Ares(US:ARES)2024-11-01 19:39Financial Data and Key Metrics Changes - The company reported an 18% growth in management fees, a 24% increase in fee-related earnings (FRE), and a 28% rise in realized income year-over-year [9][70]. - Total assets under management (AUM) reached $464 billion, up 17% from the previous year, with fee-paying AUM at $287 billion, a 16% increase [70][71]. - The company declared a fourth-quarter common dividend of $0.93 per share, representing a 21% increase over the same quarter last year [6]. Business Line Data and Key Metrics Changes - In private credit, the company raised $20.9 billion in gross new capital during the third quarter, with over $13.5 billion coming from private credit strategies [14][30]. - The third U.S. senior direct lending fund (SDL III) raised $34 billion, nearly double the size of the previous vintage, and is already 30% invested [15][83]. - The company raised $1.2 billion in real estate debt strategies, including over $850 million in European real estate debt [21]. Market Data and Key Metrics Changes - The company noted a constructive macroeconomic backdrop with improving transaction activity and strong fundraising momentum [7][8]. - Institutional and retail investor demand for private credit strategies remains high, despite a decline in reported private credit fundraising in the market over the past three years [12][13]. - The company reported a significant increase in international expansion, with 37% of year-to-date inflows coming from outside the U.S. [29]. Company Strategy and Development Direction - The company is focused on expanding its capabilities in private credit, real estate, and alternative credit, with a strong emphasis on renewable energy and digital infrastructure investments [42][43]. - Recent acquisitions, such as GCP International and Walton Street, are expected to enhance the company's growth profile and diversify its business mix [46][51]. - The company anticipates a record year for fundraising and deployment, with expectations of over $80 billion in gross capital raised for 2024 [30][53]. Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about increasing transaction volumes as the expected rate-cutting cycle progresses, which is expected to broaden deployment across various strategies [8][11]. - The company believes it is well-positioned to capitalize on the growth of private credit and infrastructure investments, driven by a significant need for clean energy and infrastructure [78][79]. - Management highlighted the importance of maintaining a management fee-centric business model and an asset-light balance sheet to support future growth [78]. Other Important Information - The company expects a sequential increase in total fee income and FRE for the fourth quarter, but a lower overall FRE margin due to supplemental distribution fees and increased compensation costs [64][65]. - The company reported a net accrued performance income of $968 million, reflecting strong capital appreciation and income compounding above hurdle rates [72]. Q&A Session All Questions and Answers Question: Challenges to deployments heading into next year - Management noted that while private credit fundraising has declined, larger managers are concentrating capital, and the private credit market remains undercapitalized relative to opportunities [81][86]. Question: Impact of public BDC market on fundraising - Management indicated that the consolidation trend in the public BDC market is rooted in the belief that scale drives performance, and they do not expect a reversal of this trend [87]. Question: Update on origination capabilities - Management confirmed that they do not see a need for additional partnerships to accelerate origination, as they have a strong in-house team and existing joint ventures [91]. Question: FRE margins and future expectations - Management expects slight margin expansion in 2025, driven by deployment, and noted that excluding certain fees could show scaled margin growth [96][98]. Question: Spread compression in the middle market - Management highlighted that spread compression is influenced by a healthy economic backdrop and low default rates, and they expect normalization of spreads as M&A activity increases [105].