Ares Management Corporation

As a reminder, this conference call is being recorded on Friday, July 31st, 2026. 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 2026 conference call. I'm joined today by Michael Arougheti, our Chief Executive Officer, and Jarrod 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 in 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 to these non-GAAP measures. To the most directly comparable GAAP measures, note that we plan to file our Form 10-Q early next month. This morning, we announced that we declared a quarterly dividend of $1.35 per share on the company's Class A and non-voting common stock. representing an increase of over 20% over our dividend for the same quarter a year ago. The dividend will be paid on September 30th, 2026 to holders of record on 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, everyone. I hope you're all doing well. Our strong second quarter results highlight the growing diversity and durability of our global platform. The depth of our global institutional platform drove another record quarter of fundraising, and our broad-based global investment capabilities enabled us to remain very active in a slower transaction environment. This drove 17% year-over-year increases in both our AUM and fee-paying AUM to approximately $671 billion and approximately $410 billion, respectively. This AUM growth translated into even healthier increases in our fee-related earnings and realized income, which increased 20% and over 30%, respectively, as we benefit from our growing scale and strong long-term fund performance. Notably, both growth rates are at the high end or above the long-term growth rate target ranges that we provided at our 2024 Investor Day. Overall, we're pleased with how we're performing and we remain on track to achieve our financial objectives for the year. The underlying drivers of our future growth continue to improve. We now operate in leading franchises in diversified credit, real estate, infrastructure, and secondaries across North America, Europe, and Asia. Beyond direct lending, our scaled and leading businesses across asset-based finance, opportunistic credit, liquid credit, global real estate, infrastructure, insurance, and our diversified secondary strategies are increasingly contributing to fundraising, deployment, management fees, and earnings growth. For the second quarter, we raised approximately $36 billion of gross capital, the highest quarter of fundraising in our history. This positions us with a record $170 billion of dry powder and $114 billion of AUM not yet paying fees, which sets us up well for future earnings growth. We've now raised approximately $66 billion through the first half of the year, and we remain on track for another record year of fundraising. The breadth of fundraising across our platform is particularly notable. Approximately 70% of the capital that we've raised this year is outside of our four largest credit fund families, and investors committed capital across approximately 90 different funds and vehicles. This demonstrates the increasing diversification and global reach of our business. We raised our highest ever quarterly amount of capital, and this was without a meaningful contribution from our SDL and ACE franchises, neither of which raised equity capital in their flagship commingled funds in the quarter. In our view, our franchise and brand have never been stronger in the eyes of our institutional investors. Institutional investors account for approximately 75% of our overall AUM and have represented more than 80% of our gross equity inflows over the last 12 months. ARIES is viewed as a key strategic partner with the scale, performance, and breadth of capabilities to serve a wider range of portfolio needs during a period where global institutional investors are seeking to consolidate their relationships. We're seeing the benefits of significant investments in our broad origination capabilities, our time tested investment approach, consistent credit and investment performance, and best in class client service. Now let me provide some additional details on our various fundraising and investing activities. Starting with fundraising and credit, we continue to see very strong institutional demand across our highly diversified credit strategies and have hit the hard cap on our last two private credit fundraisers. In alternative credit, which is our asset-based finance strategy, we completed the entire fundraise for Pathfinder 3 during the second quarter, raising approximately $8.5 billion in equity commitments. The fund significantly exceeded its $6.5 billion target and had demand well in excess of its hard cap. With this fundraise, we've strengthened our market leading position in the non-rated asset-backed finance sector as we now manage four of the five largest institutional ABS funds in the market. We believe that the addressable market is measured in trillions of dollars and our investment pipeline continues to expand as we partner with financial institutions and origination platforms across various asset classes. In U.S. and European direct lending, we raised over $12 billion of debt and equity capital during the quarter across our vehicles. Institutional engagement for the next generation of our U.S. senior direct lending strategy is very strong, including for both our traditional commingled fund and our new Evergreen core product. We continue to expect a first close for both products sometime in the fall, with additional closings next year. We expect to launch our seventh European direct lending fund early next year, Taken together, our institutional fundraising pipeline remains robust, with our two largest fund families in the market with successor funds in the year ahead. Within real assets, fundraising momentum was particularly strong across infrastructure and real estate. In infrastructure, our open-ended core infrastructure fund raised approximately $1.9 billion of equity during the quarter. Demand for the strategy has been exceptional, driven by investor interest in high-yielding, tax-advantaged real assets. At the same time, the number of power and digital infrastructure assets coming to market across a diverse set of subsectors is as high as we've seen, which sets us up well for accelerating deployment. These same trends are driving strong momentum in our sixth infrastructure debt fund, The fund raised approximately $500 million during the quarter and has now raised approximately $3.7 billion. We expect to complete the final close later this year at a level above the $5 billion raised for the prior vintage, including leverage and related vehicles. Recent momentum with this fund reflects an increasingly attractive infrastructure investing environment and strong performance for our infrastructure debt strategy. We're also seeing strong investor interest in our global digital infrastructure fund driven by our seed portfolio of attractive entitled and power projects in top tier global markets, the persistent and growing demand for computing power, the need for private capital and the differentiated nature of our operating platform. We anticipate holding a series of meaningful closings in late Q3 and into the fourth quarter and expect to complete the fundraise in 2027. In real estate, we also had an active quarter. Our fifth Japan Industrial Development Fund raised approximately $1.8 billion, bringing total commitments to date to $3.4 billion. We expect to hold our final close in the third quarter at our hard cap and at a level meaningfully above the prior vintage of $2.5 billion based on current exchange rates. In our real estate debt strategy, we raised approximately $2.8 billion across a new global commingled fund and separately managed accounts. The current environment remains attractive for real estate credit given early cycle conditions and a broadening of attractive sectors. We're also encouraged by the improving fundraising trends in our non-traded REITs, where inflows have been building each quarter since the fourth quarter of last year. Within the market, gross sales and net flows are improving. As property values stabilize, transaction activity remains positive, and the supply outlook is becoming more favorable across several sectors. Within secondaries, we continue to see good momentum in our global structured solution strategy, which raised over $500 million in the quarter. We also expect to complete an initial close for our next real estate secondaries fund in the second half of the year. Investor interest remains strong, with the current fundraising pace both faster and ahead of the level that we were seeing at the same point in the prior vintage. With our wealth management platform, our diversified product line continues to deliver solid investment performance, distinguishing us in the marketplace. We raised approximately $3.9 billion in gross equity commitments in the second quarter, an increase of approximately 15% from the prior year period, and roughly in line with the approximate $4 billion that we raised in each of the prior two quarters. We've raised approximately $8 billion during the first half of the year, and based on our current pipeline, which includes a strong start to Q3 with approximately a billion and a half in July, we anticipate a similar level of gross fundraising in the second half of this year. Based on industry data from Stanger, Aries has picked up meaningful market share within the channel and ranks number two in gross fundraising over the last 12 months through June. We finished the second quarter with over $76 billion of AUM in our wealth products, and even with some noise in the channel, our wealth AUM increased at an annualized rate of more than 25% quarter over quarter. Importantly, the composition of our wealth fundraising continues to broaden. Our goal from the outset was to build a diverse product offering that meets the needs of investors seeking durable income, tax advantage, real assets, and diversified growth. By providing quality offerings across a variety of products, we've demonstrated that we can consistently scale in the wealth channel, even as investor sentiment shifts across asset classes. Our Evergreen core infrastructure product has taken the lead in terms of monthly inflows, and we're still in the early stage of expanding our distribution partnerships. In just over two years, the fund has raised over $5.7 billion in AUM, securing the No. 2 rank in TTM gross fundraising for infrastructure Evergreen funds through June, representing approximately 20% market share. In the Wealth Channel, we've made significant investments in distribution, education, technology, operations, and product development, with nearly 200 professionals focused on the channel. We're currently working on interval fund solutions designed for the mass affluent and model portfolio markets in the U.S., and we have a robust forward pipeline of additional partners in the U.S., EMEA, and APAC to distribute our current flagship funds as well as product extensions. We continue to believe that we are in the early innings of capturing increased individual investor allocations to alternatives. Within our non-traded BDC, redemption themes were consistent with last quarter with roughly 95% of investor accounts electing to stay in the fund and redemption requests primarily coming from a small number of non-US family offices and smaller institutions. These types of investors represent only approximately 10% of the vehicle's NAV, and we intend to make certain adjustments to new share classes that we would offer to them going forward. Looking specifically at our core U.S. individual investor base, redemption requests totaled only approximately 2.5% of NAV and declined approximately 35% compared to the prior quarter. Together, these trends support our view that the investment thesis and long-term opportunity within the wealth channel remain intact with continued strength across our core U.S. investor base and sustained engagement from distribution partners and individual investors globally. We built the portfolio within our non-traded BDC with strong credit underwriting, conservative loan structures, and a disciplined approach to deployment. Based on the latest public data, the portfolio is performing well with very low non-accruals at around 0.5%, healthy organic EBITDA growth of 13% year-over-year, and the fund has declared stable monthly distributions through September 2026. Let me now highlight some recent investment activities and discuss market conditions. In part, due to our broad and diversified platform, our overall investment activity increased meaningfully in Q2 to approximately $36 billion compared to approximately $27 billion in the prior year period. Our firm-wide forward investment pipeline also improved nearly 20% quarter-over-quarter to a new record, and current transaction discussions across our strategies point to a stronger second half outlook for deployment. Within U.S. Direct Lending, we deployed approximately $12.4 billion gross committed during the quarter. Despite slower M&A activity in the market, deployment improved sequentially compared to the first quarter as we grew with our incumbent bonds, which represented 75% of our Q2 deployment. We're constructive on the second half environment for U.S. Direct Lending as sponsor dialogue improves and more companies return to market after delaying transactions earlier in the year. In European direct lending, second quarter and first half results were ahead of our initial expectations for the year, and we have a record pipeline going into the third quarter. The European direct lending market remains more fragmented than the U.S., with fewer scaled lenders and a greater premium on local origination, certainty of execution, and long-term sponsor partnerships. We believe that our market leading origination platform, scaled capital base, and long tenure operating in local markets is driving more investment opportunities for us across the continent. We're also seeing tremendous demand across the firm for both debt and equity capital to finance the development of digital infrastructure and related power requirements. The capital needs are significant and our platform is well positioned to address these opportunities. We have large and long-tenured teams that have invested through multiple cycles in power generation, infrastructure equity, and infrastructure debt. Notably, our digital infrastructure business with our vertically integrated data center development platform, Ada Infrastructure, continues to grow with over 100 professionals that have significant experience across investing, development, engineering, construction, and power procurement. Our ADA team, which has long-standing hyperscalar relationships, is currently executing on seven large data center campuses, representing 22 individual data center investments with approximately one gigawatt of compute, and has a strong pipeline of future projects. Within real estate, our transaction activity continues to rebound, particularly in North America and Japan, as we deployed over $4 billion in the quarter, both sequentially and year-over-year. We continue to see attractive opportunities in our core logistics business and are beginning to selectively broaden our investments into properties where we've traditionally been underweight, including hospitality and retail. Our approach remains highly targeted and focused on assets with strong locations, limited supply, resilient tenant demand, and favorable demographic trends. Within secondaries, market volumes continue to grow as the need for distributions and enhanced liquidity remains a central theme across private markets. For example, industry volumes and credit secondaries through the first six months of the year have already matched 2025 full-year volumes. Within every asset class, we're seeing certain institutional investors seeking liquidity for LP interests, while managers are evaluating GP-led solutions for high-quality assets that they want to continue owning while still delivering DPI to their investors. More broadly, portfolio performance remains strong across the firm. Jarrod will discuss our fund returns and financial results in greater detail, but the consistency of our performance continues to support fundraising, deepen our relationships with investors, and reinforce the strength of our franchise. And with that, I will now turn the call over to Jarrod to provide additional details on our financial results. Jarrod?

Thanks, Mike. Good morning, everyone. Our second quarter and year-to-date financial results reflect continued strong growth across our key financial metrics, increasing scale and diversification of our platform and the benefits of our strong long-term fund performance. We also continue to benefit from a large base of long-duration capital and strong fundraising and deployment activity across the platform. At quarter end, 84% of our AUM was in perpetual capital or long-dated funds, and 94% of our management fees were generated by those sources. We believe the durability of our capital base, the breadth of our investment capabilities, management fee-centric business model, and our asset life balance sheet help insulate Thank you for joining us. This growth continues to be supported by the expansion of fee-paying AUM, which increased 17% year-over-year to approximately $410 billion. The increase in fee-paying AUM was broad-based. Credit FPA AUM increased 17%, secondaries increased 28%, private equity increased 27%, real assets increased 11%, and other businesses, which is primarily comprised of areas insurance solutions, increased 54% compared to the prior year period. We're benefiting from strong fundraising and consistent deployment across the platform. Part 1 fees, which are included in management fees, totaled approximately $154 million in the second quarter, up 20% from the prior year period, driven by positive inflows across five different funds that now generate Part 1 fees. Fee-related performance revenues totaled approximately $41 million in the quarter, increasing 143% compared to the prior year period. The majority of this quarter's FRPR was generated by APMF, reflecting both continued capital formation and strong underlying investment performance. As a reminder, the timing of FRPR varies by fund and investment strategy, with a meaningful portion of annual revenues typically recognized in the second half of the year. For the third quarter, we expect FRPR from our open-ended core alternative credit fund to be in line for the third quarter of 2025 at approximately $62 million. Regarding the potential for fourth quarter FRPR from our non-traded REITs, we currently have approximately $32 million of FRPR accrued by these REITs for potential recognition in the fourth quarter. As I mentioned on last quarter's earnings call, G&A expenses increased this quarter partially due to our firm-wide AGM for institutional LVs, which we hold every other year during the second quarter. The second quarter included approximately $9 million in expenses associated with this meeting that will not occur in the third and fourth quarters. Fee-related earnings were approximately $491 million in the quarter, increasing 20% year-to-year. Our year-to-date FRE margin was 42.3%, approximately 100 basis points above the prior year period. We continue to expect that we'll be approaching the upper end of our margin guidance of 0 to 150 basis points for the full year. Turning to performance income, we generated approximately $51 million of realized net performance income during the quarter, more than three times the amount generated in the prior year period. Year-to-date realized net performance income was approximately $126 million, up 119% compared to approximately $58 million in the prior year period. Based on our current visibility and realizations and the performance of our portfolios, we anticipate a limited amount of approximately $10 million of realized net performance income in the third quarter, but continue to feel good about our previously communicated full-year expectations. Realized income totaled approximately $522 million per quarter, representing a growth of 31% year-over-year. After-tax realized income was approximately $468 million to the quarter, increasing 20%, 27% year over year. And after-tax realized income per share of Class A and non-voting common stock was $1.29, representing a growth of 25%. Our tax rate for the quarter was 13.7%, which is within our full-year tax guidance range of 11 to 15%. As Mike discussed, The underlying financial drivers in the business remain strong. We ended the quarter with approximately $170 billion of available capital, representing an increase of 13% year-over-year. We also had approximately $114 billion of AUM that is not yet paying fees, including approximately $93 billion available for future deployment. If deployed, the AUM available for future deployment generated approximately $828 million in potential incremental annual management fees. This provides substantial visibility into future growth in fee-paying AUM and management fees, even before considering future fundraising. Turning to investment performance, overall fund returns remain strong, led by our credit and real asset strategies. Over the last 12 months, we generated gross returns of 16.4% in Alternative Credit, 8.9% in Opportunistic Credit, 11.2% in U.S. Senior Direct Lending, 8.9% in U.S. Junior Direct Lending, 8.3% in European Direct Lending, and 19% in APAC Credit. Across our direct lending portfolios, underlying credit fundamentals remain strong and stable with low loan devalues and healthy interest coverage. In U.S. direct lending, non-accrual levels were flat quarter over quarter and remained low at less than 2%. We're not seeing any signs of a turn in the credit cycle as evidenced by 9% year-over-year organic EBITDA growth from our portfolio companies. Within real assets, our infrastructure equity and infrastructure debt strategies generated gross 12-month returns of 9.8% and 7.5% respectively. In secondaries, APMF generated a net quarterly return of 6.9%, a net 12-month return of 16.2%, and a net return since inception of 15%. In our latest institutional secondaries, private equity funds had a gross IRR of 26.5% since inception. Within private equity, our corporate private equity strategy generated a gross quarterly return of 2.4%. and ACOF VI continues to perform well with a gross IRR of 19.5% since inception. Overall, the breadth and consistency of our investment performance continues to support fundraising, deployment and growth in both management fees and performance-related revenues. We believe the combination of strong fund performance, significant available capital and the scale of our origination platform provides meaning or visibility into continued financial growth. In conclusion, Our second quarter and year-to-date results leave us well positioned to achieve our financial objectives for 2026, which remain consistent with our long-term compound annual growth targets of 16% to 20% for FRA, 20% plus for RI and dividend growth. I'll now turn the call back over to Mike for his concluding remarks.

Thanks, Jarrod. In closing, we're very pleased with our progress, the broad-based strength and momentum we're seeing across the firm, and the positioning of our leading global businesses in dynamic growth markets. We raised a record amount of capital across a highly diversified set of strategies, our deployment pipelines are increasing, and our portfolios continue to perform well for our investors. We believe that the breadth and diversity of our investment platform, the flexibility of our product set, the long duration of our capital base, our asset light balance sheet, and the strength of our institutional and wealth franchises position us well for continued durable growth over the long term. These characteristics are even more valuable during periods of market volatility and shifts in business cycles, as we can pivot capital formation and deployment towards the most attractive opportunities in the market. We also believe that the scale of our platform is creating meaningful opportunities for continued margin improvement. As we grow, we're benefiting from operating leverage, while our investments in technology and AI are set to improve efficiencies and enhance investment capabilities as we leverage our proprietary data and increase the capacity of our teams. We're also working on strategic growth initiatives like our capital solutions business as well as extensions of certain investment strategies both organically and inorganically through potential joint ventures and opportunities that will continue to drive the business forward. But before wrapping up, I want to highlight the recent fifth anniversary of the Aries Charitable Foundation. which has now committed more than $68 million in grants since 2021 to advance economic mobility globally through initiatives that help people become workforce ready, start and scale up businesses, and strengthen personal finance skills. In addition to the Aries Foundation, Promote Giving launched last year as an initiative established by Aries and our Pathfinder funds that commits a portion of performance fees to charitable organizations without reducing returns to our fund investors. We're proud that we've expanded our Promote Giving initiative across our industry and there are now 15 different asset managers with more than $44 billion of pledged assets that have the potential to generate an estimated $300 million to $350 million of charitable contributions over the next decade. This support will help to create a more durable source of funding for organizations that are advancing education, human well-being, and healthier communities around the world. We remain committed as always to using the reach of the ARIES platform to deliver strong outcomes for our investors, our employees, our shareholders, and the communities in which we operate. As always, I'm just so deeply grateful to our employees around the world for their continued hard work, collaboration, and commitment to our clients. And I also want to thank you, our investors, for the continued support and trust. We're excited about the opportunities ahead and remain focused on delivering strong long-term results for all of our stakeholders. And with that, operator, could you please open up the line for questions?

At this time, if you would like to ask a question, please press star then one on your touch-tone phone. We ask that you limit yourself to one question to allow as many callers to join the queue as possible. Our first question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Good morning, Mike, Jarrod. Hope everyone's doing well. And it was nice to see another strong fundraising quarter and also to see how much ARIES has supported charitable organizations, especially out of the Pathfinder Fund, which all.

Thanks, Craig.

So within that, we wanted to see if you could unpack your commentary that institutional demand for private credit is accelerating. What is driving institutions to private credit now? And when do you expect to see private wealth demand come back? And going forward, do you think these two channels will behave somewhat counter cyclically?

Sure. So the evidence for the acceleration is just based on what we're seeing in the field. So to reiterate, you know, in the quarter, We raised our third Pathfinder fund first and final close, $8.5 billion against a $6.5 billion cover, which was the hard cap and had meaningful demand in excess of the hard cap. So I don't think in the history of areas we've ever seen a fund get raised in a first and final at the hard cap. I think that's a reflection of just extraordinary performance and market positioning, but also just increasing appetite. We had a similar, maybe not as dramatic, experience in the third vintage of our opportunistic credit fund, which also raised quicker than prior vintage and got to the hard cap, which was well in excess of the prior. And as we mentioned, we are in market with our fourth institutional loan fund. and everything that we're seeing on the ground in terms of demand would indicate that appetite is increasing. I think it's both long-term secular, Craig, when you look at some of the industry data and consulting data, generally speaking, institutions still remain under allocated to private credit. And I think at this moment in time, given some of the reduction in capital coming from the wealth channel, people perceive an opportunity to capture excess return given a shift in the competitive set, meaning spreads have widened, less competition, and therefore an ability to deploy maybe quicker at better returns. That does go hand in hand with what we're seeing in wealth, but I do want to reiterate some of the commentary around wealth. First of all, the entire channel for us grew year over year, and that's just based on demand that we're seeing broad-based for the non-U.S. private credit fund. We're particularly pleased with the significant demand that we're seeing in our core infrastructure fund. The momentum in wealth continues. Our July flows on equity were about $1.5 billion, and so we're not seeing any slowdown on the diverse product set. And when you drill down on the non-traded BDC, a couple things to consider. Number one, we talked about in the prepared remarks, the fundamental performance there is delivering exactly what it's supposed to deliver in terms of dividend yield. Non-accruals are 0.5%. EBITDA is growing 13%, so there's nothing in that fund that would indicate that performance isn't at or above underwriting. Two, when you look at the core ultra high net worth and individual investor market, which is supported by the advisor platforms in the U.S., we're not seeing any acceleration in redemption requests. It's been consistent. in the 2% to 2.5% range, which is what it was before the noise in the channel began. And as I mentioned in my prepared remarks, redemptions in that particular part of our investor base were down 30% quarter-over-quarter, so we're actually seeing a reduced redemption queue in the core investor base. And then lastly, and I think our peers would say the same, the redemption queue in the U.S. private credit funds, and we're not actually seeing it in our European funds, is largely concentrated in the hands of family offices and small institutions in the APAC region. To put that in perspective, if you were to look at the top 10 redeemers in our non-traded BDC, they were about half of redemption requests. and two-thirds of our Q2 redemption requests were from the Q1Q. So, while the individual investor is slowing its requests for redemptions, we're satisfying the disproportionate demand coming out of Asia. And that number has been cut in half over the last two quarters, from about $1.2 billion to a little over $600 million. So assuming that those two trends hold, and I have no reason to believe that they won't, that would probably mean that you get back to stasis in the next two to three quarters is my guess. The other thing I would also highlight, because it's going to impact the profitability coming out of that fund, despite the redemption queue just based on Q1 inflows and being under-levered in that fund, I would expect that when we get to the end of the year, our non-traded BDC will actually be larger at year-end 26 than it was at year-end 25. Whether they act counter-cyclically, I think Maybe. Obviously, one of the reasons why we have been measured in the way that we've developed our wealth business is we learned through experience running ARCC for the last 20-plus years that the individual investor can sometimes look to divest when they should be investing, and running a diversified book in institutional and wealth markets is prudent. I still think it's early days to know exactly how these will play over time, but there is a risk that some of the wealth flows could be more pro-cyclical than people thought they were, which is why we continue to index aggressively into the institutional market.

Thanks, Mike.

Thank you. Our next question is coming from Alex Blaustein with Goldman Sachs. Please go ahead.

Hey Mike, good morning everybody.

So lots going on on the organic side and the business continues to hum, but I have to ask, I think, the inorganic question given the headlines in the last few days here. So Mike, heard your comments around open to deals, both JVs as well as more inorganic opportunities broadly. Maybe you can kind of comment about where on your priority list is something inorganic on the private equity side. and just reminders to keep parameters around financial and strategic fit when you think about deals for heirs. Sure. Thanks for the question, Alex. Obviously, I can't comment on any rumors or speculation in the market, but I appreciate the opportunity to reiterate our framework for thinking about inorganic growth. And as you said, at a very, very high level, regardless of the end market, It's a simple framework which is we needed to be culturally accretive because this is a people business at the end of the day. We needed to be strategically accretive, i.e. bring new capability or capacity or distribution to the table. And then we need to have a view that we can actually make the business better by delivering revenue synergy and information and resources. And then lastly, it needs to be financially accretive. If you look at our recent history, that framework has served us very well as we've acquired an integrated landmark and doubled that business with meaningful growth In secondaries, you've seen what we were able to do with the acquisition of Black Creek and turning that into what is now the engine of growth in our wealth management business and so on and so forth. So it's a pretty well-honed framework, both for identifying candidates and then also for unlocking growth post-acquisition. With regard to private equity, obviously, Aries has been in the private equity business for 20 years with a very strong track record. I mentioned our sixth fund in PE right now is generating close to a 20% growth at the top quartile performer. I think that the question that we have posed, and we've done it publicly with all of you as well, is as ARIES continues to scale the way that it is, Should We Be Bigger in Private Equity? As we continue to deepen and broaden those relationships, I think they would like to continue to invest with us in scale. To the extent that we scaled up in PE, I think that we would be able to drive incremental flows. That's all happening at a time when GPs are seeing consolidation of relationships from their LPs. Two, as we hone our Origination Engines here being larger in PE will just allow us to offer broader solutions to the companies and entrepreneurs that find their way to ARIES, and I think that that would be value-add. It would allow us to deepen our relationships with our banking partners and our capital markets partners in terms of this and financing, and that's obviously accretive to other parts of the business as we grow our wallet. It allows us to lean in more heavily to capital markets and fee generating business in a way that we can't just given our scale. And probably lastly, as demand in the wealth channel continues to grow, and we're seeing that, for example, in our APMF fund, The ability to deliver larger amounts of direct exposure, either through primary or secondary private equity, I think will become more relevant. There's a lot to argue in favor of it. But as I mentioned in last quarter's call, the price has to be right, because the growth profile of these businesses is less linear and more episodic than some of the core businesses. And we have to really believe that we can drive culture, strategy, and the financial piece of it. So, you know, a lot of boxes to check, but I think the industrial logic would make a lot of sense for the right, you know, the right situation. Yep, totally get it. Thank you. Thanks.

Thank you. And we will take our next question from Stephen Chubach with Wolf Research. Please go ahead.

Good morning, Mike and Jarrod, and thanks for taking my question. So I wanted to double-click into the U.S. direct lending outlook. Despite more tepid activity in the quarter, you struck a more constructive tone on U.S. direct lending, which is consistent with what Corda actually said on the ARCC call. talking about activity really building towards the end of 2Q and into 3Q. That said, sponsor M&A remains fairly subdued based on what we see in the public data. I just want to get a better sense as to what you're hearing from sponsor clients regarding the appetite to transact, and how does the pace of deployment that you envisage based on the pipeline inform expectations for management fee growth in the back half?

Sure. A couple of things. Number one, I think one of the most important things this quarter was the demonstration of just how broad-based and diversified the deployment has become. When you look at a slower Q1 in our U.S. direct lending business, we were still able to deploy $36 billion across the platform because we saw accelerated deployment in places like ABF, secondaries, real estate, digital infra. And so while direct lending in the US and Europe continue to be big drivers of deployment, the P&L is just fundamentally less dependent on that core direct lending deployment than it has been in years past. If you look at the pipelines across the platform broadly, the pipeline sits at a record level. It's about 20% higher than it was last quarter. We're seeing broad-based acceleration and deployment as we head into the back part of the year. Europe, as I said in the prepared remarks, has actually been a bright spot. We saw significant deployment in Q1 and Q2, and the pipeline sits at probably the highest level that we've ever seen heading into Q3. With regard to U.S. direct lending, we have demonstrated both because of our incumbent relationships in our non-sponsored business that we are able to deploy quite considerably even when sponsor M&A is slow. And I think that will continue. But as Court said, which I think is probably the most important, is when we look at the USDL pipeline, we are seeing an acceleration in the pipeline quarter over quarter. and then what I would call the shadow pipeline, which would be looking at how many confidentiality agreements are we logging and how many new deals are we logging. The number of NDAs that we've signed is up about 35% quarter over quarter, and the number of deals we've logged is slightly behind at 30%, so that's kind of the precursor to what we would call pipeline. I can't say with perfect certainty that that 35 to, you know, 30-35% converts perfectly, but it is an indication that sponsor activity is picking up dramatically as we head into the back half of the year.

That's a great color. Thanks for taking my question. Sure.

Thank you. Our next question is coming from Bill Katz with TD Cowen. Please go ahead.

Great. Thank you very much. Appreciate all the call this morning. Maybe switching gears a little bit. For one, for Jarrod, perhaps, I'm sort of intrigued by your comment that you should be accelerating toward the upper end of your zero to 150 base point. You're in your margin improvement into the back half of the year. I was wondering if you could unpack the drivers for that. Maybe which lines you sort of see be the greatest opportunity. And I appreciate it's early days, but just given the step function of earnings power that seems to be building here based on your flows and deployment dynamics, etc., How are you thinking about maybe the incremental margin opportunity into 2027? Thank you.

Thanks, Bill. Great to hear from you. Margin is a number of different factors, as you know. It's not just The amount of expenses but the velocity at which we increase our revenue and right now as we look forward and we talk a little bit about it and prepare remarks we have a great line of sight on some new products like the data center business that will be coming online also with the acquisition of GCP which we've talked about we've moved past the TSA that we had with the left behind vehicle and we've now really entered So when you're adding those new revenues, you're taking away some of those more fixed expenses. And this quarter, I talked about in prepared remarks, the AGM that we had in the second quarter, that every two years, we do that for once in a year as opposed to spread out at a number of events. So you have one giant expense quarter related to those meetings as opposed to it spread out overboard. So we have little structural items like that that give us a lot of confidence on margin in the back half of the year. At the same time, the normal pace of the business is still very much driven by deployment. So the more we're able to deploy, the more revenue we then generate, which then provides that margin expansion. The one thing that I always caution though is Our primary goal is growth. We want to hit those 16% to 20% FRE targets, 20% plus on RI. And to do that, we often need to invest in it. And one of the ways that we do that, you'll see a really strong correlation between how much we spend on marketing expenses and the dollars we raise. At the same time, we also see a healthy correlation between the number of front office professionals we have and our ability to originate. And our business origination is really the king across our credit business in sourcing high quality assets, which are limited. So the ability to do that and to originate is very, very valuable for us to invest in. So even when we have margin expansion, we're constantly looking at the team. Are there areas where we can be investing to create more business to sustain that growth? Because once we have that margin expansion, that's a one-time expansion of FRA. and that's not something that's always as sustainable as just the organic growth of creating more revenue. So we feel really, really good about the structure of the business in terms of how it will just provide that natural margin expansion but we also love how that forward look at our business allows us to choose those areas to reinvest that margin so we can continue to hit our growth targets. Thank you.

Thank you. And we'll move next to Patrick DeVitt with Autonomous Research. Please go ahead.

Hey, good morning, everyone. Thanks for the question. My question is on the ABF pipeline that you mentioned. We're actually seeing at least one of the large consumer lenders take more loans on balance sheet instead of pushing through the flow agreement channel. So in that vein, I'd be curious to get your thoughts on to what extent you're seeing issues with flows from the consumer ABF channel, or do you think there's something else going on there? Thank you.

Sure. So as I said, our ABF business continues to be a real bright spot, both on fundraising and deployment. It is a very large team that has been growing rapidly across all the different channels. One of the things that differentiates us is our lack of focus and exposure on the consumer part of the market, which is where I think a lot of our peers spend time, because that is, to your point, a place where you can originate through flow agreements as opposed to owned origination, which is the way that we think about it. If you were to actually look at consumer exposure in our ABF portfolio, Very low, less than 5%. If you look at subprime consumer, it's de minimis, it's less than a percent. And if you were to look at even auto as an extension of consumer, all of our exposure there is prime, and it's probably less than 1%. So, I think the market is probably 30%-plus exposed to consumer ABF. It's just not been a big area focus for us and so you know to the extent that the captive consumer finance companies are taking more on balance sheet as opposed to to flow i don't think that that's going to have any meaningful impact on our ability to deploy thank you and we'll move next to Ken Worthington with JP Morgan hi good morning thanks for taking the question

Returns in private equity secondaries was negative this quarter. You called out that APMF is performing particularly well, but some of the other funds are struggling. So maybe first, what's going on there? And then, Mike, you mentioned in the prepared remarks that activity levels in secondary markets have been very strong. Can you talk about some of the industry dynamics around P secondary returns?

Yeah, so with regard to the secondary performance, PMF obviously continues to have strong performance. That performance, though, I'd highlight also is going to be impacted on mix between LP portfolios and GP-led. So to the extent that you are more aggressive in originating on the LP side, you tend to see higher returns as you capture the NAV discount and then as you transition to GP-led, more consistency but maybe less volatility. With regard to the Secondary Performance Fund 17 is actually, which was the first fund that we deployed under Aries, the performance there is pretty strong since inception returns about 26% growth, gross and net was about 17. Fund 16, which was the last fund, which is a much older vintage, but a much larger fund can have an outsized impact on the composite as we report. And that's basically what's What's happening there? That older vintage fund, just given its size, moved down. But if you look at all of the kind of active in the ground funds, Fund 17, APMF, we're actually continuing to see, you know, strong, strong returns. I think there was a question about private equity secondaries. I didn't quite understand what the second part of the question was. I apologize.

Yeah, it's just what we've observed is that even though secondaries is very popular, That the returns are lagging private equity in general. It seems like the lag is maybe more pronounced this cycle than we've seen last cycle. Any comments on how industry dynamics are impacting sort of PE secondary returns? Got it, got it, got it.

I think if you were to look at the historical return data, the secondaries returns will generally be lower. But they also tend to be range bound. So if you were to look at P secondary returns, first quartile to fourth quartile, the dispersion of returns is much tighter than you see in the primary market. So one of the ways I would encourage you to think about it is just when people are using the secondaries market, particularly the LP product, they're trying to buy diversified private equity data. for the most part, but they're doing it in a way that structures out a lot of the volatility in return. And so you're going to get a generally lower return, but a much lower volatility of return versus the primary market. And I think that's always been the case. That may change over time as the private equity secondary market moves a little bit more towards GP led and continuation vehicles. But I think what you're highlighting is largely just the legacy LP led part of the market that's always been

Great, thank you.

Sure.

Thank you. And we'll move next to Finn Budish with Barclays. Please go ahead.

Hey, good morning, and thank you for taking my question. I think you mentioned interval funds for mass market model portfolios. Can you really talk about what these look like? How might liquidity need to be structured differently as you go maybe a little farther down market? And maybe what's the timing? What should we be looking for over the next 12 months with these kind of initiatives? Thank you.

Thanks for the question. Without getting into too much of the I think the key is interval fund structures will be the path forward to move down. Thank you for joining us. is buying the product with the 5% quarterly liquidity and seems very happy with it. So I'm not sure that the expectation in the market is that the wealth channel is expecting liquidity to change. I think it's more about what does it look like to get onboarded, what's the subscription process, and I think that for a segment of the market that's used to buying Q-SIPT Securities. The Interval Fund is probably just going to be more familiar and easier. A lot of what we now have the opportunity to do as well around product extension is, when you think about our eight products in real estate, global direct lending, diversified credit, core infrastructure, etc., we now have building blocks that could be Thank you for all that. Sure. Thank you.

And we'll move next to Mike Brown with UBS. Please go ahead.

Great. Good morning. Thanks for taking my question. Mike, I wanted to ask on digital infrastructure, where it's still a relatively small percentage of the firm wide AUM today, but it does stand to be a significant growth driver for FRE over the next several years.

So as the platform scales, new funds come to market, Any updated views on how we should think about the longer-term fee rate, bargain profile, the business versus the broader real asset segment, particularly given the vertical integrated development model that you have? Thank you.

I'm going to let Blair take that one because he's doing a lot of work driving that business formation and growth forward. So, Blair, if you want to take that.

Sure. It's a great question. I think the first thing to say is that We continue to have a lot of excitement and conviction in the business, which we added to the firm at the beginning of last year when we folded GCP International into areas. And as we think about the development, that business came with a very large seed portfolio, which is incredibly So from an investor perspective, when they look at what's available, they see 700 megawatts of development opportunity that they can identify, and that's helping to drive the strong fundraising momentum that Mike mentioned earlier. As we think about how that rolls out from a profitability perspective, I'd say that the rack rate fees and economics on the fund are very attractive and in line with other ARIES offerings. One slight difference, as you noted, is that we do have a vertically integrated model. So we're able to articulate to the investor base that the existing team can deliver good service, controlled outcomes, whereas maybe our peer set would pay more to outsource those capabilities. So we charge back the cost of that team to the fund, which ultimately we think leads to better returns for the ambassadors, but also better economics for Ares. When we flow all of that through, I think we talked to all of you last fall in Baltimore about our forecasts for how that would flow through to the Aries, FRE, P&L. I think we said 50 to 100 million of FRE in 2027 and beyond. I think we would say that we feel very, very good about that forecast based on what we see today, given the portfolio, the fundraising traction, and the economics to the firm.

Thanks, Blair. Great to hear from you.

Thank you. And we'll take our next question from Bart Dzierski with RBC Capital Markets. Please go ahead.

Great. Good morning. Thanks for taking the question. Wanted to ask around GCP. I would love just a mark-to-market update on how that transaction is going in terms of performance and maybe tie that into relative to the earn-out objective set when you completed the deal. Thanks so much.

Yeah, thanks for the question. I could not be more pleased with the progress that we've made. Again, if folks remember the investment thesis for the acquisition, and this is consistent with what I talked about earlier with regard to just the M&A framework, was market-leading business in Japan, both institutional and retail through our market-leading JREIT. Consolidated growth in our industrial logistics platform globally and then breakout growth opportunity in data center development and digital infrastructure. We have made significant progress on all three. If you were to look at the Japan business, as we talked about in the prepared remarks, we are in the market with the next vintage of our institutional development fund, and that will get to its hard cap and be significantly larger than prior. Very quickly out of the gate, we closed a significant data center fund in Japan, probably larger than we had originally expected. and our global real estate teams have already consolidated our logistics platform globally. We have reorganized our business under a global brand mark logistics, and we have integrated the teams and realized both revenue and expense synergy there. And then on the digital side, as Blair said, you know, we could not be happier with the You know, the momentum that we have on the data center development side, and I think we're really pleased with the way that that fund family is growing as well. You know, you tend to know very quickly whether you got it right, and I would say culturally, absolutely got it right. The teams are fully integrated, working well together. Strategically, the synergy is what we hoped it would be. Obviously, financially, the combination of the revenue coming in probably a little bit quicker, and to Jarrod's point, getting out of the PSA, and to Blair's point, getting charged back on the development platform, I think that we're going to see an acceleration of earnings coming off of that business. That does have implications for the earn-out, and so we would expect that, with that continued momentum, that an earn-out will get paid. One of the beautiful things about that, though, is the way that we structure these transactions is the earnouts are milestone-based, but usually refer to fundraising, management fee, and or FRE growth. And when they get paid, it effectively is reflected as buying down our multiple. And so one of the ways that we're able to drive performance and align performances through these earnouts, but when they get paid, they actually come in at a Thank you. And we'll move next to Brennan Hawken with BMO Capital Markets. Please go ahead.

It's back on for Brennan. Gross-to-net performance remained relatively resilient despite industry-wide pressure. What factors have helped support spreads and economics in the middle market and what would need to occur for gross-to-net trends to improve meaningfully from current levels?

Well, you know, gross-to-net has been Fairly consistent. I think Court did a really nice job, and Jim on the ARCC call, talking a little bit about improving conditions competitively and from a return perspective in the direct lending market. So they leaned in pretty heavily to incumbent relationships in the quarter. About 75% of the USTL deployment was to existings. That will tend to show itself differently from a gross to net standpoint than when we're more active in the primary market. So I don't know that a lot needs to happen to see that gross to net improve quarter over quarter. Just referencing some of my prior commentary around how the pipeline is developing into the back half of the year and the momentum we're seeing in the sponsor M&A market. I think that that 75% number is obviously going to be lower this quarter. I think to their credit, They were able to deploy actively while probably being more selective than they had been in quite some time. The court talked a lot about just the lower closing rate this quarter relative to historical averages, and I think that was a reflection of their experience and understanding that the market is improving. from a spread and return perspective, and our competitive advantage is improving as some of the retail-heavy competitors are not forming capital to the same extent that we are. And so the opportunity to deploy more aggressively into an improving market, I think, is also a big driver. So I don't think a lot needs to happen. I think we just got to let the market continue to play out the way that it has been, and you should see that number normalize.

Thank you. And we'll move next to Devin Ryan with Citizens Bank. Please go ahead.

Thanks, good morning. Mike and Jarrod, most have been asked here, but I want to ask a question just on insurance.

You saw fee-paying AUM increase 54%, so materially faster than kind of broader platform. Just love to get a little bit more color on what's driving that and just the bigger picture kind of long-term opportunity that you see and just how much insurance could meaningfully change kind of the deployment visibility across alternative credit or infrastructure debt over time. Thanks.

Yeah, look, we're really, really pleased with the growth and continued kind of evolution and maturation of our insurance platform, both Aries Insurance Solutions, where we have been adding capability and management talent, as well as the growth of our Aspita platform. We have been quite public in articulating our view of the insurance market and how important it is to our future growth, but how similar to our views on diversifying between wealth and institutional fundraising that we want to maintain our diversification between our captive and affiliated insurance business and our third-party clients. and so we've just chosen to build that business balance sheet light and as focused on third-party insurance clients and partners as as driving the the you know kind of unfettered growth of the speeda we do have everything we need to continue to hit the targets that we laid out at our investor day both in terms of our annuities platform but also our reinsurance business And we feel really good about it. If you look at this quarter's production, we did about $2 billion of growth in both channels, and I think that that's kind of a healthy place for us to be. I do think your question just about the importance of insurance to driving things like digital infrastructure, credit, real estate credit is a good thing to point out. Obviously, one of the benefits of building that business is it enhances our origination, not just on the high grade, but also supporting The sub-investment grade part of the business as well. And so a lot of the talent ads and capability ads have been driven to further integrate that origination capability into the business.

Great. Thanks so much.

Thank you. And we'll move next to Wilma Verdes with Raymond James. Please go ahead.

Hey, good morning. If ARIES institutes new structures for private BDC redemptions by geography, how long would it take before ARIES has some protection from outsized redemptions from certain regions? Thanks.

Sure. I think it's really about flows from here and structure on shared classes on new product as well. So I think Going forward, to the extent that we implement some of the new features around lockups and redemption penalties and regional redemption queues, that would be Thank you for joining us. So, again, I feel good about both, but I don't know that, you know, the forward stuff you're not really going to see. It's more about just working through that remaining $600 million redemption queue.

Thank you.

Thank you. And we will take our last question from Michael Cypress with Morgan Stanley. Please go ahead.

Hey, thanks for squeezing me in here. Just a question on AI. As you look across your portfolio companies, curious where you're starting to see tangible revenue and EBITDA lift or even market share gains from portfolio companies adopting AI. And when you think about the scope for AI dramatically changing workflows and increasing automation, where do you think those changes could be most meaningful to the bottom line and over what time frame?

Yeah, it's a really broad question, Michael, but I appreciate it. We touch so many different types of businesses and assets. I think the opportunity for efficiency gains and margin improvement are significant, and we're seeing it across the portfolio. We're also seeing it across areas, you know, both the deployment of what we call productivity AI just for some of the off-the-shelf tools or increasing capacity within our teams. And then as we build out our applied AI frameworks and deploy those, we're seeing significant opportunities in places like Workforce automation around some of our repeatable functions, RFPs, DDQs, AML, KYC. A lot of our investment teams are already harnessing a lot of our proprietary data to inform origination and portfolio management decisions. Our legal teams are deploying it around the reading and comparing of legal documents. It's not an easy question to answer other than to say that the deployment at ARIES and within the portfolio is broad-based and we're already seeing the benefits in terms of capacity increasing and margin improvement. I think the biggest opportunity for us once we get through that what I would call first phase is just harnessing all the proprietary data that we have here, not just on the deals that we do and the deals that we own, but the deals that we don't do and then redirecting that data into better decision making and the early indications are that that's going to be very, very value accrued to us.

Great. Thank you.

Thank you. Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available through August 31, 2026 to domestic callers by dialing 1-800-839-5676 and to international callers by dialing 1-402-220-2565. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website.