Ares Management Corporation

Welcome to ARIES Management Corporation's Second Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Friday, August 1, 2025. 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 second quarter 2025 earnings 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 certain 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 ARIES or any ARIES fund. During this call, we will refer to certain non-GAAP financial measures. which should not be considered an isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our second quarter earnings presentation available on the investor resources section of our website for reconciliations of these non-GAAP 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 a quarterly dividend of $1.12 per share on the company's Class A and non-voting common stock, representing an increase of 20% over our dividend for the same quarter a year ago. The dividend will be paid on September 30th, 2025, to holders of record as of September 16th. Now, I'll turn the call over to Mike, who will start with some comments on the current market environment and our second quarter financial results.

thank you greg and good morning we appreciate you joining us before we begin today's earnings discussion it's important that we take a moment to acknowledge the tragedy that occurred on monday blocks from aries is new york headquarters our city experienced a senseless act of violence that has reverberated through our community on behalf of every member of the aries organization We mourn the loss of our neighbors, offer our deepest condolences to their families, friends, and colleagues, and we thank those who have dedicated their lives to protecting our community members. Together, we will continue to care for one another with compassion and resilience. I'll now turn the discussion over to a discussion of our financial results. AIR has reported strong second quarter results, demonstrating the strength and resiliency of our business during periods of market volatility and the breadth and diversification of our growing global platform. Our quarterly AUM and fee-paying AUM grew significantly, driven by the continued success of our fundraising and investing efforts, along with continued strong investment performance and market appreciation in the portfolio. We logged our second highest quarterly fundraising total on record of more than $26 billion raised with more than 20 strategies and 40 funds in market across three of our channels. With over $46 billion in gross commitments raised year-to-date, we believe that we're on pace to meet or exceed last year's record fundraising of $92.7 billion. As a result of our strong fundraising, AUM increased to $572 billion, which represents quarter-over-quarter organic growth of 19% on an annualized basis. While our fundraising was very strong, despite the market volatility during the second quarter, the deployment environment was modestly impacted, particularly at the beginning of the quarter. In the U.S., our largest market, we saw a temporary slowdown in transaction activity in April, which bled into May, followed by a strong rebound in June as the markets adjusted for the impact of new tariff policies. Although U.S. LBO activity moderated compared to the second quarter of last year, our $27 billion of second quarter deployment was slightly higher than the comparable year-ago period despite the market pause experienced in April. In part, due to our strong perpetual fundraising efforts, deployment and drawdown funds, and market appreciation, our FTAUM increased to $350 billion, representing quarter-over-quarter organic growth of 17% on an annualized basis. We also delivered very strong year-over-year growth in management fees of 24%, total fee-related revenue growth of 29%, and FRE growth of 26%. These strong levels of growth reflect the compelling trends that we're seeing across our seven private credit strategies, acceleration in our private wealth franchise, meaningful expansion in our secondaries business, and higher growth in our real assets business, including the benefit of our GCP international transaction that closed in the first quarter. In addition, our net accrued performance income balance increased 8.5% in the quarter to $1.1 billion as we experienced strong investment results across our business. As expected, GCP modestly compressed our overall FRE margin in the second quarter, but we believe that this is temporary, and we remain on track with our financial expectations for the business. We continue to expect significant further contribution in the next several years as we continue to scale our data center asset management business, our global industrial development business, and capitalize on the various synergy opportunities, as Jared will discuss later. Now let me turn to some of the operating highlights across our business units. We continue to see strong demand from institutional investors allocating into our commingled funds and bespoke managed accounts. During the quarter, approximately 55% of our fundraising was in institutional products, including 30% directly into commingled funds and 25% into SMAs or open-end institutional fund structures. Our third special opportunities fund is experiencing strong demand, raising an additional $2 billion of new commitments in the quarter, bringing total commitments to date to nearly $5 billion since launch last year. We believe that we are in an excellent position to continue scaling our fundraise into year-end. In U.S. direct lending, we raised over $10 billion, including $6.2 billion across our credit wealth products and ARCC, $2.5 billion in debt commitments to SDL III and $1.6 billion from institutional SMAs. We're also seeing strong traction in our sports media and entertainment strategy. As many of you know, we were a pioneer in providing flexible private capital dedicated to this sector. And we just held the first close for our second sports media and entertainment fund, totaling more than $1.4 billion in equity commitments, representing over 70% of the fund's equity target. Similarly, our open-ended sports media and entertainment wealth product began taking monthly subscriptions in June with strong early reception in the markets. Our European direct lending strategy raised over 1.1 billion from new SMAs and 800 million in the wealth channel. The strategy has experienced robust growth since the beginning of the year, driven by fundraising in the wealth channel and strong net deployment in our institutional drawdown funds. Further, we priced our first European direct lending CLO at over 300 million pounds, which we believe is the first reinvesting CLO in the European direct lending market. In liquid credit, we raised $2.8 billion, including over $1.4 billion in new CLOs. In real estate, we raised $2.4 billion of capital in the quarter, primarily from $880 million of debt and equity at our non-traded REITs and our U.S. open-ended industrial real estate fund, as well as over $1.3 billion of debt commitments to our real estate debt strategies. Our 11th U.S. value-add real estate fund and our fourth value-add European real estate fund continue to be in the market and are well-positioned for continued fundraising in the second half of the year. We currently anticipate both funds will meet or exceed the size of the predecessor fund. In infrastructure, we raised over $1.3 billion, including $850 million, for the final close of our first Japan data center development fund. In total, we raised $2.4 billion for our inaugural data center fund focused on data centers in Tokyo. As we've highlighted previously, we have additional locations entitled, permitted, and powered in London, Tokyo, and Osaka, where we anticipate raising capital starting in the second half of this year and into next year. Our team continues to build a pipeline of future development opportunities across North America, South America, Europe, and Japan, and we're excited by the magnitude of our in-flight pipeline, which we expect to be a significant driver of growth for our real assets group. Our secondaries group remains one of our strongest growth vectors for the foreseeable future. We believe that we're a market leader in the industry with the ability to invest across multiple asset classes, and we have an exceptional network of relationships and capabilities that is enabling our growth. Since our acquisition of Landmark in June of 2021, our secondary segment FRE has nearly doubled, and over the past 12 months, our secondary's AUM has increased 29% to nearly $34 billion. During the quarter, we raised $2.5 billion, including another $1.2 billion in our inaugural credit secondaries fund. This brings equity commitments in the credit secondaries fund plus related vehicles in the strategy to over $3.5 billion. In private equity secondaries, we launched a new fund focused solely on GP-led transactions, a particular area of strength for our team, which requires a differentiated skill set and leverages the broader sponsor relationships at ARIES. The fund and related vehicles have closed $800 million to date, and we anticipate continued strong demand for this first-time fund. We continue to grow and diversify the product set in private equity secondaries to meet the dynamic needs of our GP clients. Our third infrastructure secondaries fund and related vehicles raised nearly $250 million during the quarter, and as of last week, raised an additional $575 million, bringing current commitments to $2.8 billion. Our infrastructure strategy is benefiting from very strong performance, and we anticipate our third infrastructure secondaries fund will hit its hard cap of $3 billion, which is more than triple the size of the previous fund vintage. Finally, in real estate secondaries, we are preparing for the launch of our 10th real estate secondaries fund in the fourth quarter. In corporate private equity, we anticipate that our seventh corporate opportunities fund will hold its final close in September. The fund currently has $2.8 billion in commitments, and we anticipate the final close by September will bring the fund to more than $3 billion total. In the wealth channel, we continue to benefit from our top five leadership position with an estimated market share approaching 10%. Our momentum remains strong with our fundraising for the first half of the year totaling $7 billion in equity commitments, a 54% increase over the first half of 2024. AUM across our eight semi-liquid products crossed $50 billion, and now seven of our eight products are over $1 billion, with our eighth product launched in June seeing early traction and well on its way. We believe that we have one of the broadest product sets in the market with eight semi-liquid perpetual products spanning credit, private equity, real estate, infrastructure, and sports media and entertainment. Our intentional design across these asset classes plays a key role in driving broad product adoption within the channel. We've continued to expand our global wealth distribution network, now partnering with over 80 firms globally. a 33% increase year-over-year. Importantly, we conducted business with over 1,300 new financial advisors in the quarter, which is up over 200% from a year ago, and illustrates our progress penetrating new financial advisors within existing channels as more investors adopt alternative investments. While we're deepening relationships with our top five distribution partners, these firms collectively only represent about half of our wealth capital raised year to date, demonstrating the significant breadth of our platform and the continued opportunity ahead. International demand remains robust, with more than one-third of our year-to-date flows coming from Europe and Asia. We are particularly excited to be partnering with leading banks in Japan and expect to see meaningful flows as a result over the next few quarters. Following the brief market dislocation in April, capital raising in the second quarter remained resilient and culminated in strong monthly capital raised in June. In the second quarter, we raised $3.4 billion in new equity, resulting in a total capital raise of $6.3 billion, including leverage. As previously mentioned, we raised equity over $1 billion in ASIF and over $350 million in the total non-traded REITs. We experienced accelerated inflows from our leading open-ended European direct lending fund, raising over $800 million in the quarter, bringing total AUM in the fund to over $4.3 billion, which we believe makes it the largest fund of its kind in the market. APMF raised over $370 million in the quarter and has now surpassed $3 billion in total AUM. Our open-end core infrastructure fund raised nearly $250 million in the quarter, and with the July 1st inflows now sits at more than $1.1 billion in total AUM. Building off a record month in July and what is projected to be another record month in August, we expect the third quarter to be a record quarter of capital raised across our semi-liquid funds as investors continue to seek our solutions, global scale, and track records. Our balance sheet light insurance strategy is another area of compelling growth for us. During the second quarter, Asfida, our affiliated insurance portfolio company, generated over $1.9 billion in new premiums, driven by continued strong demand across both retail annuities and flow reinsurance business. Asfida has continued on a solid growth trajectory, ending the quarter with total balance sheet assets of $23 billion, $15 billion of which is sub-advised by Ares. In June, Aspita executed two new reinsurance transactions, one with a highly rated Japanese insurer and another with a highly rated U.S. insurance writer, further expanding its reinsurance relationships. Aspita remained on track to meet its 2025 target for new premiums of approximately $7 billion while maintaining discipline on liability costs, and positioning new business to achieve its target returns. The strong growth that we're seeing across our wealth and insurance businesses combined with the GCP acquisition and growth in other open-end institutional funds has resulted in a $50 billion increase in our perpetual capital over the past 12 months. Our perpetual capital AUM now stands at $167 billion and represents nearly half of our total fee-paying AUM. We believe this capital, which does not contractually repay at the end of an investment period, but instead can be continually reinvested, provides a stickier base of AUM with consistent management fees, and often includes regular payments of fees through Part 1 and FRPR. We anticipate perpetual capital from both the wealth and institutional channels will continue to represent a significant percentage of our AUM growth going forward and should provide even greater visibility in revenue growth and profitability across the business. We believe the underlying health and performance of our portfolios remains very strong, supported by solid economic fundamentals and our intentional positioning in non-cyclical growth-oriented sectors and markets. In our largest strategy, U.S. direct lending, we experienced year-over-year comparable EBITDA growth of 13%, with an average loan-to-value of 43%. When combining this fundamental performance with low LTVs and minimal impacts from tariffs, our non-accrual rates remain well below historical industry averages and our own historical averages. Interestingly, new market data highlights equity contributions from private equity sponsors in new middle market M&A transactions are at a 13-year high in 2025, which we believe meaningfully reduces the risk of loss in the direct lending market. In European private credit, we're seeing similar strong performance trends in our portfolios with low loans to value. Of note, favorable interest rates and higher domestic investment is driving a resurgence of investment activity across Europe. With our leading pan-European direct lending platform, we're well positioned to take advantage of these trends. Our alternative credit, opportunistic credit, and liquid credit portfolios are also enjoying strong performance and very low delinquencies. Our real estate portfolio continues to experience improving fundamentals as well. Leasing trends are strong, rent growth continues to increase, and cap rates remain generally steady across our focus areas of industrial, multifamily, and adjacent sectors. This is leading to steady to modestly improving valuations and growing investment opportunities for the group. In infrastructure, we believe that there continues to be a compelling global opportunity to partner with major hyperscalers on data center campus buildups. Now, with our acquisition of GCP, we can source and develop new projects from the ground up, provide equity and debt financing throughout the investment lifecycle, and potentially develop power sources alongside our data center projects. Looking forward, we're once again seeing a strengthening transaction market environment into the third quarter. With the potential for lower short-term rates in the U.S. and lower rates already reflected in Europe, coupled with record amounts of private equity dry powder, we're optimistic that transaction activity could accelerate further in the second half of the year. For example, our global pipeline of investment opportunities across all of our investment groups and strategies is at the highest level in over a year. With a record amount of dry powder of $151 billion, including $105 billion of AUM not yet paying fees, we believe that we're very well positioned to take advantage of higher levels of market activity. And finally, before I turn the call over to Jared, as I reflect on the first full quarter with our new colleagues from the GCP transaction, I'm very pleased with how well the integration is going. Strong platform collaboration is already occurring across the investment teams. The fundraising teams are fully integrated, and we are actively in the market with new funds and accelerating the development of new products. Our investment committees are appropriately aligned, and we're seeing a high level of interaction across the global real estate platform. As I mentioned earlier, the data center business is poised for growth with a large pipeline of projects at various stages, of progress which we believe can drive aum growth and profitability in the business with nearly 130 billion dollars in aum and over 880 investment and operating professionals our real assets group is one of the largest managers of real estate and infrastructure assets across the globe and we believe is very well positioned for greater scale and long-term growth And with that, I will turn the call over to Jared to provide additional details on our financial results. Jared?