Ares(US:ARES)2024-02-26 16:00PART I Business Ares Management Corporation is a global alternative investment manager with $418.8 billion AUM, operating across five investment groups and emphasizing disciplined growth and human capital management - Assets Under Management (AUM) reached $418.8 billion as of December 31, 2023, demonstrating a 19% 10-year CAGR and 26% 5-year CAGR232465 - In 2023, Ares raised $74.5 billion in new capital and deployed $68.1 billion2324 - The firm's growth strategy includes expanding product offerings, enhancing distribution channels, increasing global presence, and completing strategic acquisitions, such as the acquisition of Crescent Point Capital in October 2023 to bolster its APAC private equity capabilities2332 - Ares emphasizes strong human capital management, focusing on talent development, diversity, equity, and inclusion (DEI), and environmental, social, and governance (ESG) integration into its investment process394549 AUM Growth and Key Metrics (as of Dec 31, 2023) | Metric | Value (USD) | | :--- | :--- | | Assets Under Management (AUM) | $418.8 billion | | 10-Year AUM CAGR | 19% | | 5-Year AUM CAGR | 26% | | 2023 Gross New Capital Raised | $74.5 billion | | 2023 Capital Deployed | $68.1 billion | | Employees | Over 2,850 | | Direct Institutional Relationships | Over 2,300 | AUM by Investment Group (as of Dec 31, 2023) | Investment Group | AUM (USD Billions) | | :--- | :--- | | Credit | $284.8 | | Private Equity | $39.1 | | Real Assets | $65.4 | | Secondaries | $24.7 | | Other Businesses | $4.8 | Investment Groups Ares operates five distinct investment groups, with the Credit Group being the largest at $284.8 billion AUM, alongside Private Equity, Real Assets, Secondaries, and Other Businesses - The Credit Group is a market leader, with its direct lending strategy alone managing $191.4 billion in AUM across U.S. and European markets8386 - The Private Equity Group expanded its Asia-Pacific presence through the acquisition of Crescent Point Capital in October 202332102 - Beginning in 2024, the Special Opportunities strategy, previously in the Private Equity Group, will be integrated into the Credit Group to form a new opportunistic credit strategy101 Investment Group AUM Breakdown (as of Dec 31, 2023) | Investment Group | AUM (USD Billions) | Key Strategies | | :--- | :--- | :--- | | Credit | $284.8 | Direct Lending, Liquid Credit, Alternative Credit, APAC Credit | | Private Equity | $39.1 | Corporate Private Equity, Special Opportunities, APAC Private Equity | | Real Assets | $65.4 | Real Estate Equity & Debt, Infrastructure Opportunities & Debt | | Secondaries | $24.7 | Private Equity, Real Estate, Infrastructure, Credit Secondaries | | Other Businesses | $4.8 | Insurance Solutions, SPACs | Organizational Structure and Regulation Ares Management Corporation operates as a holding company through its Ares Operating Group, subject to extensive U.S. and international financial regulations, and maintains a multi-class stock structure - AMC is a holding company and operates and controls the business through its general partner interest in the Ares Operating Group137 - The multi-class stock structure (Class A, B, C, and non-voting) grants significant voting control to the Holdco Members, making Ares a "controlled company" under NYSE rules139497 - The firm's businesses are subject to extensive regulation by governmental and self-regulatory organizations in the U.S. and foreign jurisdictions, including the SEC, FINRA, the U.K.'s FCA, and Luxembourg's CSSF149152160 Risk Factors Ares faces significant risks from market volatility, complex regulations, intense competition, operational failures, and its multi-class stock structure, all potentially impacting financial performance and reputation - Business & Market Risks: Difficult market conditions, inflation, and political instability can reduce investment values, hamper performance, and limit the ability to raise or deploy capital; the business is intensely competitive and depends on raising capital from investors179187193 - Regulatory & Compliance Risks: The company operates in a complex and extensive regulatory environment; changes in laws, increased scrutiny (especially regarding ESG), and failure to comply with regulations like "pay to play" could lead to significant liabilities, increased costs, and reputational damage236306309 - Fund & Performance Risks: Poor performance of funds can lead to lower revenues, repayment of previously paid carried interest ("clawback"), and difficulty raising future funds; the use of significant leverage, investments in illiquid or high-risk assets, and subjective valuation methodologies pose substantial risks214395382 - Organizational & Structural Risks: The company's multi-class stock structure concentrates voting power with Holdco Members, making it a "controlled company" and limiting the influence of Class A stockholders; potential conflicts of interest may arise between different stockholder classes494497509 - Operational Risks: The business is exposed to operational risks, including cybersecurity failures, data security incidents, employee misconduct, and dependence on third-party service providers, which could disrupt operations and cause financial or reputational harm366566 Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None585 Cybersecurity Ares maintains an enterprise-wide cybersecurity program aligned with NIST, overseen by the CISO and board, with no material breaches in the last three fiscal years - The company's cybersecurity strategy is aligned with the National Institute of Standards and Technology (NIST) Cybersecurity Framework and is managed by an internal team led by the CISO586592 - Oversight is provided by the cross-functional Enterprise Risk Committee (ERC) and the audit committee of the board of directors, with periodic reporting from the CISO587593 - The company has not experienced a material information security breach in the last three fiscal years and does not consider any current cybersecurity risks reasonably likely to have a material impact590 Properties Ares leases its principal executive offices in Los Angeles and other global locations, owning no real property, which management deems suitable for operations - The company's principal executive offices are leased at 2000 Avenue of the Stars, 12th Floor, Los Angeles, California594 - Ares does not own any real property and leases all its office spaces worldwide594 Legal Proceedings As of December 31, 2023, the company was not subject to any material pending legal proceedings that would significantly impact its financial condition - As of December 31, 2023, the company was not subject to any material pending legal proceedings595 Mine Safety Disclosures This item is not applicable to the company - Not applicable596 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Ares Management Corporation's Class A common stock trades on the NYSE under "ARES", with a dividend policy aligned to fee-related earnings, and no issuer share repurchases in the period - The company's Class A common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol "ARES"599 - The dividend policy is to provide a fixed quarterly dividend based on expected fee-related earnings after an allocation of current taxes paid, with the amount reassessed annually603604 - No issuer purchases of equity securities were made during the period602 Quarterly Dividend per Share | Year | Quarterly Dividend per Share (USD) | Annual Dividend per Share (USD) | | :--- | :--- | :--- | | 2022 | $0.61 | $2.44 | | 2023 | $0.77 | $3.08 | | 2024 (Q1 Declared) | $0.93 | - | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Ares achieved strong growth with $418.8 billion AUM and $1.16 billion Fee Related Earnings, primarily driven by the Credit Group, while maintaining a robust liquidity position - Global markets finished 2023 positively despite volatility, with U.S. and European high-yield bonds and leveraged loans showing positive returns; private markets faced valuation pressures and muted realization opportunities, highlighting the need for flexible capital solutions616617 - As of December 31, 2023, the company had $111.4 billion in available capital and $62.9 billion in AUM not yet paying fees, which could generate approximately $621.6 million in potential incremental annual management fees621643 - On a consolidated GAAP basis, total revenues increased 19% to $3.6 billion, and net income attributable to Ares Management Corporation increased 183% to $474.3 million for the year ended December 31, 2023696 Key Performance Metrics (Year Ended Dec 31) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | AUM | $418.8B | $352.0B | 19% | | FPAUM | $262.4B | $231.1B | 14% | | Fee Related Earnings (FRE) | $1,163.7M | $994.4M | 17% | | Realized Income (RI) | $1,265.5M | $1,131.0M | 12% | Results of Operations by Segment In 2023, the Credit Group drove segment growth with 29% FRE increase, while Real Assets declined due to lower performance fees, and Private Equity and Secondaries saw mixed results - Credit Group: Growth was driven by a $333.3 million (24%) increase in management fees, including a $109.6 million rise in Part I Fees from ARCC, CADC, and ASIF, and a $95.8 million (134%) increase in fee-related performance revenues743745747 - Real Assets Group: The decline was primarily caused by a $167.4 million (100%) decrease in fee-related performance revenues, as non-traded REITs (AREIT and AIREIT) did not meet performance hurdles in 2023 after generating significant fees in 2022804807 - Private Equity Group: Growth was supported by a $35.3 million increase in management fees from ASOF II deployment and a $7.4 million contribution from the Crescent Point acquisition780 Fee Related Earnings (FRE) by Segment (Year Ended Dec 31, 2023) | Segment | FRE (USD Millions) | % Change YoY | | :--- | :--- | :--- | | Credit Group | $1,257.5 | 29% | | Private Equity Group | $112.5 | 33% | | Real Assets Group | $218.8 | (19)% | | Secondaries Group | $104.4 | (6)% | | Operations Management Group | ($538.1) | (20)% | Liquidity and Capital Resources As of December 31, 2023, Ares maintained a strong liquidity position with $348.3 million cash and $430.0 million credit facility availability, funding commitments and TRA liabilities - Primary liquidity needs include funding investment commitments, operating expenses, debt service, dividend payments, and strategic growth initiatives871 - The Tax Receivable Agreement (TRA) liability, which requires payment to certain unitholders for tax benefits realized by the company, increased to $191.3 million as of December 31, 2023889 Liquidity Position (as of Dec 31, 2023) | Component | Value (USD Millions) | | :--- | :--- | | Cash and cash equivalents | $348.3 | | Available under Credit Facility | $430.0 | | Total Debt Obligations | $2,965.5 | | Unfunded Capital Commitments | $1,030.6 | Quantitative and Qualitative Disclosures About Market Risk Ares is exposed to market, interest rate, and exchange rate risks impacting fund investments and revenues, though management fees are largely insulated from market value fluctuations - Market Risk: The firm's revenue is sensitive to the fair value of fund investments; however, the impact on management fees is mitigated as most are based on committed or invested capital rather than market value, and a hypothetical 10% decrease in fair value would not materially impact management fees910913914 - Interest Rate Risk: The company is exposed to interest rate risk through its variable-rate Credit Facility; a 100 basis point increase in interest rates would increase interest expense on any outstanding revolver balance, while its funds are also exposed, with rising rates negatively affecting fixed-rate securities but benefiting floating-rate securities923924 - Exchange Rate Risk: The company has exposure to foreign currency movements through its international investments and operations, managing this risk through operational hedging and derivative instruments; a hypothetical 10% decline in foreign currencies against the USD is not expected to have a material impact920921922 Financial Statements and Supplementary Data This section incorporates by reference the company's consolidated financial statements and accompanying notes from the F-pages of the Annual Report on Form 10-K - The required information is incorporated by reference to the consolidated financial statements and notes located in the F-pages of the report928 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 - None928 Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2023929 - There were no material changes in internal control over financial reporting during the quarter ended December 31, 2023930 - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified audit report on the effectiveness of the company's internal control over financial reporting as of December 31, 2023933936 Other Information Several executive officers and directors adopted Rule 10b5-1 trading plans in Q4 2023 to pre-establish future sales of Class A common stock Adoption of Rule 10b5-1 Trading Plans (Q4 2023) | Plan Participant | Title | Plan Date | Max Shares to be Sold | | :--- | :--- | :--- | :--- | | Bennett Rosenthal | Director, Co-Founder | Dec 14, 2023 | 250,000 | | David Kaplan | Director, Co-Founder | Dec 14, 2023 | 250,000 | | Michael Arougheti | CEO & President | Dec 14, 2023 | 999,585 | | Antony Ressler | Executive Chairman | Dec 15, 2023 | 2,000,000 | PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders945 Executive Compensation Information on executive compensation is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders946 Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information on security ownership of beneficial owners and management is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders947 Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders948 Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders949 PART IV Exhibits, Financial Statement Schedules This section lists consolidated financial statements, the independent auditor's report, and a comprehensive catalog of exhibits filed with the Form 10-K - This item contains the consolidated financial statements and the report of the independent registered public accounting firm951 - A comprehensive list of exhibits is provided, including the company's certificate of incorporation, bylaws, debt indentures, equity incentive plans, and various material agreements952954956 Form 10-K Summary The company indicates no Form 10-K summary is provided - None961