Ares(US:ARES)2021-02-24 16:00PART I Business Ares Management is a global alternative investment manager operating across Credit, Private Equity, Real Estate, and Strategic Initiatives - As of December 31, 2020, Ares is a leading global alternative investment manager with $197.0 billion of AUM and over 1,450 employees across more than 25 offices19 - The company's investor base includes over 1,090 direct institutional relationships, with 73% of AUM ($143.1 billion) attributable to this channel91 - Separately Managed Accounts (SMAs) represent $45.0 billion, or 31%, of the direct institutional AUM94 - The company is subject to extensive regulation by governmental agencies in the U.S. and foreign jurisdictions, including the SEC, FINRA, the UK's FCA, and Luxembourg's CSSF125128136 AUM Growth (2010-2020) | Metric | Value | | :--- | :--- | | AUM as of Dec 31, 2020 | $197.0 billion | | AUM a decade earlier | $42.0 billion | | 5-Year CAGR | 16% | | 10-Year CAGR | 17% | 2020 Fundraising and Deployment | Metric | Value (2020) | | :--- | :--- | | Gross New Capital Raised | $41.2 billion | | Capital Deployed (excluding permanent capital) | $26.7 billion | AUM by Investment Group (as of Dec 31, 2020) | Investment Group | AUM (billions) | | :--- | :--- | | Credit Group | $145.5 | | Private Equity Group | $27.4 | | Real Estate Group | $14.8 | | Strategic Initiatives | $9.3 | Risk Factors The company faces significant risks from the COVID-19 pandemic, market conditions, regulations, and reliance on key personnel - The COVID-19 pandemic poses significant risks, having caused severe disruptions in the global economy, affecting industries where Ares and its funds operate156157158 - Difficult market and political conditions, including interest rate changes and geopolitical events, can reduce the value of investments and hamper fund performance172173 - The business is dependent on the ability to raise capital from investors; poor fund performance or economic deterioration could materially reduce revenues184185 - The departure of key personnel could result in the loss of investment opportunities and trigger "key person" provisions in fund agreements186188 - A significant portion of management fees are derived from Ares Capital Corporation (ARCC), and a decline in its assets could adversely affect revenues203204206 - Cybersecurity incidents and data breaches pose a significant threat, potentially causing operational disruptions and reputational damage487491494 - The company may be obligated to repay previously distributed carried interest under "clawback" provisions, with a potential contingent repayment of approximately $326.4 million as of December 31, 2020383384 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments as of the filing date502 Properties The company's principal executive offices and all other global offices are located in leased spaces - The company's principal executive offices are in leased space at 2000 Avenue of the Stars, 12th Floor, Los Angeles, California503 Legal Proceedings As of December 31, 2020, the company was not subject to any material pending legal proceedings - The company reports no material pending legal proceedings as of December 31, 2020504 Mine Safety Disclosures This section is not applicable to the company's business operations - Mine safety disclosures are not applicable to the company's business505 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities This section details market information, dividend policies, and stock repurchase programs for the company's equity securities - The company's Class A common stock trades on the New York Stock Exchange under the symbol "ARES"506 - A stock repurchase program authorizing up to $150 million of Class A common stock was renewed in February 2021, with no shares repurchased in Q4 2020510 - Dividends on the 7.00% Series A Preferred Stock are paid quarterly, totaling approximately $21.7 million in both 2020 and 2019511 Dividend per Class A Common Share | Year | Annual Dividend per Share | | :--- | :--- | | 2019 | $1.28 | | 2020 | $1.60 | | 2021 (Intended) | $1.88 ($0.47/quarter) | Selected Financial Data The company has omitted the tabular disclosure for Selected Financial Data as permitted by recent SEC rule changes - The company has opted not to present the Selected Financial Data table and directs readers to its consolidated financial statements523 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results for 2020, highlighting strong fundraising and performance amid market volatility from COVID-19 - Key business trends in 2020 were dominated by the COVID-19 pandemic, which caused significant market volatility, followed by a rebound in the second half of the year528 - As of December 31, 2020, the company had $40.0 billion of AUM not yet paying fees, representing approximately $428.3 million in potential annual management fee revenue532 - The company's primary sources of liquidity are cash on hand ($539.8 million as of Dec 31, 2020), cash from operations, and an undrawn revolving credit facility721 AUM and FPAUM Growth (2019-2020) | Metric | Dec 31, 2019 | Dec 31, 2020 | Growth | | :--- | :--- | :--- | :--- | | Total AUM | $148.9 B | $197.0 B | 32% | | Fee Paying AUM (FPAUM) | $96.9 B | $126.0 B | 30% | Consolidated Results of Operations (2020 vs. 2019) | Metric ($ in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Total Revenues | $1,764,046 | $1,765,438 | | Total Expenses | $1,450,486 | $1,462,797 | | Income Before Taxes | $379,478 | $425,180 | | Net Income Attributable to AMC | $152,142 | $148,884 | Non-GAAP Financial Measures (2020 vs. 2019) | Metric ($ in thousands) | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Fee Related Earnings (FRE) | $424,450 | $323,659 | 31% | | Realized Income (RI) | $581,956 | $503,486 | 16% | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposures relate to fair value changes, foreign exchange rates, and interest rates - Only 4% of segment management fees for 2020 were from open-ended liquid credit strategies with fees subject to market value changes, mitigating the overall impact768769 - A hypothetical 10% decrease in the fair value of direct investments would result in a decline of $69.1 million in principal investment income772 - A hypothetical 10% decline in foreign currencies against the U.S. dollar would not have a material impact on management fees or performance income775 - The company is exposed to interest rate risk through its $1.065 billion variable-rate revolving credit facility, which had no borrowings outstanding as of December 31, 2020776 Financial Statements and Supplementary Data This section incorporates the company's consolidated financial statements and notes by reference from the F-pages of the report - The required financial statements and supplementary data are incorporated by reference to the F-pages of the 10-K report782 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure782 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020783 - There were no material changes in internal control over financial reporting during the fourth quarter of 2020784 - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified audit report on the effectiveness of the company's internal control786789 Other Information The company amended certain executive equity awards to align "double-trigger" vesting provisions with more recent grants - On February 22, 2021, the company amended certain executive equity awards to make their "double-trigger" vesting provisions consistent with more recent awards795 PART III Directors, Executive Officers and Corporate Governance Required information is incorporated by reference from the company's 2021 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2021 proxy statement796 Executive Compensation Required information is incorporated by reference from the company's 2021 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2021 proxy statement797 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Required information is incorporated by reference from the company's 2021 Proxy Statement - Information regarding security ownership is incorporated by reference from the 2021 proxy statement798 Certain Relationships and Related Transactions, and Director Independence Required information is incorporated by reference from the company's 2021 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2021 proxy statement799 Principal Accounting Fees and Services Required information is incorporated by reference from the company's 2021 Proxy Statement - Information regarding principal accounting fees and services is incorporated by reference from the 2021 proxy statement800 PART IV Exhibits, Financial Statement Schedules This section lists the financial statements and all exhibits filed as part of the Form 10-K report - This section includes the consolidated financial statements and a list of all exhibits filed with the report803804 Form 10-K Summary The company reports that there is no Form 10-K summary - This item is reported as "None"811 Financial Statements Consolidated Statements of Financial Condition Total assets grew to $15.2 billion in 2020, driven by an increase in investments and CLO loan obligations Consolidated Balance Sheet Highlights (as of Dec 31) | Metric ($ in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $539,812 | $138,384 | | Total Investments | $1,682,759 | $1,663,664 | | Assets of Consolidated Funds | $11,573,373 | $9,459,350 | | Total Assets | $15,168,992 | $12,014,196 | | Debt obligations | $642,998 | $316,609 | | Liabilities of Consolidated Funds | $10,641,755 | $8,642,995 | | Total Liabilities | $12,596,852 | $10,155,598 | | Total Equity | $2,471,774 | $1,858,598 | Consolidated Statements of Operations Total revenues remained flat at $1.76 billion in 2020, with higher management fees offset by lower carried interest Consolidated Income Statement Highlights (Year Ended Dec 31) | Metric ($ in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Management fees | $1,150,608 | $979,417 | | Carried interest allocation | $505,608 | $621,872 | | Total Revenues | $1,764,046 | $1,765,438 | | Compensation and benefits | $767,252 | $653,352 | | Performance related compensation | $404,116 | $497,181 | | Total Expenses | $1,450,486 | $1,462,797 | | Income Before Taxes | $379,478 | $425,180 | | Net Income Attributable to AMC | $152,142 | $148,884 | | Basic EPS (Class A) | $0.89 | $1.11 | | Diluted EPS (Class A) | $0.87 | $1.06 | Consolidated Statements of Cash Flows Net cash from financing activities drove a significant increase in year-end cash to $539.8 million Consolidated Cash Flow Highlights (Year Ended Dec 31) | Metric ($ in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($425,659) | ($2,083,021) | | Net Cash Used in Investing Activities | ($136,764) | ($16,796) | | Net Cash Provided by Financing Activities | $943,895 | $2,122,330 | | Net Change in Cash and Cash Equivalents | $401,428 | $28,137 | | Cash and Cash Equivalents, End of Period | $539,812 | $138,384 | Notes to Consolidated Financial Statements Notes detail accounting policies, segment reporting, and extensive use of Level III inputs for fair value measurements - The company consolidates entities where it has a controlling financial interest, including numerous CLOs and private funds848857 - A significant portion of investments are valued using Level III inputs, requiring management judgment and identified as a Critical Audit Matter825868 - As of December 31, 2020, the company had $371.0 million in goodwill and $222.1 million in net intangible assets, primarily from acquisitions928935 - The company had $643.0 million in corporate debt as of December 31, 2020, while its Consolidated Funds had separate, non-recourse loan obligations of $10.0 billion9951001 - The company's ownership of the Ares Operating Group (AOG) was 56.69% as of December 31, 2020, up from 49.70% in 20191077