Ares(ARES) - 2021 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION Financial Information - Unaudited The company's Q1 2021 financials show a significant turnaround with $658.4 million in revenue and $58.4 million in net income, driven by strong carried interest and asset growth Condensed Consolidated Statements of Operations (Q1 2021 vs Q1 2020) | Metric | Three months ended March 31, 2021 (in thousands) | Three months ended March 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $658,388 | $13,409 | | Management fees | $320,273 | $263,849 | | Carried interest allocation | $297,535 | ($230,876) | | Total Expenses | $525,109 | $81,959 | | Compensation and benefits | $231,850 | $180,084 | | Performance related compensation | $221,432 | ($167,899) | | Income (loss) before taxes | $190,064 | ($296,413) | | Net income (loss) | $164,310 | ($275,797) | | Net income (loss) attributable to Ares Management Corporation | $58,378 | ($31,036) | | Basic EPS (Class A) | $0.33 | ($0.33) | | Diluted EPS (Class A) | $0.32 | ($0.33) | Condensed Consolidated Statements of Financial Condition | Metric | As of March 31, 2021 (in thousands) | As of December 31, 2020 (in thousands) | | :--- | :--- | :--- | | Total Assets | $16,535,929 | $15,168,992 | | Cash and cash equivalents | $609,872 | $539,812 | | Investments | $1,931,978 | $1,682,759 | | Assets of Consolidated Funds | $12,514,530 | $11,552,171 | | Total Liabilities | $13,084,629 | $12,596,852 | | Debt obligations | $811,279 | $642,998 | | Liabilities of Consolidated Funds | $10,830,988 | $10,641,755 | | Total Equity | $2,420,568 | $2,471,774 | - In February 2021, the company's first sponsored SPAC, Ares Acquisition Corporation (AAC), completed its IPO, raising $1.0 billion and is consolidated in the financial statements[36] - The company completed its acquisition of a majority interest in SSG Capital Holdings Limited on July 1, 2020, which now operates as Ares SSG[39] Management's Discussion And Analysis Of Financial Condition And Results Of Operations Management attributes strong Q1 2021 performance to favorable markets, driving AUM to $207.2 billion and a 38% YoY increase in Fee Related Earnings to $128.5 million - Market performance in Q1 2021 was strong, driven by vaccine rollouts and accommodative monetary/fiscal support, with U.S. leveraged loans returning 2.0% and high yield bonds returning 0.9%[216][218] - In March 2021, Ares agreed to acquire Landmark Partners and in April 2021 raised approximately $828.2 million through a private placement and public offering of Class A common stock[221] AUM and FPAUM Rollforward (in millions) | Metric | Balance at 12/31/2020 | Net New Commitments/Subscriptions | Distributions/Redemptions | Change in Fund Value/Fee Basis | Balance at 3/31/2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | AUM | $196,980 | $10,351 | ($2,991) | $2,818 | $207,158 | | FPAUM | $126,037 | $7,935 | ($3,811) | ($2,573) | $127,588 | - As of March 31, 2021, AUM not yet paying fees was $40.2 billion, which could generate approximately $423.1 million in potential incremental annual management fees[241] Segment Fee Related Earnings (FRE) and Realized Income (RI) (Q1 2021 vs Q1 2020) | ($ in thousands) | FRE Q1 2021 | FRE Q1 2020 | RI Q1 2021 | RI Q1 2020 | | :--- | :--- | :--- | :--- | :--- | | Credit Group | $147,672 | $114,257 | $150,749 | $117,391 | | Private Equity Group | $23,886 | $27,038 | $29,689 | $60,907 | | Real Estate Group | $11,044 | $9,540 | $12,495 | $20,085 | | Strategic Initiatives | $8,927 | — | $6,658 | — | | Operations Management Group | ($63,063) | ($57,731) | ($62,798) | ($64,238) | | Total | $128,466 | $93,104 | $136,793 | $134,145 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposure stems from its advisory role where fees are sensitive to fund investment values, alongside credit and interest rate risks - The company's primary exposure to market risk is related to its role as general partner or investment adviser, with sensitivity to movements in the fair value of fund investments[402] - Credit risk exists with counterparties and is minimized by dealing with reputable financial institutions and employing a rigorous, credit-oriented investment approach[404][406] - There have been no material changes in the company's market risks for the three months ended March 31, 2021[406] Controls And Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that as of March 31, 2021, the company's disclosure controls and procedures were effective at the reasonable assurance level[407] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, these controls[408] PART II—OTHER INFORMATION Legal Proceedings The company reports it is not subject to any material pending legal proceedings as of March 31, 2021 - As of March 31, 2021, the company was not subject to any material pending legal proceedings[410] Risk Factors The primary risk factor is the ongoing COVID-19 pandemic, which could negatively impact portfolio companies in challenged sectors, fundraising, and operations - The COVID-19 pandemic has caused severe disruptions in the U.S. and global economies and could continue to negatively impact the company, its funds, and their portfolio companies[413] - The pandemic has had a particularly severe impact on industries such as energy, hospitality, travel, and retail, where some of the company's funds have investments[414][422] - As of March 31, 2021, approximately 2% of total AUM was invested in the energy sector and approximately 2% in the retail sector, which were challenged by the pandemic[422][423] - An extended period of remote working could strain technology resources and introduce operational risks, including heightened cybersecurity risks[427] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities and no shares were repurchased under its $150 million program during the quarter Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | :--- | | Jan 2021 | — | $— | — | $150,000,000 | | Feb 2021 | — | $— | — | $150,000,000 | | Mar 2021 | — | $— | — | $150,000,000 | | Total | — | $— | — | $150,000,000 | Defaults Upon Senior Securities The company reports no defaults upon senior securities - None reported[435] Mine Safety Disclosure This item is not applicable to the company - Not applicable[435] Other Information The company discloses that an affiliated portfolio company terminated pre-existing contracts with two OFAC-designated entities that generated de minimis revenue - An affiliated portfolio company, Daisy Group Limited, had customer contracts with OFAC-designated Melli Bank Plc and Persia International Bank Plc that pre-dated Ares' investment, generated minimal revenue (£74,774), and have been terminated[433][434] Exhibits This section lists filed exhibits, including amended corporate governance documents and required CEO and CFO certifications - The report includes several key exhibits, such as the Second Amended and Restated Certificate of Incorporation, the Fourth Amended and Restated Limited Partnership Agreement of Ares Holdings L.P., and certifications from the CEO and CFO[437]