relationships with strategic distribution partners. Our affiliated insurance business, Aspida, began directly originating annuity contracts in late June and finished the year with significant growth and momentum. We also continue to expand our relationships with existing and new institutional investors and experienced a significant increase in our institutional strategic partnerships. For the year, we added over 100 new institutional investors while seeing over 90% of inflows coming from existing investors, either through re-ups or commitments to new products. At the end of 2022, nearly 90% of our AUM was from investors that held multiple funds managed by ARIES. We ended the year with $352 billion in AUM, an increase of 15% from 305.8 billion at the end of 2021, driven primarily by fundraising of $57 billion, including more than $12 billion in the fourth quarter. Although we didn't have many large commingled funds in the market last year, our fundraising benefited from a growing base of capital from non campaign fund sources, including our perpetual funds, certain managed accounts and other smaller funds. At that point of the $57 billion of fundraising in 2022, over 40 billion was capital raised from outside of our 20 largest institutional commingled fund families. We also continue to innovate and offer new strategies to our investor base. For example, More than 40% of our fundraising last year was from new strategies or products that didn't exist five years ago at Aries. During the fourth quarter, we held notable fundraisers, including a first close on our fourth U.S. opportunistic real estate fund of more than $1.4 billion, and a final close on infrastructure debt fund five, which reached approximately $5 billion of committed capital, including related vehicles. We believe that our Infrastructure Debt Fund 5 is the largest infrastructure sub-debt fund ever raised and is a testament to our leadership in that segment of the market. Also, our non-traded BDC, ASIF, raised $847 million in equity commitments in a private placement in November through January and closed on a $625 million leverage facility. While we experienced a slowdown of net inflows into our two non-traded REITs, flows remained positive with a combined $440 million of gross quarterly proceeds inclusive of our 1031 exchange program versus 157 million of quarterly redemption requests. We believe that our all-weather, careful investment approach, lower use of leverage, and sticky capital within our 1031 exchange program benefits our fee-paying AUMs. In addition, we're still growing the distribution capabilities around the non-traded REITs. In December, we added a second large wire house for distribution, and we expect to add two or more wire houses or private bank relationships for our suite of retail products in the first half of this year. We anticipate additional inflows from these new relationships over time as we continue to ramp our sales efforts. We are firm believers that the long-term growth opportunity for alternative products in the retail channel will be robust. Retail investors are meaningfully under-allocated to alternatives compared to some institutional investors, and key allocators across the retail space are looking to meaningfully expand their exposure to alternatives. Over time, we intend to offer drawdown and evergreen style strategies across our primary asset classes, suited for both mass affluent and high net worth investors. As you may recall, we didn't expect 2022 to be a record fundraising year for us without many of our largest fund families in the market. For 2023, driven by the recent launch of several of our largest commingled fund families, we believe our aggregate fundraising will be well in excess of last year's and will approach our record in 2021 of $77 billion. In the aggregate, We expect to have approximately 30 commingled and perpetual life funds in the market this year, including seven of our 10 largest institutional commingled funds. We're observing a flight to larger, higher quality managers as investors are consolidating their allocations with preferred managers. Not only does this scale benefit us in fundraising, but it could enhance our competitive advantages as other players have less capital to deploy. As an example, Late last year, we launched our sixth European Direct Lending Fund, and most of the predecessor fund's largest investors are working towards making a commitment in the first close. We expect to have a substantial first close in this fund in late Q1 or early Q2. We also recently launched our third U.S. Senior Direct Lending Fund and expect to see similar demand for that fund as well with a first close slated for the second quarter. The total capital for the previous vintages for these two European and US direct lending funds was just over $30 billion combined, including fund leverage. Additionally, the second vintage of our alternative credit fund is in the market, and we anticipate a first close in late March or April. As a reminder, our alternative credit strategy deploys flexible capital focused on large, diversified portfolios of assets that generate contractual cash flows. The fund carries a unique performance fee structure where 10% of the carry, half from the investment team and half from ARIES, goes towards charitable initiatives tied to global education, fighting global hunger, and the ARIES Charitable Foundation. Initial investor engagement has been very active across all three of these large private credit funds, and we expect strong demand for all of these products. We recently launched fundraising for our seventh corporate private equity fund, which we believe is particularly well suited for the current volatile market environment due to the team's flexible approach and ability to invest in distressed for control investments in addition to traditional buyout transactions. Turning to deployment, despite the lower overall transaction activity, our market share gains in private credit continue to drive strong aggregate investment activity across the platform. In Q4, we deployed 21.8 billion of capital, representing a 19% increase compared to the third quarter. On a full year basis, we deployed 79.8 billion, which was flat compared to the 79.7 billion we invested last year, which we believe is pretty remarkable given the slowdown in overall deal activity year over year. This drove our fee-paying AUM to 231.1 billion a 23% increase compared to last year. We continue to see very attractive investment opportunities across our private credit funds with all in yields and fees on first lien direct loans of 10 to 13% with good covenant packages. In opportunistic real estate equity, where we just held a first closing in the fourth quarter, we're beginning to see a small number of investment opportunities come to market driven by liquidity pressures. In our PE business, our special opportunities team has been active with over $650 million deployed in a quarter in a mix of rescue capital, enterprise value-enhancing transactions, and stressed or distressed public credit purchases. In our secondaries business, we're seeing a growing number of both LP and GP-led opportunities as certain LPs seek liquidity and fund sponsors seek to accelerate liquidity into legacy fund vehicles. Overall, among our many strategies that can take advantage of constrained liquidity in the market, we're seeing more activity for our private capital solutions. Going forward, with nearly $85 billion of available capital and several large first closes for our large commingled products in the coming months, we expect to have a strong capital base to take advantage of the market opportunities for our clients. I mentioned earlier that our affiliated insurance platform is gaining momentum after launching the annuity origination business in June. In the second half of 2022, Espida nearly doubled its AUM to $6 billion, up from $3.6 billion in June, including an additional $1.4 billion in the fourth quarter. We're now building an attractive portfolio of assets without the issues associated with a legacy back book. As we seek to raise additional third-party capital, We expect to scale our affiliated insurance platform further in the coming years. Our portfolios are generally defensively positioned as we head into the new year. With nearly 60% of our invested assets in floating rate credit, we continue to benefit from rising interest rates. And these assets are generally in the top half of the capital structure, which further enhances our positioning. In our U.S. and European direct lending portfolios, we continue to see solid fundamentals, low defaults, and resilience in our credit metrics, with weighted average loans to value at year-end of 46% and 49.5% respectively, as well as continued strong EBITDA trends with last 12 months comparable growth of 9% for both the U.S. and European portfolios. Our global real estate portfolio continues to see strong rental growth and high occupancy rates, with our highest conviction sectors of industrial and multifamily, which comprises approximately 77% of our gross assets. In addition, other adjacent high conviction sectors, such as single-family rental, self-storage, and life science accounted for another 11% of gross assets. Our non-traded REIT, AREIT, reported multifamily rent increases on new leases and renewals of 13.1% and 11.6% respectively. In our AIREIT industrial-only portfolio, 99% of our space is leased, and during the year, over 10% of the portfolio issued new or renewed leases at an average increase of 47% growth above the comparable or previous lease rate. Our global real estate portfolio overall continues to be underweight in office with less than an 8% allocation across the global portfolio, And most of our exposure in the US is in the real estate debt that's largely senior than the capital structure. Our private equity groups portfolios continue to perform with year-over-year EBITDA growth of 9% and are positioned in more defensive sectors like healthcare, business services, and light industrials. We believe that the strong secular growth that we continue to experience across our business is ultimately a result of our strong and consistent performance. In 2022, nearly all of our strategy composite returns outperformed comparable public markets for the year. And now I'd like to turn the call over to Jared for comments on our financials and additional details on the performance of our funds. Jared? Thanks, Mike.