Ares Management Corporation Class A Common Stock 2026 Q3 Earnings Call

Please go ahead. Good morning, and thank you for joining us today for our third quarter 2026 conference call.

I am joined today by Michael Arougheti, our Chief Executive Officer, and Jarrod Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results, and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in Ares or any Ares fund.

During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our third quarter earnings presentation available on the investor resources section of our website for reconciliations of these non-GAAP measures with the most directly comparable GAAP measures. Note that we plan to file our Form 10-Q early next month. This morning, we announced that we declared a quarterly dividend of $1.35 per share on the company's Class A and non-voting common stock, representing an increase of over 20% over our dividend for the same quarter a year ago. The dividend will be paid on December 31st, 2026 to holders of record on December 17th.

Now I'll turn the call over to Mike, who will start with some comments on the current market environment and our third quarter financial results.

Great. Thank you, Greg, and good morning. I hope everyone is doing well. Our strong third quarter results demonstrate the breadth and increasing diversification of our global platform. While transaction activity was uneven across many of our markets, our leadership and scale enabled us to actively invest $35 billion across a growing array of strategies and geographic markets while maintaining our highly selective investment approach. Institutional investor appetite for our strategies remains as strong as ever and is broadening across sectors and regions. During the third quarter, we once again raised over $31 billion of gross capital. We have visibility on another strong fourth quarter, setting us up for another record year in fundraising. We ended the quarter with $691 billion of AUM and $416 billion of fee-paying AUM, representing year-over-year growth of 16% and 13% respectively.

Importantly, our core earnings metrics continue to grow within our long-term target ranges, and we remain on pace to meet our financial goals for the year. This quarter's results also underscore the expansion of our investment activities, which are increasingly more diversified, resulting from our organic and inorganic growth initiatives. We have scaled several strategies that position us to maintain strong fundraising, deployment, and fee growth through volatile markets. Because many of our businesses provide complementary exposure to various markets, different parts of capital structures, and varying sources of investment supply, we have more strategic paths for growth and greater flexibility to invest where the rel val opportunity is most attractive. During the third quarter, for example, our most active areas of net deployment were European direct lending, alternative credit, and infrastructure equity, which are all benefiting from attractive market dynamics and increasing demand for our scaled capital solutions.

Looking to the fourth quarter, we believe these businesses have the momentum to continue delivering strong results while we expect a pickup in activity in our U.S. direct lending business. From a longer-term perspective, our growth outlook is a function of our ability to originate and manage differentiated investment opportunities in the vast and growing private markets in which we operate across the globe. We believe that our addressable markets across private credit, real assets, and secondaries are in the tens of trillions of dollars. Despite our leading positions in these growing markets, we still have significant upside through further penetration across these markets. Our portfolios also have significant embedded growth opportunities as our underlying companies and asset owners seek additional financing opportunities to support their continuing growth. You can see these dynamics driving growth across each of our businesses.

In credit, we've built leading market positions in nearly every private credit strategy we operate, where scale, relationships, sourcing, and structuring capabilities drive outperformance. We manage a leading liquid credit business with established track records of outperformance. We continue to believe that this collaboration enables us to identify the best real-time rel val for our investors across the private credit, bank loan, and high yield markets. It also serves to hedge deployment and profitability in markets where the loan and high yield markets are more competitive with the upper end of the private credit markets. In real estate, we are one of the largest managers globally with over $126 billion of AUM.

We're seeing the benefits of our vertically integrated capabilities and meaningful geographic scale across North America, Europe, and Asia. In secondaries, AUM has grown approximately 70% over the past two years as we've expanded across private equity, real estate, infrastructure, and credit solutions. We've raised several of the largest institutional and wealth funds in these strategies, and we are rapidly scaling and expanding our fund families. The more recent growth of our infrastructure platform is another important example of the combination of TAM expansion and platform breadth. Our total infrastructure AUM has increased more than 50% over the past year. Our core value add and vertically integrated development and operating capabilities, along with significant debt and equity capital, reinforces our positioning to invest across assets and their capital structures in the current digital and power infrastructure CapEx super cycle.

We have meaningful capabilities across power generation, including as a top 10 owner of renewable assets in the U.S. as of mid-October, as well as data centers, power transmission, and traditional transportation infrastructure like highways and rail. In addition to these longer-term structural trends, the shift in the outlook for higher short-term interest rates is generally constructive for our credit business and firm profitability. At quarter end, 83% of the debt assets in our credit group are floating rate, and higher base rates translate into higher returns for our credit funds, all else equal. That increase in income can be meaningful for our credit fund investors because they receive the benefit of higher base rates without having to take additional risk by moving down the capital structure. Historically, this has also supported fundraising demand for our credit products as investors look to capture attractive floating rate income.

We saw this during the period of elevated rates from the middle of 2022 through the end of 2023. During that period, our credit group AUM increased at an annualized rate of approximately 21%. While we wouldn't assume the same outcome in every rate cycle, history has shown that a higher rate environment can create both stronger current returns for existing credit investors and incremental demand for long-term exposure to the asset class. Of course, higher rates increase interest expense for borrowers, but we believe that our portfolios are in a strong position today with interest coverage in our U.S. and European direct lending portfolios at the end of the third quarter of 2.1 times and 2.3 times respectively, and non-accrual rates are stable and well below historical industry averages.

Combined with loan-to-value ratios that remain near historic lows, meaningful equity cushions, and the larger average size of the companies that we finance, we believe the portfolios remain well-positioned. Turning to fundraising, an illustration of the strong ongoing institutional demand that we're seeing this quarter came within credit. While we had no LP closings in any of our large flagship commingled credit fund families during the quarter, we still raised nearly $15 billion of total capital across open-ended institutional funds, separately managed accounts, and wealth vehicles. This activity represents nearly half of the total gross capital that we raised in the quarter, and our ability to raise this level of capital without a major commingled fund closing demonstrates how broad our franchise has become.

In another sign of strong institutional demand for our private credit funds, last week, we held a first close for our latest U.S. senior direct lending institutional funds, totaling over $8 billion of equity commitments. As previously announced, we launched our fourth closed-end U.S. senior direct lending fund and first institutional open-ended core product just six months ago. The combined first close of these two funds already represents 80% of our target and is 60% greater than the prior vintage's first close. Including anticipated fund level leverage, which will close over time in the coming quarters, fundraising for these initial closings collectively represents approximately $15 billion of total investable capital. We expect additional closes this year, with the fundraising continuing through the first half of 2027. In European direct lending, we expect to launch our seventh institutional fund in the first half of 2027.