Ares Management Corporation

Welcome to ARIES Management Corporation's third 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 Tuesday, October 31st, 2023. I will now turn the call over to Carl Drake, head of Public Market Investor Relations for ARIES Management.

Good morning, and thank you for joining us today for our third 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 senior professionals with us today who will be available during the Q&A session. 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 in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our third quarter 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 plan to file our Form 10-Q in the first week of November. This morning we announced that we declared our fourth quarter common dividend of 77 cents per share in the company's 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 December 29th, 2023 to holders of record on December 15th. Of note, we plan to update investors about our new quarterly dividends for 2024 during our fourth quarter earnings call early next year. Now I will turn the call over to Michael Arrighetti.

Thank you, Carl, and good morning. Before we begin, I wanted to take a moment to acknowledge the horrific terrorist attacks that occurred in Israel and the subsequent loss of lives. Our hearts go out to all the innocent people and for the pain and suffering on both sides throughout the region. We are all holding on to hope for peaceful resolution. Now, I'd like to begin with some market commentary and quarterly business and strategic highlights. During the third quarter, the markets adjusted to the expectation for rates to stay higher for longer, while the underlying economy remained resilient with robust GDP a strong labor market, and continued modest growth in corporate profits. We're seeing the lag effects from higher rates and this slow and uneven economic growth play out across the global markets that we invest in. Transaction activity remains slower than usual due to the higher cost of capital and valuation disparities among buyers and sellers, yet there's significant pent-up demand and a large amount of aging private equity dry powder available to be invested. We're seeing our private pipeline build generally with higher quality assets and strong growth characteristics coming to market. We're also seeing a growing need for creative liquidity solutions, recapitalizations, and rescue financings, and more interest in secondaries. With this economic backdrop, it remains a compelling time to invest across private market assets with defensive characteristics. particularly within private credit, as we see risk-reward characteristics that are as favorable as we've seen in many years. Our quarterly results continue to demonstrate our strong growth and resiliency in these slower and more challenging market environments. We raised $21.9 billion in new commitments in the quarter, our second highest fundraising quarter in the history of our firm, and we've now raised $53.4 billion through the end of the third quarter. We continue to benefit from our existing institutional investors who re-up or cross over into new ARIES fund products along with new investors who recognize our consistent fund performance and leadership in managing private assets. We also saw an increase in flows from our wealth management channel supported by our newly launched non-traded BDC. Fund performance across our primary investment strategies also continues to be a highlight. as approximately three-quarters of those strategies performed well compared to their respective relative public indices or exceeded their annualized target returns in the third quarter. We also incrementally increased our third quarter deployment, which supported growth in our management fees and fee-related earnings. For the first nine months, our management fees and fee-related earnings each grew by 20% or better compared to the same period last year. Now let me provide an update on our three private credit funds, which are all on track or have already closed at levels in excess of prior vintages. In the third quarter, we held the first close for our third U.S. Senior Direct Lending Fund of nearly $6.5 billion in equity commitments, plus nearly $2 billion in committed fund leverage. The first closing of LP commitments for this fund exceeded 80% of the total equity commitments for the predecessor fund. With additional closes expected into the first half of next year, we expect to meaningfully exceed the prior fund size of $8 billion in equity commitments and $15 billion in total investable capital. Overall, our US direct lending business raised $11.6 billion in the third quarter, which brought our total AUM in this strategy to nearly $118 billion. As a market leader, we believe that our global direct lending business continues to have significant white space, as the private credit markets are meaningfully undersized compared to the $5 trillion of private equity AUM. We also raised an additional 750 million euros for our sixth European direct lending fund in the third quarter, and almost 800 million more euros in October, bringing total commitments to 9.9 billion euros to date. We have line of sight to over 11 billion euros of equity commitments by year end, which would equal or exceed our prior fund vintage. We expect to surpass our prior vintage with additional closings from investors in our pipeline by early in the second quarter of 2024. With over 85 investment professionals located in six offices across Europe, we believe that we have the largest and most direct lending franchise on the continent, managing over 60 billion of AUM. With our leading alternative credit strategy, Pathfinder 2 closed approximately 2.2 billion in the third quarter, bringing total commitments to 5.8 billion at quarter end. And as we publicly announced yesterday, Pathfinder 2 held its final close at its hard cap of 6.6 billion, nearly double the size of the predecessor fund. We experienced significant investor demand, hitting our hard cap in only seven months since the first closing. In addition to Pathfinder 2, our open end core alternative credit fund raised $750 million in the quarter, bringing total commitments to over $4.2 billion. The strong investor demand for alternative credit strategies is driven in part by filling the gaps created by a pullback from traditional providers, along with the structural changes that we're witnessing in the banking industry. With more than $32 billion in AUM, our alternative credit business is a leader in the private non-rated and illiquid segment of the asset-backed market and is poised for growth in what we believe is at least a $4 trillion global addressable market. In Asia credit, we raised nearly $400 million in the quarter, including an approximate $200 million final close in Aries SSG Capital Partners 6, bringing final commitments to $2.4 billion, including a sidecar fund. We're seeing strong economic trends and robust corporate earnings growth in India and Australia, which account for 60% of our investments across the region. And we're seeing a growing opportunity set for financing solutions for sponsor-led acquisitions in these markets. Within real assets, we raised more than $500 million in a European real estate debt mandate, which now totals over $1 billion. And we anticipate that this strategy will continue to grow. Our real estate debt business now exceeds $11 billion, and we believe the team is well positioned for further growth due to investor demand and the current acute need for capital in the industry. Our second climate infrastructure fund raised another $200 million in the quarter, plus an additional $300 million in October. And this completed the fund's first close with total equity commitments of nearly $1.1 billion, or approximately 80% of the total equity commitments in the prior fund vintage. We currently have over 30 funds in the market, and by year end, we expect to have first closes in our seventh corporate private equity fund, our inaugural credit secondaries fund, and our third infrastructure secondaries fund, as well as additional closings in our larger funds, such as our fourth US opportunistic real estate equity fund, our second climate infrastructure fund, and our sixth European direct lending fund, as just discussed. Through the end of October, we have now raised nearly $58 billion, and we expect total fundraising for the year to exceed $65 billion, well ahead of the $57 billion we raised last year. Throughout next year, we have several of our largest fund series expected to hold first closings for successor funds, including our sixth infrastructure debt fund, our third Special Opportunities Fund, and our third U.S. Junior Direct Lending Fund. While our core fundraising continues to be supported by expanding within the global institutional market, our strategically important insurance and wealth management channels are also poised for growth. Our affiliated insurance business, Aspita, continued its organic growth with new assets of more than $1 billion, bringing total AUM to $10.6 billion by quarter end. We believe investors are attracted not only to ARIES' credit investing expertise, but also the technological advantages that Asfida is bringing to the annuity market. Our growth outlook is promising as we're seeing demand for new annuities, reinsurance flow, and opportunities for block trades, which we would expect to fund largely with third-party capital. We believe that we are on track to meet or exceed our goal of reaching $25 billion or more in Asfida AUM by the end of 2025. Within wealth management, our ongoing objective is to market a limited number of core, semi-liquid institutional quality products through our global wealth management channel. We're well on our way to accomplishing this over the next several years, and today we're one of the largest alternative managers in the wealth industry with over 120 professionals, a footprint across North America, Europe, and Asia, six products, and relationships with nearly every major wire house and private bank. We expect to continue adding strategic partnerships and gain market share as we scale each one of these products. After launching our non-traded BDC, ASIF, primarily on one wire house in June, it has seen steady momentum with approximately $550 million raised in the first three months, including the September flows, which closed on October 1st, bringing total AUM to over $2.7 billion. There are four additional global platforms that we expect will add ACIF in the first half of 2024. And despite a tough market for real estate fundraising, we continue to see net aggregate flows collectively across our two non-traded REITs, including the 1031 exchange programs. Turning to deployment, we invested $16.7 billion in the third quarter. which was up from the $15.2 billion in the second quarter, but down from $18.3 billion in the third quarter of 2022. We're beginning to see signs of large deal activity returning as Q3 was the third highest quarter for $1 billion plus Unitron's deals financed by the private credit markets. While still early and markets remain slower than we'd like, we're encouraged by our fourth quarter to date investment activity and our pipelines. For 2024, we currently expect market activity to improve due to the aging private equity dry powder that is approaching the end of its investment period, growing pressure from LPs to return capital, stronger sentiment among middle market companies, and further pressure on balance sheets and capital structures as rates stay higher for longer. We're also seeing a growing opportunity to partner with the banking sector through our alternative credit business. The bank market continues to be impacted by regulatory changes, asset liability mismatches, and an inverted yield curve, all of which change the way banks participate in certain segments of the market. Over the years, we've developed extensive bank partnerships where we have the opportunity to provide solutions to augment their existing businesses to improve risk weightings and reduce capital charges, while at the same time generate attractive returns for our investors. Our alternative credit team believes that we're in the early innings of these types of transactions, and we're seeing an increase in our collaboration with our banking partners. Finally, we continue to explore inorganic growth opportunities to expand our business through both product and geographic expansion. In October, we closed on the acquisition of Crescent Point, a leading Asia-focused private equity firm with $3.7 billion in assets under management. The Asia Pacific region is a key geographic target for us, and we continue to look at various ways to expand each of our business lines into that region, either through organic team builds or strategic acquisitions. And as you may have seen, we also recently closed a strategic partnership and investment in Vinci Partners, a leading alternative asset manager in Latin America. We've known the Vinci team for over a decade and are excited to collaborate on distribution, product development, and other business opportunities in Brazil and across Latin America. We believe that the Latin American markets are in the very early stages of shifting capital into the private markets, particularly within private credit. This is similar to the trends that we saw in the early 2000s in Europe and what we're seeing now beginning to play out in the APAC region. We'll continue to look for unique and attractive global growth opportunities for our business. And now I'd like to turn the call over to Jared for comments on our financial results. Jared?