Ares Management 2026 Q2 Earnings Call

Good morning. Thank you for joining us today for our second 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 certain 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 second quarter earnings presentation, available on the investor resources section of our website, for reconciliations to these non-GAAP measures to 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 September 30th, 2026, to holders of record on September 16th.

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

Thank you, Greg, and good morning, everyone. I hope you're all doing well. Our strong second quarter results highlight the growing diversity and durability of our global platform. The depth of our global institutional platform drove another record quarter of fundraising, and our broad-based global investment capabilities enabled us to remain very active in a slower transaction environment. This drove 17% year-over-year increases in both our AUM and fee-paying AUM to approximately $671 billion and approximately $410 billion respectively. This AUM growth translated into even healthier increases in our fee-related earnings and realized income, which increased 20% and over 30% respectively, as we benefit from our growing scale and strong long-term fund performance. Notably, both growth rates are at the high end or above the long-term growth rate target ranges that we provided at our 2024 Investor Day.

Overall, we're pleased with how we're performing. We remain on track to achieve our financial objectives for the year. The underlying drivers of our future growth continue to improve. We now operate leading franchises in diversified credit, real estate, infrastructure, and secondaries across North America, Europe, and Asia. Beyond direct lending are scaled and leading businesses across asset-based finance, opportunistic credit, liquid credit, global real estate, infrastructure, insurance, and our diversified secondary strategies are increasingly contributing to fundraising, deployment, management fees, and earnings growth. For the second quarter, we raised approximately $36 billion of gross capital, the highest quarter of fundraising in our history. This positions us with a record $170 billion of dry powder and $114 billion of AUM not yet paying fees, which sets us up well for future earnings growth.

We've now raised approximately $66 billion through the first half of the year. We remain on track for another record year of fundraising. The breadth of fundraising across our platform is particularly notable. Approximately 70% of the capital that we've raised this year is outside of our four largest credit fund families, and investors committed capital across approximately 90 different funds and vehicles. This demonstrates the increasing diversification and global reach of our business. We raised our highest ever quarterly amount of capital. This was without a meaningful contribution from our SDL and ACE franchises, neither of which raised equity capital in their flagship commingled funds in the quarter. In our view, our franchise and brand have never been stronger in the eyes of our institutional investors.

Institutional investors account for approximately 75% of our overall AUM and have represented more than 80% of our gross equity inflows over the last 12 months. Ares is viewed as a key strategic partner with the scale, performance, and breadth of capabilities to serve a wider range of portfolio needs during a period where global institutional investors are seeking to consolidate their relationships. We're seeing the benefits of significant investments in our broad origination capabilities, our time-tested investment approach, consistent credit and investment performance, and best-in-class client service. Let me provide some additional details on our various fundraising and investing activities. Starting with fundraising and credit, we continue to see very strong institutional demand across our highly diversified credit strategies and have hit the hard cap on our last two private credit fundraisers.

In alternative credit, which is our asset-based finance strategy, we completed the entire fundraise for Ares Pathfinder Fund III during the second quarter, raising approximately $8.5 billion in equity commitments. The fund significantly exceeded its $6.5 billion target and had demand well in excess of its hard cap. With this fundraise, we've strengthened our market-leading position in the non-rated asset-backed finance sector as we now manage four of the five largest institutional ABS funds in the market. We believe that the addressable market is measured in trillions of dollars, and our investment pipeline continues to expand as we partner with financial institutions and origination platforms across various asset classes. In U.S. and European direct lending, we raised over $12 billion of debt and equity capital during the quarter across our vehicles.

Institutional engagement for the next generation of our U.S. senior direct lending strategy is very strong, including for both our traditional commingled fund and our new evergreen core product. We continue to expect a first close for both products sometime in the fall with additional closings next year. We expect to launch our seventh European direct lending fund early next year. Taken together, our institutional fundraising pipeline remains robust with our two largest fund families in the market with successor funds in the year ahead. Within real assets, fundraising momentum was particularly strong across infrastructure and real estate. In infrastructure, our open-ended core infrastructure fund raised approximately $1.9 billion of equity during the quarter. Demand for the strategy has been exceptional, driven by investor interest in high-yielding, tax-advantaged real assets.

At the same time, the number of power and digital infrastructure assets coming to market across a diverse set of sub-sectors is as high as we've seen, which sets us up well for accelerating deployment. These same trends are driving strong momentum in our sixth infrastructure debt fund. The fund raised approximately $500 million during the quarter and has now raised approximately $3.7 billion. We expect to complete the final close later this year at a level above the $5 billion raised for the prior vintage, including leverage and related vehicles. Recent momentum with this fund reflects an increasingly attractive infrastructure investing environment and strong performance for our infrastructure debt strategy.

We're also seeing strong investor interest in our global digital infrastructure fund, driven by our seed portfolio of attractive entitled and powered projects in top-tier global markets, the persistent and growing demand for computing power, the need for private capital, and the differentiated nature of our operating platform. We anticipate holding a series of meaningful closings in late Q3 and into the fourth quarter and expect to complete the fundraise in 2027. In real estate, we also had an active quarter. Our fifth Japan industrial development fund raised approximately $1.8 billion, bringing total commitments to date to $3.4 billion. We expect to hold our final close in the third quarter at our hard cap and at a level meaningfully above the prior vintage of $2.5 billion based on current exchange rates.

In our real estate debt strategy, we raised approximately $2.8 billion across a new global commingled fund and separately managed accounts. The current environment remains attractive for real estate credit, given early cycle conditions and a broadening of attractive sectors. We're also encouraged by the improving fundraising trends in our non-traded REITs, where inflows have been building each quarter since the fourth quarter of last year. Within the market, gross sales and net flows are improving. As property values stabilize, transaction activity remains positive, and the supply outlook is becoming more favorable across several sectors. Within secondaries, we continue to see good momentum in our global structured solutions strategy, which raised over $500 million in the quarter. We also expect to complete an initial close for our next real estate secondaries fund in the second half of the year.

Investor interest remains strong, with the current fundraising pace both faster and ahead of the level that we were seeing at the same point in the prior vintage. Within our wealth management platform, our diversified product line continues to deliver solid investment performance, distinguishing us in the marketplace. We raised approximately $3.9 billion in gross equity commitments in the second quarter, an increase of approximately 15% from the prior year period, and roughly in line with the approximate $4 billion that we raised in each of the prior two quarters. We've raised approximately $8 billion during the first half of the year, and based on our current pipeline, which includes a strong start to Q3 with approximately $1.5 billion in July, we anticipate a similar level of gross fundraising in the second half of this year.