Ares Management Corporation

At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Friday, November 1, 2024. I will now turn the call over to Greg Mason, Co-Head of Public Markets Investor Relations for Aries Management.

Good morning, and thank you for joining us today for our third quarter conference call. Speaking on the call today will be Michael Arrighetti, our Chief Executive Officer, and Jared Phillips, our Chief Financial Officer. We also have several executives 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 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 and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in ARIES or 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 later this month. This morning, we announced that we declared our fourth quarter common dividend of 93 cents per share on the company's Class A and non-voting common stock, representing an increase of 21% over our dividend for the same quarter a year ago. The dividend will be paid on December 31st, 2024 to holders of record on December 17th. Now, I'll turn the call over to Michael Arrighetti, who will start with some quarterly business and financial highlights.

Thanks, Greg, and good morning, everybody. I hope you're all doing well. During the third quarter, the macroeconomic backdrop for our business remained constructive as we continued to see fundraising momentum, modestly improving transaction activity, and solid fundamental performance in our underlying investment portfolios. Lower short-term rates are starting to have a positive impact, leading to higher valuations for rate-sensitive assets and increasing real estate transaction activity. The more supportive market tone is showing up in the strength of our pipelines across the firm, and we're optimistic that we'll see increasing transaction volumes over the coming year as the expected rate cutting cycle progresses. During the third quarter, we generated strong year-over-year growth across our financial metrics, including 18% growth in management fees, 24% growth in fee-related earnings, and 28% growth in our realized income. This growth was supported by global deployment of nearly $30 billion, which is our second highest quarter on record. This brings year-to-date deployment to $74.6 billion and should set 2024 up to be a record year. In addition, we raised nearly $21 billion of gross capital during the third quarter. With over $64 billion raised year-to-date, we are also now tracking to have our best year ever for fundraising. We're poised for strong future deployment due to our record level of available capital and an expectation that an improving market will broaden out and strengthen our deployment across even more strategies over the next year. Our fundraising success this year is in part due to the heightened institutional and retail investor demand that we're seeing across our private credit strategies, including global direct lending, alternative credit, real estate debt, and infrastructure debt. as well as strong interest in our liquid credit strategies. While reported private credit fundraising in the market has declined for three years straight, we believe that our differentiated experience is a testament to our market-leading position and long-dated performance through multiple cycles. Investors continue to prioritize investments that can generate durable yield and excess return over the trade and market equivalents, regardless of the absolute level of interest rates. We're also seeing strong interest in a variety of secondary strategies and improving interest in real assets. In the third quarter, we raised $20.9 billion in gross new capital, including more than $13.5 billion across our private credit strategies. Over the past 12 months, we've raised more than $57 billion in our private credit strategies. To touch on a few fundraising highlights in the credit business, in the third quarter, we raised $2.8 billion of equity and debt commitments in a final close for SDL III, our third U.S. Senior Direct Lending Fund. We expect SDL III will have approximately $34 billion of investment capacity, including related vehicles and anticipated leverage. This amount is nearly double the size of our second vintage and reflects our leading franchise in U.S. direct lending. We're already well underway investing this third fund, which currently has 11 billion committed across 195 companies. In the third quarter, we also closed on approximately 2 billion euros of equity investments in our sixth European Direct Lending Fund, bringing total LP commitments to date to approximately 14.5 billion, compared to 11 billion euros for the prior vintage. We anticipate holding a final close for this fund in the fourth quarter, and we believe that this will be the largest European direct lending fund ever raised in the market. We have called more than €3 billion of capital for the fund and are well on our way to building a well-diversified portfolio. In terms of new fund launches, we recently launched the third vintage of our Special Opportunities Fund and expect a first close beginning later in this fourth quarter. We're also working on a number of new products around our sports media and entertainment strategy, including both open and closed end products for institutional and retail investors. We're seeing significant demand from investors seeking access to the growing and differentiated value for various sports related franchises. Our team was an early pioneer in this strategy and has become a trusted partner in a large addressable market, which we estimate is more than $750 billion as professional sports leagues around the globe continue to open up to institutional capital. Fundraising for the third quarter totaled $2.9 billion, including a final close for our fourth U.S. Real Estate Opportunity Fund, which brought the fund and related vehicles to $3.3 billion, a 50% increase over the previous vintage. Our ability to meaningfully scale this latest vintage in a challenging real estate fundraising environment reflects our leading real estate franchise and the relative performance that we've delivered for investors. During the quarter, we completed the first close for our fourth European value-add real estate fund, totaling €1 billion, and we are on pace to exceed the previous vintage, which raised €1.5 billion. And finally, in real estate, with less aggressive competition from the banks and increasingly attractive risk-adjusted opportunities in debt, we continue to see strong demand across our real estate debt strategies, as evidenced by the $1.2 billion that we raised in the quarter, including over $850 million in European real estate debt. We're also seeing strong momentum across our secondaries group as we scale existing strategies and launch new fund series. For example, we recently launched a secondaries product focused on global structured solutions, which seeks to provide financing directly to the general partners of private funds. The fund and related vehicles will soon hold its first close with approximately $700 million in equity commitments, which is already 70% of the fund's initial $1 billion target. We're also actively scaling the third vintage of our infrastructure secondaries fund, and we expect to raise nearly $400 million shortly, which would bring the fund and related vehicles to approximately $1.4 billion in equity commitments, or more than 40% larger than the previous vintage. Our new credit secondaries business is also seeing significant momentum, and the team recently completed Aries' largest credit secondaries transaction to date, a $500 million highly diversified portfolio of credit secondaries fund stakes. The secondaries market is a promising area for Aries when you match the growing need for liquidity with our more than 1,000 sponsor and 2,600 institutional investor relationships around the globe. As many of you know, we continue to be a leader in the wealth channel with accelerating momentum and expanding product suite. Our solutions offer individual investors core private markets exposure, delivering durable income, diversified equity and tax advantage, real assets to the wealth channel globally. During the third quarter, we raised over two and a half billion dollars of equity commitments and nearly $4 billion in total AUM, including leverage in our semi liquid wealth products. Through the third quarter, our year-to-date equity flows into wealth management products totaled over $7 billion, which is more than three times the fundraising pace over the same period last year. Including leverage, we've raised over $11 billion in wealth management AUM through September 30th, and momentum has continued into the fourth quarter. We recently launched our seventh wealth management product, a tax-efficient core infrastructure fund, which successfully raised an initial $400 million in equity commitments in September and October. And lastly, October was our largest fundraising month to date, with approximately $1.2 billion in equity flows across our semi-liquid wealth products. We continue to make meaningful progress expanding our distribution partnerships. We're now on 60 platforms, up 50% in the past year, and we continue to see our products gain traction across the U.S. wirehouses, private banks, RIAs, and other distribution platforms globally. We're pleased with the international expansion of the wealth distribution, as 37% of year-to-date inflows are from outside the U.S., and in total, we have over $32 billion of AUM across our semi-liquid wealth management products, which is a 57% increase from a year ago. When combining AUM from our publicly traded vehicles and high net worth investors in our campaign funds, our total AUM from the retail channel exceeds $88 billion. For the full year, we now expect to end 2024 with total gross capital raised in the mid $80 billion range, well above our 2021 record of $77 billion. Campaign funds or institutional closed-end funds have accounted for approximately one-third of fundraising year-to-date, while SMAs, wealth management, public funds, and ESPEDA accounted for over 50%. We expect our fundraising activities for the remainder of the year and into 2025 to consist of more than 35 active funds, including 15 different campaign funds, along with continued inflows into our perpetual funds and SMAs, CLOs, and through Aspita, our growing insurance affiliate. Turning to our investing activities, new issue activity has moderately improved from earlier this year. This has driven a higher gross to net deployment ratio for our private credit strategies, which totaled 42% for the third quarter. An improvement over last quarter's 38% and up from 28% in the first quarter. In U.S. and European direct lending, we invested nearly $16 billion of gross commitments in the quarter across more than 100 companies, with net deployment totaling nearly $7 billion. Given the breadth of our origination capabilities, we invest across the spectrum of middle market companies, including an increased focus on core and lower middle market opportunities due to the superior relative value currently available in those market segments. We also leveraged our incumbency to extend and expand our relationships with many of our strongest borrowers. During the third quarter, approximately 60% of our U.S. direct lending deployment was with existing borrowers, and we roughly doubled our dollar commitments to these portfolio companies. We believe this illustrates the power of our incumbency and our ability to grow alongside our best performing portfolio companies. By focusing on the lower and core middle markets, we can generate higher risk-adjusted returns with broader coverage and can establish relationships with companies earlier in their growth phases. With an alternative credit, we deployed nearly $3.8 billion in the third quarter, an increase of more than 35% compared to the same quarter last year. With over $40 billion in AUM and a team of 75 investment professionals focusing on both the liquid and illiquid sectors, we believe that we have the largest manager in the higher returning illiquid asset-based credit segment with approximately $22 billion of non-rated AUM. While our team has deep experience with over 30 asset classes in the U.S. and Europe, We focus on investing in relative value, which enables us to hone in on certain asset classes in favor and where scaled capital is required. Most recently, our team has been active across fund finance, residential assets, auto leases, digital infrastructure, and asset management. A couple of great examples include our $1.5 billion joint venture with Cal Automotive for prime auto leases and our role in leading a £755 million sterling preferred equity commitment for Wembley Park, which is a mixed-use neighborhood in London. In addition, our alternative credit team continues to partner directly with banks on a bilateral basis to provide capital relief solutions, including the recent financing agreement that we announced with Investec Bank. It's important to note, though, that we're continuing to scale our $19 billion of liquid investment-grade rated AUM through partnerships with third-party insurance companies and Aspita. We're seeing significant growth in our liquid investment-grade asset-backed segment, which has increased at a 36% CAGR over the past five years. In addition, Aspita continues to generate strong organic growth with more than $2 billion in fixed annuity originations and reinsurance flows in the third quarter, and we expect continuing strong flows in the fourth quarter. Within the real asset markets, we are at a meaningful inflection point with rising transaction activity, strong fundamental performance, and promising supply-demand dynamics on the horizon. Across our real estate strategies, we invested more than $2 billion in the third quarter, which was up meaningfully versus the same period a year ago, with a continued emphasis on our highest conviction sectors, including industrial, multifamily, student housing, and single-family rental. Within our infrastructure segment, we continue to focus on renewable energy and related digital infrastructure investments. And before I provide an update on our recent transaction announcements, I want to take a minute to highlight the long-term growth opportunities that we see in the global industrial real estate, digital infrastructure and clean energy sectors. Over the past decade, we've been expanding our investment capabilities and capital base in the industrial and renewable energy markets to take advantage of rising demand in e-commerce, the reorganization of global supply chains, infrastructure for AI, the demand for clean energy and manufacturing reshoring, which is reversing more than four decades of globalizing trade. For instance, estimates suggest that the reshoring of manufacturing will require over 1 billion square feet of logistics support in the next decade. And by 2030, the U.S. will need up to 250 terawatt hours of new energy production to support AI and the expanded manufacturing base. As an example, Ares made a strategic investment in X-Energy, which is developing and building fourth-generation small modular reactors, or SMRs. Recently, X-Energy announced that several strategic partners, led by Amazon, invested approximately $500 million in a new financing round for the company. Both Amazon and X Energy, along with existing investors such as Dow and Aries, are seeking to advance the largest deployment to date of safe, clean, and reliable SMR nuclear power aimed at the growing digital and manufacturing economies in the U.S. Now, with that perspective, I'd like to reemphasize the strategic importance of our two recently announced acquisitions in real assets, which we believe will not only diversify our business mix, but also enhance our growth profile. The GCP international transaction enables us to expand into three critical areas of importance for our firm. First, it expands our real assets presence in the strategically important APAC region, including in Japan and Vietnam, within many of our highest conviction sectors like industrial, digital infrastructure, and clean energy. Following our SSG acquisition in 2020 in Crescent Point last year, We have been strategically evaluating inorganic growth opportunities in the region, and GCP international scale, asset positioning, track record, and team represented far and away the most compelling opportunity of the nearly 40 managers that we considered. Second, the transaction expands our vertically integrated industrial real estate capabilities into Japan, Europe, Vietnam, and Brazil. As one of the largest vertically integrated industrial players in the U.S., we believe that expanding our vertical capabilities globally will enhance our value proposition to our LPs and other market participants, while enabling us to create new revenue streams as these businesses scale. Third, we are gaining a global presence in a rapidly growing data center development and asset management business with a $7 billion near-term development pipeline, which complements our existing climate infrastructure capabilities. And while I focus on just these three opportunities, there are many more compelling growth and synergy opportunities that GCP International presents, and we believe that we are buying at an opportune time in the real estate cycle with a manager that provides significant growth potential. You may have also seen that we signed an agreement to purchase Walton Street, Mexico, an industrial-focused real estate manager with $2.1 billion in AUM as of June 30th. This transaction enables us to capitalize on the near-shoring trends that we're seeing across supply chains, and the Walton Street Mexico team is particularly well-positioned to take advantage of this market opportunity. We believe that there are also intriguing synergies with their institutional client base for other Aries products. In both of these cases, we had long-standing relationships with certain principals of these firms, and we believe that each team will be a great cultural fit. Clearly, the addition of these two firms will provide important scale to our real assets group and makes us one of the leading players in private equity real estate across the globe. And I'll now turn the call over to Jared to discuss our financial results in more detail. Jared.