Ares Management Corporation

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 the Q&A session. Before we begin, I want to remind you the 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 area's fund. 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. Note we plan to file our form 10Q early next month. This morning we announced we declared our second quarter common dividend of 77 cents per share on the company's Class A and non-voting common stock, representing an increase of 26% over dividend for the same quarter a year ago. The dividend will be paid on June 30, 2023, 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.

Thanks, Carl. Good morning, everyone. I hope everybody's doing well. Following a volatile 2022 in the equity and debt markets, transaction activity in the first quarter got off to a slow start and was uneven across various markets that we participate in. We began to see some signs of thawing as the quarter progressed, but the dislocation in the banking sector late in the quarter created considerable uncertainty about the banking system, the economy, and ultimately the path of interest rates. Fortunately for Aries, our asset light business model tends to insulate us from balance sheet driven volatility and our long-term investment capital enables us to be opportunistic when other market participants retrench. For the first quarter, our business metrics continue to show strong year-over-year growth, and we're on track for a more significant fundraising year with seven of our largest commingled funds expected in the market this year. In the first quarter, we raised $16 billion in new fund commitments and ended the quarter with $360 billion of AUM. We also generated strong year-over-year growth of 25% in management fees, and 24% in fee-related earnings, while delivering a strong quarter of fund performance for our investors. Our first quarter realization activity was seasonally light, but our net accrued performance receivable continues to build, and we remain on track with our original European waterfall net realized performance income guidance for this year and next year, as Jared will discuss later. We continue to see robust investor demand for alternative private capital offerings. In the market, we're observing a flight to larger, higher quality managers as investors are consolidating their allocations with preferred managers. Many of our largest funds with first closes are seeing significant commitments that represent half or more of the targeted fund size, and the pipelines of investors working toward closing is encouraging. We also benefit from having a high re-up and crossover rate from existing investors. For the first quarter, over 90% of our $14 billion in direct capital raised was from existing ARIES investors. As we outlined last quarter, we're actively raising our sixth European Direct Lending Fund and our second Alternative Credit Fund. For our sixth European Direct Lending Fund, we've seen robust demand from investors and have accepted to date and anticipate through early Q2 subscriptions that will bring the total first close to more than 8.5 billion of LP commitments. This amount includes subscriptions of 4.7 billion accepted through the end of the first quarter. We continue to see strong fundraising momentum for this fund and anticipate that at final close, the fund will exceed the predecessor fund, which had 11 billion euros of LP commitments, and 15 billion euros in total capital, including fund leverage. Our second alternative credit fund is also seeing significant demand. As a reminder, our alternative credit strategy deploys flexible capital focused on large, diversified portfolios of assets that generate contractual cash flows. We've accepted subscriptions to date and anticipate through May a total first close of approximately $3.5 billion. This includes $1.8 billion of commitments closed through the end of the first quarter. With a robust demand for this fund, we expect commitments to this fund to easily exceed that of its predecessor, which totaled $3.7 billion, and we're targeting a final close later this year. This fund, like its predecessor fund, carries a unique charitable endeavor tied to our performance fees, where 10% of the carried interest for closed-end funds and 5% of the incentive fee for the Open End Fund will be donated to support global health and education initiatives. These contributions are split equally between our investment team and ARIES. Inclusive of the fund's first closing, the Alternative Credit Platform will have over $10.5 billion of capital designated with this charitable tie-in, and based upon performance to date, Our predecessor alternative credit funds have already reached approximately $10 million for potential charitable donations. In our secondaries business, we entered into a credit secondaries joint venture with a large strategic investor with initial capital of approximately $1 billion. We believe that this well positions us to be a market leader in the growing credit secondary sector. particularly due to our leading private credit franchise, knowledge, insights, and relationships with middle market companies and sponsors. We intend to further scale our presence in this new strategy with the recent launch of our first credit secondaries commingled fund with a first close expected later this year. This is another great example of the types of product extensions and growth that we can bring to acquired platforms shortly after acquisition. With respect to our other fundraisers, we're on track to hold a sizable first closing for our third U.S. Senior Direct Lending Fund, either late Q2 or early Q3. As a reminder, our second fund had $8 billion in LP commitments and approximately $14 billion in total capital, including fund leverage. We also anticipate first closes for our second Climate Infrastructure Fund our third infrastructure secondaries fund, and our seventh corporate private equity fund over the next several quarters. Later this year, we expect to launch our third U.S. junior capital direct lending fund with a first closing expected early next year. And overall, we expect to have nearly 30 different commingled and perpetual capital fund offerings in the market this year in addition to our managed accounts and CLOs. Finally, last week we priced the IPO of our second SPAC, Ares Acquisition Corp 2. We saw significant demand for the offering with the $400 million base deal upsized to $450 million. The underwriters partially exercised their over allotment option to get to a final close of $500 million. At the end of the closing, AAC was the second largest US IPO this year and the largest SPAC IPO since January of 2022. And we believe that this is a strong validation of our differentiated platform and approach to this asset class. With our strong initial investor demand and robust fundraising pipeline, we're already seeing a rebuilding of our shadow AUM, which increased from $42 billion at year end to over $50 billion at quarter end. With our positive outlook for continued fundraising strength in the coming quarters, we expect to see further increases in our available capital, enabling us to be more opportunistic with our deployment in what we believe is an attractive investment environment. In the wealth management channel, we're excited to announce that we've recently launched our non-traded BDC, Area Strategic Income Fund, or ACIF. We also remain on track to continue adding distribution partners for our U.S. products, and we're expanding our retail distribution and products globally, including planned dedicated vehicles targeting the European and Asian regions later this year to take advantage of our credit expertise. While we, like others, continue to experience slower flows into our two non-traded REITs, unlike others, our net inflows remain positive in the first quarter, with a combined approximately $350 million of gross quarterly proceeds, inclusive of our 1031 exchange program, versus approximately 200 million of quarterly redemption requests. We believe that success in the retail market will ultimately gravitate to a handful of all players that have attractive products across all the private asset classes, a global presence and large distribution and service teams who can provide education and thought leadership to financial advisors and their clients. With our continued expansion in products and distribution, and the launch of our retail education portal, Access Aries, in June, we believe that we're cementing Aries as one of the leaders in the alternative retail market. From a deployment perspective, the first quarter was, as expected, slower across many of our strategies due to typical seasonal factors and decreased market activity. That said, the $12.9 billion of gross deployment in the quarter was in line with our internal expectations at the beginning of the year. And we remain on track with our growth objectives for fee paying AUM for the year. We believe that our private credit strategies are taking market share in a smaller pool of transaction opportunities. And we expect that this will pay dividends as more issuers and sponsors experience the benefit and reliability of our flexible capital solutions. Our pipelines are building. in our more opportunistic strategies that often see higher deployment in dislocated markets. In alternative credit, the investment pipeline is very strong, as our team is seeing numerous opportunities out of the regional banks, including asset portfolio sales and regulatory capital trades, in addition to their normal pipeline of asset-backed transactions. In our private equity group, our special opportunities team is seeing a significant pickup their pipeline as banks and other traditional providers retreat from the market we're seeing a growing number of opportunities from companies that need solutions as they struggle to amend and extend their capital structures in real estate we're starting to see compelling opportunities from fund complexes that need liquidity to meet redemption requests the most interesting opportunities currently in the pipeline are in the debt markets where we can step into the funding gap for refinancing opportunities and provide fresh capital on a structured basis. In direct lending, we're beginning to see more deal activity and some larger transaction opportunities, which should set us up for an increase in deployment in the second quarter. The expected investment returns for this vintage of private credit are attractive, with meaningfully improved terms more conservative capital structures, higher base rates, and significant excess credit spreads. In our secondaries business, we're seeing a growing number of both LP and GP-led opportunities as certain LPs seek liquidity and certain fund sponsors look to accelerate liquidity into legacy fund vehicles. So overall, we have many strategies that can take advantage of constrained liquidity in the market. With $88.6 billion of available capital, and additional closes for several of 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. This is also a very attractive environment for our affiliated insurance platform to be building its annuity origination business. We now have over $7.5 billion of AUM at Aspita, and over 95% of the portfolio is protected from surrender charges and without the issues associated with a large legacy book. Going forward, we expect to continue to raise third-party capital to further scale our affiliated insurance platform. We believe the strong secular growth that we continue to experience across our business is ultimately a result of our strong and consistent fund performance. Our fund's portfolios are generally continuing to see cash flow growth with positive fundamentals. Despite higher interest rates flowing through to our portfolio companies, we continue to see solid cash flow growth, low defaults, and resilience in our credit metrics. For example, our U.S. and European direct lending portfolios continue to see mid to high single-digit year-over-year EBITDA growth. In direct lending, our loan-to-value statistics remain steady between 43% and 50% for the U.S. and Europe. At Aries Capital Corporation, which is a good proxy for our U.S. direct lending business, non-accruals totaled 2.3% of the portfolio at cost and 1.3% at fair value, which continue to be below our 15-year historical averages. These credit metrics remain at benign levels despite the significant increase in base rates. As a result, our direct lending funds have experienced a significant increase in coupons, with a de minimis offset from credit-related issues. Our global real estate portfolio continues to see strong but moderating rental growth and high occupancy rates. Our highest conviction sectors of industrial and multifamily account for more than 75 percent of the portfolio's gross assets, with another 12 percent invested in our favored alternative sectors, including self-storage, triple net lease, and single-family rental. In industrial, On a same store comparable basis, we saw rent growth of approximately 70% over the last 12 months and more than 90% tenant retention across our industrial portfolio. In multifamily, our same store releasing spreads continue to see 10% or better annual growth over the last 12 months. From an allocation standpoint, we continue to be meaningfully underweight to office, retail, and hospitality assets. Our U.S. office equity exposure is only 2% of our global real estate portfolio. And lastly, in our private equity group, our corporate PE portfolio continues to perform well as year-over-year EBITDA increased 10%, including growth supported by accretive acquisitions and synergies. 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. Hello, everyone, and thank you for joining us today. As Mike stated, we once again experienced strong growth in our financial metrics, including management fees, fee-related earnings, realized income, AUM, and FPAUM compared to the first quarter of 2022. Our management fee-centric and FRE-rich business model continues to deliver strong results despite the significant market volatility in the first quarter stemming from rising interest rates, continued geopolitical uncertainty, and the challenges in the banking sector. In addition, the sizable amount of capital that we've raised year-to-date has strengthened our available capital position and sets us up for greater deployment-driven growth in our FRA and margin expansion during the second half of this year. Starting with revenues, our management fees totaled over $600 million in the quarter, an increase of 25% compared to the same period last year, primarily driven by deployment of our available capital. Other fee income of approximately $20 million was largely in line with the first quarter of 2022. FRE totaled $255 million, an increase of 24% from the first quarter of 2022, driven by higher management fees from deployment over the last 12 months. In a market environment that continues to be characterized by volatility and lower transaction volume, our ability to grow through management fees in FRE is a significant differentiator for ARIES. Our FRE margin for the first quarter totaled 40.6%, roughly a 70 basis point improvement from the 39.9% in the fourth quarter, but in line with the 40.6% margin from the fourth quarter, excluding the large impact from FRPR. As we stated on last quarter's call, we expect to see margin growth resume in the second half of 2023, with a larger step up in 2024 and 2025 as we absorb the impact of our historical hiring and deploy the significant capital that we have raised. and will continue to raise over the next several quarters. As such, we continue to be on track to achieve our goal of a 45% run rate FRE margin by year-end 2025. Our realization activity was limited in the first quarter, with net realized performance income of over $7 million, as equity market volatility and significantly lower transaction volume reduced monetization opportunities. We are optimistic that once the market has clarity around peak Fed funds rate and the direction of the economy, we could see an increased monetization opportunity. Despite limited European waterfall realized income in the first quarter, we continue to remain on track for the $100 million we expect in 2023, which is largely derived from credit and credit-like funds. For 2023, we currently have visibility on at least $20 million of European waterfall net realized performance income in Q2, with the remainder likely coming from tax distribution-related payments from our funds in the fourth quarter. Generally, we expect 60% to 80% of these types of distributions to be recorded in the fourth quarter, and then most of the remaining distribution to occur in the second quarter once tax payments are finalized. We do expect less seasonality in our European waterfall realizations to start in 2024 and beyond as we reach the harvest stages of the fund lives for certain funds. Realized income in the first quarter totaled $254 million, up 15% from the year-ago period. After-tax realized income per share of Class A common stock was 71 cents, 9% higher than the level of the first quarter of 2022. As of March 31st, our AUM totaled $360 billion compared to $325 billion a year ago. Our fee-paying AUM totaled $234 billion at quarter end, an increase of 18% from the prior year. Our year-over-year growth in fee-paying AUM was primarily driven by meaningful deployment across our U.S. and EU direct lending. special opportunities, and alternative credit strategies, which all pay management fees on invested capital. As Mike mentioned, our expectations assumed a slower deployment environment in the first quarter, and our actual results were in line with our expectations for fundraising, deployment, and quarter-ending AUM and fee-paying AUM. As Mike highlighted, we're rebuilding our shadow AUM, which sets the stage for higher deployment and future management fee growth. Our AUM not-yet-paying fees available for future deployment totaled $51 billion at quarter end, which represents over $480 million of incremental potential future management fees. Our incentive-eligible AUM increased by 10% from the first quarter of 2022 to $211 billion. Of this amount, $67 billion was uninvested at year end. In the first quarter, our net accrued performance income rose to $882 million, an increase of $50 million from the previous quarter. Of this $882 million of net accrued performance income at year end, $614 million, or nearly 70 percent, was in European-style waterfall funds, of which $351 million is from funds that are past their reinvestment period. Regarding fund performance, despite an extended period of market volatility, our strategies generally continue to perform well relative to their benchmarks. While the full performance details are in our earnings presentation, we wanted to highlight some of our larger fund strategies. In credit, all our key composite strategies across U.S. and European direct lending and alternative credit delivered positive gross performance for the first quarter ranging from 1% to 4%, with 4% to 11% returns for the last 12 months. In private equity, Both of our core investment strategies have meaningfully outperformed the public equity and high yield markets over the past year. These strategies are designed to take advantage of the volatility in the markets. Our special opportunities composite generated a gross return of 3.2% in the first quarter and 10% over the last 12 months. Our corporate private equity composite was down a modest 70 basis points in the quarter, but up more than 4% for the last 12 months. Within real estate, Our U.S. real estate equity composite gross return modestly declined 70 basis points for the quarter, but was up slightly over the last 12 months as cash flow growth was largely offset by increases in cap rates. Lastly, as we announced last quarter, we closed the purchase of the remaining 20% of Aries SSG's management business that we didn't already own. Our business across the region now has nearly 60 people in eight offices managing approximately $12 billion in AUM. We hope to expand our geographic reach and product set across the Asia Pacific region over time under a rebranded Ares Asia. We're investing and expanding our investing capabilities to mirror what we have in the US and Europe, including recent growth initiatives in real estate, growth equity, secondaries, alternative credit, and infrastructure. In addition, to our regular quarterly materials, we posted a supplemental deck which reclassifies historical financial results to reflect the Aries SSG business within our credit group. Since this business is now wholly owned by Aries, we include the former Aries SSG credit funds within our existing credit segment. Finally, before I pass the call back over to Mike, I wanted to reiterate that based on our fundraising and deployment outlook, we remain on track with our growth objectives and the financial guidance that we provided on our last earnings call.