Ares Management: A Booming Giant With A Price Tag To Match

Core Insights - The article discusses the increasing trend of pension funds and other institutional investors moving into alternative assets to achieve higher returns in a challenging market environment, with pension fund assets reaching approximately $56 trillion by the end of 2023, of which 20% is allocated to alternative assets, up from 12% in 2003 [2][3]. Company Overview - Ares Management Corporation, founded in 1997, has grown to manage approximately $447 billion in assets, with over 2,900 employees across 35 global offices [5][7]. - More than 25% of Ares' assets under management (AUM) come from pension funds, insurance companies, and banks, highlighting its strong institutional investor base [5][7]. Business Model and Growth - Ares focuses primarily on credit, managing over $320 billion in this space, which has seen significant growth due to increased demand for private loans as banks become more cautious [7][9]. - The company has experienced a remarkable annual compounding growth rate of 19% in AUM since 2011, with AUM increasing from $49 billion in 2011 to $447 billion in 2Q24 [7][8]. - Fee revenues have also risen by 18% annually, reaching $2.8 billion in the four quarters ending 2Q24, driven by a record $26 billion in gross capital raised during that quarter [8][9]. Market Position and Opportunities - Ares is well-positioned in fragmented markets, with only 0.8% of the $40 trillion private credit market and 0.3% of the $202 trillion real estate market, indicating substantial room for growth [9][11]. - The company is optimistic about future growth, expecting to have 3.5 funds in the market with 17 unique strategies to capitalize on the increasing demand for alternative asset allocation [12][14]. Financial Performance - Ares has consistently grown its management fees every year since 2006, with a five-year CAGR of 25% in management fees and 27% in realized income [15][16]. - The dividend yield stands at 2.6%, with a five-year CAGR of 23.2%, reflecting the company's strong financial performance and commitment to returning value to shareholders [17][19]. Valuation and Market Sentiment - Currently, Ares trades at a blended P/E ratio of 35.7x, significantly above its five-year average of 24.7x, indicating that much of the positive outlook is already priced in [21][22]. - Analysts expect 13% EPS growth in 2024, followed by 40% growth in 2025, suggesting potential for further appreciation in stock value, although caution is advised due to high current valuations [21][22][23].