Yahoo Finance Ares Management Corp (ARES) (Q1 2024) Earnings Call Transcript Highlights: Robust Growth and ...
Revenue: Management fees totaled over $693 million, up 15% year-over-year.
Net Income: Realized net performance income was $10 million in Q1, up from $7 million a year ago.
Earnings Per Share (EPS): After-tax realized income per share of Class A common stock was $0.80, up 13% from Q1 2023.
Assets Under Management (AUM): Increased to $428 billion, up 19% year-over-year.
Fee-Related Earnings (FRE): Totaled $302 million, an 18% increase from Q1 2023.
Dividend: Declared Q2 common dividend of $0.93 per share, a 21% increase year-over-year.
Capital Raised: Over $17 billion in gross capital raised in Q1.
Deployment: $18.6 billion in gross deployment activity, a 52% increase over Q1 last year.
Fund Performance: Credit strategies saw gross composite returns ranging from 3% to 7% for the quarter.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Ares Management Corp (NYSE:ARES) reported strong first quarter results with double-digit year-over-year growth in key financial metrics, including a 19% growth in Assets Under Management (AUM).
The company declared a second quarter common dividend of $0.93 per share, representing a 21% increase over the same quarter a year ago.
Ares Management Corp (NYSE:ARES) experienced robust fundraising, raising over $17 billion in gross capital during the quarter.
The firm's net accrued performance income balance increased by more than $55 million year-over-year, despite realizing $136 million in net performance income over the past 12 months.
Ares Management Corp (NYSE:ARES) is well-positioned for future growth with a record amount of dry powder and 28% growth in AUM not yet paying fees.
Negative Points
First quarter realizations were seasonally light, leading to realized income being comprised entirely of more stable fee-related earnings.
The current geopolitical risks, sustained inflationary data, and high interest rates could pose challenges to the financial markets and Ares Management Corp (NYSE:ARES)'s operations.
Despite strong gross deployment activity, the net deployment was more muted, which slowed growth in fee-paying AUM.
The company's European-style funds' realizations are more seasonal and concentrated in the fourth and second quarters, which could lead to variability in performance income.
Ares Management Corp (NYSE:ARES) faces intense competition in the syndicated loan market, which could impact transaction volumes and profitability.
Q & A Highlights
Q: What are you seeing from other asset managers and bank syndications in terms of demand and how is this translating into spread? A: Michael J. Arougheti - Ares Management Corporation - Co-Founder, CEO, President & Director: We're seeing high quarter-over-quarter and year-over-year gross deployment in private credit, gaining market share. Transaction activity is more skewed towards refinancing than new issues. Spreads have tightened, and until new activity accelerates, they may tighten a bit more. However, pipelines indicate that spreads could stabilize. Our diverse fund structure gives us a capital advantage through cycles.
Q: What is the outlook from private equity sponsors and independent private companies for new issues? A: Michael J. Arougheti - Ares Management Corporation - Co-Founder, CEO, President & Director: We expect a pickup in M&A activity, influenced by stabilized rates and significant LP demand for capital return. This should accelerate transaction activity. The advisory community indicates that the shadow pipeline is picking up, and we're optimistic about increased transaction activity in real estate as well.
Q: Can you elaborate on the opportunities in the third-party insurance space and the fee structures involved? A: Michael J. Arougheti - Ares Management Corporation - Co-Founder, CEO, President & Director: The insurance opportunity is significant, especially with our market-leading position in private credit. Our affiliated insurance platform, Aspida, is on track to reach $25 billion AUM by 2025. We earn administrative fees on the entire balance sheet and arm's length fees on sub-advised strategies. The financial benefits are reflected in our alternative credit and secondaries business lines.
Q: What are the biggest sources of management fee growth outside of credit? A: Michael J. Arougheti - Ares Management Corporation - Co-Founder, CEO, President & Director: Our real assets platform, including real estate and infrastructure, continues to grow. We expect significant management fee growth from our infrastructure debt fund, given the undercapitalization in digital infrastructure financing. Our insurance solutions practice is also a key growth driver.
Q: How do you see the opportunity in opportunistic credit unfolding in a prolonged higher-for-longer rate environment? A: Michael J. Arougheti - Ares Management Corporation - Co-Founder, CEO, President & Director: Opportunistic credit is a significant growth area, especially as companies grapple with increased interest burdens. We offer a range of liquidity solutions to institutional owners needing to extend their investment horizons due to rate changes. This includes structured debt and equity solutions to reduce cash burdens and provide runway for executing business plans.
Q: What are your expectations for the gross versus net origination ratio in the coming quarters? A: Michael J. Arougheti - Ares Management Corporation - Co-Founder, CEO, President & Director: Historically, about 75% of our gross deployment in private credit translates to net deployment. We expect the gross to net ratio to improve from Q1 as transaction activity picks up. Our backlog and pipeline are already showing signs of improvement.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
