Financial Data and Key Metrics Changes - Ares Management achieved a record $994 million in management fees for Q4 2025, totaling $3.7 billion for the full year, representing a 27% increase quarter-over-quarter and a 25% increase year-over-year [28] - Fee-related earnings (FRE) for the full year increased by 30% compared to the prior period, with a record FRE of $528 million in Q4, reflecting a 33% year-over-year growth [31] - Realized income for Q4 reached a record $589 million, with full-year realized income exceeding $1.8 billion, marking a 26% increase from 2024 [34] Business Line Data and Key Metrics Changes - The wealth management business saw AUM grow to over $66 billion, a 69% increase year-over-year, driven by strong performance across semi-liquid wealth products [7][22] - The real estate group raised more than $16 billion for the year, including over $7 billion in Q4, with significant commitments in various real estate strategies [18] - The secondaries group raised $12.9 billion for the full year, with AUM increasing by 45%, nearly doubling in size since the acquisition of Landmark [21] Market Data and Key Metrics Changes - Ares Management's total AUM reached over $622 billion, a 29% increase year-over-year, with $113 billion in total fundraising for 2025 [5] - The company reported a record $46 billion in deployment for Q4, with full-year gross deployment totaling $146 billion, a 37% increase over 2024 [6] - The private equity business reported organic portfolio company EBITDA growth of 13% for the last 12 months in its latest fund, ACOF Six [10] Company Strategy and Development Direction - Ares Management is focused on expanding its investment platform and geographic reach, with significant investments in new data systems and AI projects to enhance decision-making and operational efficiency [7][8] - The acquisition of GCP has positioned Ares as a global top three owner and operator of industrial real estate, contributing to the growth of its real estate and digital infrastructure offerings [7] - The company aims to leverage its diverse strategies across asset classes and geographies to capture growth opportunities, particularly in real assets and secondaries [68] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the improving transaction environment and pent-up demand for private equity sponsors seeking liquidity solutions, supported by a large inventory of seasoned assets and an improving interest rate environment [12][13] - The company anticipates 2026 to be a significant year for realizing European-style performance fees, with expectations for substantial growth in fee-related performance revenues [28] - Management highlighted strong fundamentals across credit portfolios, with loan-to-value ratios near historical lows and improving interest coverage [34][43] Other Important Information - Ares Management declared a 20% year-over-year increase in its first quarter 2026 common dividend to $1.35 per share [3] - The company has a substantial dry powder of $156 billion, positioning it well for future investments [27] - Ares is well-prepared to navigate market challenges, including potential risks from AI disruptions, with a diversified portfolio and strong fundamentals [42][43] Q&A Session Summary Question: Impact of software AI disruption on deployment efforts - Management expressed confidence in their software investments, emphasizing the diversification and stability of their portfolio, and noted that the disruption would not significantly impact overall origination volumes [47][50] Question: Wealth channel performance and sentiment - Management reported strong flows in January and February, with broad-based demand across private credit and core infrastructure products, indicating resilience in the wealth channel despite some cyclicality [54][59] Question: Outlook for real assets and secondaries - Management highlighted ongoing growth in real estate and secondaries, with expectations for significant fundraising and deployment opportunities in these areas [64][71]

Core Insights - Ares Capital Corporation (ARCC) shares increased by 2.3% after the announcement of its fourth-quarter and full-year 2025 results, with quarterly core earnings of 50 cents per share meeting the Zacks Consensus Estimate, although this represented a 9.1% decline from the prior-year quarter [1][8] Financial Performance - GAAP net income for the fourth quarter was $293 million or 41 cents per share, down from $357 million or 55 cents per share in the prior-year quarter [2] - For the full year 2025, core earnings per share were $2.01, beating the consensus estimate by a penny but declining 13.7% year over year; GAAP net income was $1.3 billion or $1.86 per share, down from $1.52 billion or $2.44 per share in 2024 [2] Investment Income and Expenses - Quarterly total investment income was $793 million, an increase of 4.5% year over year, driven by higher capital structuring service fees, interest income from investments, and other income; however, it fell short of the Zacks Consensus Estimate of $796 million [3][8] - For 2025, total investment income rose 2.1% to $3.05 billion, missing the Zacks Consensus Estimate of $3.06 billion [3] - Total quarterly expenses were $406 million, up 4.9%, primarily due to higher interest and credit facility fees and base management fees [4] Portfolio Activities - In the fourth quarter, Ares Capital made gross commitments of $5.83 billion to new and existing portfolio companies, an increase from $3.75 billion in the prior-year quarter [5] - The company exited $4.75 billion of investment commitments in the reported quarter compared to $2.75 billion a year ago [5] - The fair value of Ares Capital's portfolio investments was $29.5 billion as of December 31, 2025 [5] Balance Sheet Strength - As of December 31, 2025, cash and cash equivalents totaled $638 million, up from $635 million as of December 31, 2024 [6] - Ares Capital had $5.5 billion available for additional borrowings under existing credit facilities, with total outstanding debt at $16 billion [6] - Total assets were $31.24 billion, and stockholders' equity was $14.32 billion, with a net asset value of $19.94 per share, up from $19.89 as of December 31, 2024 [6] Market Outlook - Growth in total investment income is expected in the near term due to rising demand for customized financing and lower rates; increased investment commitments are likely to support ARCC's financials [9] - However, expansion strategies may lead to rising costs, and regulatory constraints pose a significant challenge [9]

Core Viewpoint - The recent selloff in software stocks reflects concerns over the disruptive potential of AI, particularly large language models (LLMs), which have shifted from being a supportive factor to a potential threat for established companies in the sector [1][2][9]. Group 1: Market Performance - The S&P 500 software and services index fell nearly 4% on Tuesday and an additional 0.73% on Wednesday, marking six consecutive sessions of losses and erasing approximately $830 billion in market value since January 28 [1][11]. - The software sector has declined nearly 13% over six sessions and is down 26% from its peak in October [11]. - Major technology companies, including Nvidia, Meta Platforms, Alphabet, and Oracle, experienced significant declines, with Nvidia dropping 3.4% and Oracle falling 5.1% [14][18]. Group 2: AI Disruption Concerns - The selloff was triggered by a new legal tool from Anthropic's Claude LLM, which highlights the increasing encroachment of LLMs into the application layer of enterprise businesses [2][3]. - Analysts express concerns that the success of AI LLMs is not guaranteed due to their lack of specialized data crucial for various industries [8]. - The competitive landscape for established companies is perceived to be narrowing as AI products gain traction, raising fears about their long-term viability [10][18]. Group 3: Broader Market Implications - The decline in software stocks has broader implications for asset managers, with concerns that weakness in the software sector could lead to credit issues for alternative asset managers [12]. - A group of asset managers, including Apollo and Blackstone, saw their shares fall between 3% and 11% due to these concerns, although they recovered slightly on Wednesday [12]. - The overall market also faced pressure, with the S&P 500 and Nasdaq Composite losing 0.51% and 1.51%, respectively [14]. Group 4: Expert Opinions - Nvidia's CEO stated that fears of AI replacing software are "illogical," suggesting that the market may be overreacting to the potential of AI [15][18]. - Analysts from JPMorgan and The Wealth Consulting Group argue that the selloff may be exaggerated, positing that improved AI tools could enhance software development and margins rather than replace them [16][17].

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Ares Capital (NasdaqGS:ARCC) Q4 2025 Earnings call February 04, 2026 12:00 PM ET Company ParticipantsBrian McKenna - Director of Equity ResearchJana Markowicz - Partner and COOJim Miller - Partner and PresidentJohn Stilmar - Partner and Co-Head of the Ares Public Markets Investor RelationsKort Schnabel - Partner, Co-Head for US Direct Lending, and CEOScott Lem - CFOConference Call ParticipantsArren Cyganovich - Managing Director and Senior Equity Research AnalystCasey Alexander - Managing Director and Senio ...

Ares Capital (NasdaqGS:ARCC) Q4 2025 Earnings call February 04, 2026 12:00 PM ET Company ParticipantsBrian McKenna - Director of Equity ResearchJana Markowicz - COOJim Miller - PresidentJohn Stilmar - Partner and Co-Head of the Ares Public Markets Investor RelationsKort Schnabel - CEOScott Lem - CFOConference Call ParticipantsArren Cyganovich - Managing Director and Senior Equity Research AnalystCasey Alexander - Managing Director and Senior Equity AnalystDerek Hewitt - AnalystDoug Harter - Director and Sen ...

Financial Data and Key Metrics Changes - The company reported GAAP net income per share of $0.41 for Q4 2025, down from $0.57 in the prior quarter and $0.55 in Q4 2024. For the full year, GAAP net income per share was $1.86, compared to $2.44 in 2024 [17] - Core earnings per share for Q4 2025 remained stable at $0.50, compared to $0.50 in the prior quarter but down from $0.55 a year ago. For the full year, core earnings per share were $2.01, down from $2.33 in 2024 [17] - The company generated a 10% core return on equity (ROE) for the year, consistent with historical averages [18] Business Line Data and Key Metrics Changes - The company achieved record gross originations of $15.8 billion in 2025, with Q4 originations exceeding $5.8 billion, a 50% increase from Q4 2024 [26] - New investment commitments accelerated in the second half of 2025, driven by M&A and LBO activities, with about half of new originations supporting M&A-driven transactions [26][27] - The portfolio at fair value increased to $29.5 billion, a 3% increase from the prior quarter and a 10% increase year-over-year [27] Market Data and Key Metrics Changes - The company added over 100 new borrowers in 2025, setting a new record, and ended the year with a diversified portfolio of 603 borrowers [27] - The weighted average organic EBITDA growth rate of portfolio companies was more than three times that of GDP, indicating strong performance relative to the broader economy [10] - Non-accruals at cost remained stable at 1.8%, consistent with prior levels and below historical averages [32] Company Strategy and Development Direction - The company emphasized its long-term competitive advantages, including team experience, market relationships, and rigorous credit standards, which are expected to support future performance [5] - The focus on specialized industry verticals, such as software and healthcare, has led to differentiated deal flow and a 50% increase in non-sponsored originations [9] - The company plans to maintain its dividend despite potential declines in short-term interest rates, supported by a strong balance sheet and spillover income [14][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate economic volatility and capitalize on market opportunities, particularly in the software sector [56] - The company is closely monitoring market conditions and believes it is well-positioned to benefit from any dislocations in the capital markets [56] - Management highlighted the importance of maintaining a diversified capital base to support consistent lending activities [34] Other Important Information - The company reported a total portfolio at fair value of $29.5 billion, with a net asset value of $14.3 billion, or $19.94 per share, reflecting a slight decrease from the previous quarter [19] - The company has a strong liquidity position, totaling over $6 billion, including available cash [23] - The first quarter 2026 dividend is set at $0.48 per share, payable on March 31, 2026 [24] Q&A Session Summary Question: Concerns about AI's impact on software business performance - Management expressed confidence in their software portfolio, emphasizing that they invest in foundational infrastructure software resistant to technology risk, including AI [38][40] Question: Characterization of deal flow and market conditions - Management noted that most deal flow consists of add-on acquisitions for existing portfolio companies, with limited resurgence in dividend transactions [50] Question: Market dislocation and spread widening - Management explained that recent market volatility did not lead to sustained spread widening, attributing this to the quick recovery of the broadly syndicated market [72][74] Question: Share repurchase program - Management confirmed that share repurchases are always considered based on stock trading levels, but no specific plans were disclosed [76]

Ares Capital Corporation Earnings Presentation Fourth Quarter 2025 Important Notice This presentation has been prepared for Ares Capital Corporation ("Ares Capital") for the benefit of its public stockholders. This presentation is solely for information purposes in connection with evaluating the business, operations and financial results of Ares Capital. This presentation does not constitute, and shall not be construed as, an offer to buy or sell, or the solicitation of an offer to buy or sell, any securiti ...

Core Viewpoint - Ares Capital (ARCC) reported quarterly earnings of $0.5 per share, matching the Zacks Consensus Estimate, but down from $0.55 per share a year ago [1]. Financial Performance - The company posted revenues of $793 million for the quarter ended December 2025, missing the Zacks Consensus Estimate by 0.38%, compared to $759 million in the same quarter last year [2]. - Over the last four quarters, Ares Capital has only surpassed consensus revenue estimates once [2]. Stock Performance - Ares Capital shares have declined approximately 5.4% since the beginning of the year, while the S&P 500 has gained 1.1% [3]. - The stock's immediate price movement will largely depend on management's commentary during the earnings call [3]. Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.49 on revenues of $782.55 million, and for the current fiscal year, it is $1.96 on revenues of $3.2 billion [7]. - The estimate revisions trend for Ares Capital was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6]. Industry Context - The Financial - SBIC & Commercial Industry, to which Ares Capital belongs, is currently in the top 38% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [8].

Asset Management and Investment Portfolio - The company managed approximately $14.6 billion in assets under management through its wholly owned portfolio company, Ivy Hill Asset Management, L.P. (IHAM) as of December 31, 2025[47]. - The investment portfolio primarily consists of first and second lien senior secured loans, subordinated debt, and preferred equity, with debt investments generally ranging between $30 million and $500 million each[39][40]. - The investment portfolio's industrial composition as of December 31, 2025, included 23.8% in Software and Services and 12.4% in Financial Services[55]. - The geographic composition of the portfolio as of December 31, 2025, included 22.9% in the Midwest and 20.3% in the West[57]. - The company monitors 603 portfolio companies, with 14% entitled to board seats or observation rights, representing approximately 24% of the portfolio at fair value[84]. - The company employs an investment rating system that categorizes investments on a scale of 1 to 4, with 1 indicating substantial risk and 4 indicating the least risk[89]. - The company has achieved a realized gross internal rate of return of approximately 13% on exited investments since its IPO, with total proceeds from exited investments amounting to approximately $71.7 billion[59]. Investment Strategy and Risk Management - The company has a rigorous investment selection process that includes extensive due diligence, with approximately 30-40% of initially reviewed investments proceeding to the due diligence phase[67]. - Approximately 10-15% of all investments initially reviewed by the company will be presented to the investment committee for approval[70]. - Only about 3-5% of the investments initially reviewed will result in the issuance of formal commitments and transaction closings[71]. - The company seeks to limit downside potential by requiring financial covenants that enhance credit quality, including leverage and cash flow covenants[77]. - The company has entered into hedging transactions to mitigate interest rate risk, but there is no assurance of their effectiveness[150]. - The company primarily invests in first and second lien senior secured loans, subordinated debt, and preferred equity, with terms generally ranging from three to ten years[72]. - The company may incur significant expenses for evaluating potential strategic acquisition transactions, which could be material to its business[83]. Financial Performance and Debt Management - As of December 31, 2025, the company's asset coverage was 189%, allowing it to borrow up to $2 for every $1 in assets[37]. - As of January 29, 2026, the company had $16.4 billion in total aggregate principal amount of outstanding debt under various debt instruments[124]. - The company had approximately $16.0 billion in aggregate principal amount of indebtedness outstanding as of December 31, 2025[173]. - The weighted average stated interest rate on the company's outstanding indebtedness was 4.9% as of December 31, 2025[169]. - The company must achieve annual returns on total assets of at least 2.5% to cover annual interest payments on its outstanding indebtedness[169]. - The company has completed three debt securitizations through collateralized loan obligations (CLOs) as of December 31, 2025, with total amounts of $476 million, $544 million, and $700 million for ADL CLO 1, ADL CLO 4, and ADL CLO 7 respectively[180]. Regulatory Compliance and RIC Status - The company is regulated as a BDC under the Investment Company Act, adhering to specific regulatory requirements[126]. - The company must distribute at least 90% of its investment company taxable income to maintain its RIC status, limiting available funds for new investments[158]. - Failure to maintain RIC status could result in corporate-level income taxes, adversely affecting net assets and distributions[203]. - The company may face challenges in meeting annual source of income and asset diversification requirements, risking RIC status[203]. - Compliance with RIC requirements may become impractical due to potential changes in relevant provisions of the Code[204]. Market Conditions and Economic Risks - Rising interest rates may increase the cost of debt for portfolio companies, potentially affecting their financial performance and ability to meet obligations[151]. - Inflation has adversely affected the business and financial condition of portfolio companies, increasing costs and impacting consumer spending[152]. - Economic downturns could impair portfolio companies' ability to repay loans, leading to increased non-performing assets and decreased portfolio value[240]. - Legislative actions related to taxes and changes in U.S. tax laws could negatively impact the company and its portfolio companies, affecting long-term financial outcomes[227]. - Changes in U.S. tariff and import/export regulations may harm portfolio companies, potentially leading to reduced access to suppliers or customers and negatively impacting financial results[229]. Strategic Opportunities and Challenges - The company is evaluating potential strategic acquisition opportunities, including other finance companies and asset managers, although no discussions have progressed to a probable completion[83]. - The company may seek to retire or repurchase its common stock and outstanding debt, depending on market conditions and liquidity requirements[125]. - The company faces competitive pressures from various entities, including BDCs, public and private funds, and commercial banks, which may adversely affect its business[183]. - The company competes based on its investment platform, experienced professionals, and focus on middle-market companies rather than interest rates[184]. - The company may lose investment opportunities if it does not match competitors' pricing, which could limit growth and decrease earnings[184]. ESG and Regulatory Scrutiny - The company is subject to increasing scrutiny regarding ESG matters, which may impose additional costs and risks, potentially affecting investor decisions[212]. - Compliance with new ESG regulations, such as the Corporate Sustainability Reporting Directive, could increase management burdens and costs for the company and its portfolio[217]. - Climate change poses significant risks to the company's operations and those of its portfolio companies, potentially leading to increased costs, including insurance[219]. - The company and its portfolio companies are subject to increasing regulatory scrutiny, particularly regarding non-bank lending, which could adversely affect operations and financial condition[225]. Operational Risks - The company relies on key personnel from Ares for future success, and their departure could materially affect operations[154]. - The company is highly dependent on the information systems of Ares Management, and operational risks, including system failures, could disrupt business and affect stock price[234]. - The company faces potential litigation and regulatory investigations, which could be time-consuming and costly, impacting its operations and financial condition[220]. - Increased negative publicity surrounding the private credit industry could harm the company's reputation and affect fundraising efforts[223].