Q1 2025 Ares Management Corp Earnings Call

Speaker Change: please feel free to leave a comment. Thank you so much for listening and I'll see you guys later. Bye-bye.

. .

Please stand by, we're about to begin.

Speaker Change: Welcome to the Ares Management Corporation's first quarter 2025 earnings conference call.

Speaker Change: At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Monday, May 5th, 2025. I will now turn the call over to Greg Mason, co-head of Public Markets Invested Relations for Aries Management. Please go ahead, sir. Thank you very much.

Speaker Change: Good morning, and thank you for joining us today for our first quarter 2025 conference call. I'm joined today by Michael Aragetti, our Chief Executive Officer, and Jarrod Phillips, our Chief Financial Officer. [inaudible]

Speaker Change: We also have a number of executives with us today who will be available during Q&A.

Speaker Change: Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risk and uncertainties, including those identified in our risk factors in our SEC filings.

Speaker Change: Our actual results could differ materially and we undertake no obligation to update any such forward-looking statements.

Speaker Change: 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. Thank you very much.

Speaker Change: During this call, we will refer to certain non-GAAP financial measures, which should not be considered an isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles.

Speaker Change: Please refer to our first quarter earnings presentation available on the Investor Resources section of our website for reconciliation of these non-GAAP measures to the most directly comparable GAAP measures . Note that we plan to file our Form 10Q later this month. Thank you very much.

Speaker Change: This morning, we announced that we declared a quarterly dividend of $1.12 per share on the company's class A and non-voting common stock, representing an increase of 20% over our dividend for the same quarter a year ago. Thank you very much.

Speaker Change: The dividend will be paid on June 30th, 2025, to holders of record on June 16th. Now I'll turn the call over to Mike, who will start with some comments on the current market environment and our first quarter financial results.

Mike: Thank you, Greg and good morning. We hope everybody's doing well. In the first quarter, Ares continue to generate strong financial results, in spite of increased market volatility and growing uncertainty. Thank you very much.

Mike: Our results included year-over-year growth and management fees of 18%, FRE growth of 22% and after-tax realized income per share of Class A common stock growth of 36% [inaudible]

Mike: We also saw continued momentum in our fundraising and deployment activities as well as strong investment performance across our platform.

Mike: On the fundraising front, we raised over $20 billion in gross new capital commitments, which was the highest level for the first quarter fundraising on record, with broad contributions across all major strategies.

Mike: We deployed over $31 billion in the quarter with an improving growth to net deployment ratio of 49% in our private credit strategies. In fact, capital deployment in our drawdown funds increased nearly 20% over the fourth quarter and was the highest first quarter on record. [inaudible]

Mike: The first quarter also marked a significant milestone for Ares as we crossed over half a trillion dollars and reached $546 billion of total AUM, including 45 billion of AUM added through the acquisition of GCP. Thank you very much.

Mike: Overall, both our AUM and fee-paying AUM grew by 27% and 25% respectively on a year-over-year basis.

Mike: However, anxiety and market volatility were building throughout the quarter. Following the announcement of the April 2nd tariffs and subsequent geopolitical events, the market entered a new phase of volatility and uncertainty over the ultimate outcome and impact of tariff policies.

Mike: Activity in the liquid credit and equity markets dropped off significantly, as most banks and liquid market investors move to a risk-off position. [inaudible]

Mike: Since then, the liquid markets have started to thaw but they remain less predictable and highly selective. This is the end of the video.

Aries representative: Fortunately, for Ares, we have a record amount of dry powder and we operate a large array of flexible, private market strategies that can take advantage and gain share during periods of retrenchment. [inaudible]

Aries representative: Today, we have $142 billion of available capital, including over 99 billion in AUM, not yet paying fees. This provides us with significant capital to deploy with meaningful capacity for additional management fee growth.

Aries representative: As many of you know, Ares has a history of demonstrating resilience and growth through periods of extreme market volatility and recession, such as during the global financial crisis and the COVID-19 pandemic.

Aries representative: There are several reasons why we believe that we fare well through these periods of dislocation. We operate a management fee-centered business, which is exemplified by our direct balance sheet investments, being less than 0.5% of our assets under management. Thank you very much.

Aries representative: We have very low balance sheet leverage, and we don't carry any reach out bank deposits or direct insurance liabilities on our balance sheet.

Aries representative: Instead, we primarily operate with long-dated, locked up third-party capital that is match-funded with our assets.

Aries representative: This means that we can be patient when entering and exiting investments across our portfolios and our fund structures are designed so that we are not a foreseller of assets.

Aries representative: Finally, we have large and experienced portfolio management teams that can help us protect or reposition investments in periods of stress.

Aries representative: These attributes of our business and operating philosophy have translated into stable to accelerating growth in AUM and management fees in past market dislocations.

Aries representative: We believe that investors have come to value our ability to invest opportunistically, even in down markets, and some of our best performing funds have been advantages covering recessions or market dislocations.

Aries representative: We believe that our asset light business model places our third party clients first and foremost.

Aries representative: Given the uncertainty over the path of economic growth, we believe that we also benefit from being overweight in assets that are senior to equity in the capital structure.

Aries representative: We believe that these credit assets are more defensive and insulated from changes in cash flows and market values.

Aries representative: In addition, when it becomes more difficult to sell companies or assets, it can be easier to deploy capital and credit as the need for more creative financing solutions increases.

Aries representative: including our credit products within our real estate, infrastructure, and secondary strategies more than 72% of our total AUM is in credit-related products and over 92% of these credit assets are senior loans.

Aries representative: As we assess the quality of our corporate credit portfolios today, we believe that we are entering this period of uncertainty from a position of strength.

Aries representative: The initial assessment of our portfolios reveals a limited direct exposure to changes in tariff rates.

Aries representative: As a firm, we're more focused on domestic, middle-market, service-oriented businesses that tend to have less exposure to international markets and global supply chains. [inaudible]

Aries representative: While we will remain actively engaged with our portfolio companies and are carefully monitoring any primary or second order impacts from tariffs, we are optimistic about our ability to navigate any issues that arise in the portfolio. Thank you, William.

Aries representative: and as Jarrod will highlight later our corporate loan portfolios are performing well and remain conservatively positioned. Thank you very much.

Aries representative: Carris should drive up construction costs which might constrain supply and markets that are already supply constrained. [inaudible]

Aries representative: This, coupled with a decrease in cost of capital and lower interest rates should improve values of real estate held and spur transaction activity. Thank you very much.

Aries representative: Now, let me turn to some quarterly operating highlights to give you more details on our recent performance and key trends driving the business.

Aries representative: We experienced the highest first quarter of fundraising activity in our firm's history as we benefited from a wide product set of funds currently in the market.

Aries representative: Over 45% of our quarterly fundraising came from outside the credit group as we experienced improving inflows across real estate, infrastructure debt, secondaries, and private equity.

Aries representative: Within credit, our third opportunistic credit fund completed its first close this quarter, now having raised approximately $4.6 billion from a group of new and existing investors.

Aries representative: This is a great start for the next vintage in this fund series, which is particularly well positioned to take advantage of market volatility in both the public and private markets.

Aries representative: Our public and private BDCs combined raised over four billion dollars of AUM in the quarter, and our semi-liquid European direct lending product raised over six hundred and thirty million, and now stands at over three billion in AUM after only fifteen months. [inaudible]

Aries representative: We believe that's the largest fund of its kind in the market.

Aries representative: Our open-end core alternative credit fund raised approximately $400 million and surpassed $6 billion in AUM. And we also issued two new CLOs in the quarter raising a billion dollars in the aggregate. Thank you.

Aries representative: Within real estate, we raised over $3.1 billion of commitments across our 11th value-add real estate equity fund, our real estate debt funds, and our open-ended logistics real estate funds in the US and Japan.

Aries representative: Our first Japan data center development fund raised approximately $1.5 billion in first closing and we anticipate holding a final close for this fund in the near term.

Aries representative: In infrastructure debt, we raise an additional $1 billion across our sixth infrastructure debt fund and related vehicles. We also saw a pickup in flows to our non-traded reeds which raised 400 million. [inaudible]

Aries representative: Our Secondaries Group continues to generate significant investor interest with $2.3 billion in new commitments across PE, credit, infrastructure and real estate funds.

Aries representative: III, Infrastructure, Secondaries Fund, just crossed two billion in total commitments, more than double the previous vintage, and we expect to hold the final close this summer.

Aries representative: In private equity secondaries, APMS now has exceeded $3 billion in AUM and we're also seeing good momentum across our institutional products.

Aries representative: and within private equity we raised an additional approximately $1 billion in our seventh corporate private equity fund and we expect to hold a final close this summer.

Aries representative: So, as we think about fundraising for 2025 and how it could be impacted by the current market uncertainty, we believe that we're well positioned due to the strength in the institutional channel and the global diversity of our investor base. [inaudible]

Aries representative: We have deep relationships with our LPs who tend to be repeat investors across our funds and strategies as they seek to consolidate with key relationships. . .

Aries representative: During the first quarter, nearly 63 percent of our fundraising came from institutional investors across more than 30 funds and numerous SMAs, of which over 85 percent was from existing investors.

Aries representative: Our fundraising is becoming increasingly diverse across our fund strategies, and almost all of it is derived from third-party investors.

Aries representative: Importantly, we've historically experienced more consistent capital allocations from institutional investors through periods of volatility as they systematically invest across ventages and asset classes with less reaction to immediate trends in the public markets.

Aries representative: Within the wealth channel, we believe the largely under penetrated opportunity to offer institutional quality alternative products to private wealth investors remains one of the best strategic growth avenues for Ares.

Aries representative: Our team continues to expand into new regions and add new distribution partners across the globe.

Aries representative: With the addition of two new products, our Open End Infrastructure Fund, which began taking monthly subscriptions in the first quarter, and now has over $500 million in AUM.

Aries representative: and our open-ended sports media and entertainment product, which is now open for monthly subscriptions, our line-up covering the market opportunity is extensive across durable income, real assets and diversified growth products.

Aries representative: During the first quarter, our strong momentum in the wealth channel continued as we raised a record $3.7 billion in quarterly equity commitments and $5 billion in total commitments across our eight perpetual semi-liquid products.

Aries representative: These products accounted for approximately 25% of our gross inflows during the quarter.

Aries representative: While it's early in the path ahead is uncertain, we're encouraged by the private wealth inflows that we saw in the month of April , which totaled $1.2 billion in equity commitments. [inaudible]

Aries representative: Our expectation is that our differentiated fund performance coupled with the less volatile nature of alternative assets and the ability to buy and sell at NAV should demonstrate the relative advantages of a private market investing over time.

Aries representative: As we look forward to the remainder of the year, new MNA transactions and activity levels are likely to be slower until there's more certainty on tariffs and the impact of the economy. Thank you very much.

Aries representative: That said, there's great excitement and energy from our deal teams as they sense less competition from traditional capital providers and potentially enhanced investment opportunities due to the change in market conditions.

Aries representative: While the full impact from the tariffs will take time to be absorbed across the markets, we're encouraged that the size of our firm wide investment pipeline across our investment groups is relatively unchanged compared to where it was three months ago. Thank you very much.

Aries representative: Our investment teams are continuing to see significant opportunities with some strategies such as opportunistic credit, alternative credit, and secondaries expecting to see an acceleration and deal flow. Thank you very much.

Aries representative: and in real assets, we're continuing to see meaningful opportunities associated with the demand for data center capacity and the need for power generation. Thank you for your attention.

Aries representative: Our Corporate Private Equity team recently signed three new growth by-out transactions and our secondary's group is originating a growing number of opportunities as traditional off-frams for capital are becoming less available. Thank you very much.

Aries representative: A speed up is well positioned following the completion of its equity raise last year and currently has over 20 billion dollars of new investment capacity

Aries representative: Benefiting from its tech-enabled platform and growing scale, Aspita continues to have strong momentum in primary

Aries representative: and on the reinsurance front, we're actively engaged with new partners across both the US and the APEC regions.

Aries representative: So overall, we expect to remain active and opportunistic during this volatile period.

Aries representative: And before I turn the call over to Jarrod, I do want to mention that the integration with GCP International is going very well and we are just beginning to execute on the many synergy opportunities that we identified. Thank you very much.

Aries representative: The business is performing well, early fundraising momentum is encouraging, and we're excited for the growth opportunities ahead.

Aries representative: And now Jarrod, will you walk us through additional details on our financial results?

Jarrod Phillips: Absolutely Mike. Good morning everyone. As Mike stated, we had a strong start to 2025 in the first quarter. We surpassed half a trillion dollars in AUM for the first time in our history and we continue to build our future management fee and performance fee potential. Thank you very much.

Jarrod Phillips: We experience meaningful year-of-year growth in management fees, FRE, and after-tax realized income per share of Class A common stock, largely driven by organic growth.

Jarrod Phillips: We have a growing amount of approved net performance income in our European style funds and saw strong fund performance across many of our key products during the quarter.

Jarrod Phillips: Looking forward, given the combination of our large and experienced investment teams, long-duration capital with flexible investment mandates, a stable asset-like business model, and one of the highest ratios of dry powder to AUM in the industry, we believe we are well prepared to navigate the current economic and market uncertainty.

Jarrod Phillips: Let me walk through a high-level summary of our quarterly results.

Jarrod Phillips: Management fees were a record $818 million, representing an 18% year-over-year increase. Other fees, nearly doubled year-over-year as development fees from several GCP funds were additive in the quarter.

Jarrod Phillips: GCP enhances our vertically integrated capabilities in real estate, which enables us to generate additional leasing development and property management fees.

Jarrod Phillips: All of these fees are recorded in our other fee revenue line which we expect will be more significant, but also a little more lumpy over time.

First quarter, fee-related performance revenues, total 28 million dollars.

A significant increase from the $4 million in Q-124. Thank you for joining us today.

Jarrod Phillips: APMS contributed to the FRPR and Q1, and we also benefited from a European direct lending SMA that crystallized the deferred payment.

Jarrod Phillips: We continue to expect the majority of our credit group FRPR for the year, we realize in the fourth quarter.

Jarrod Phillips: In real estate, we are seeing improved performance from both of our non-traded reeds as they're getting closer to their respective eyewater mark performance levels, but we're still not expecting to realize any FRPR this year. [inaudible]

Jarrod Phillips: E-related earnings of $367 million for the quarter increased 22% year-over-year. FRE margins totaled 41.5% in the first quarter, and as expected the integration of GCP was a modest drag on the margin. [inaudible]

Currently, GCP's FRE margins are modestly below our margins. [inaudible]

But we believe this is temporary for two reasons. [inaudible]

Jarrod Phillips: First, over the next 12 to 24 months, we expect to realize a significant amount of synergies from the business in second. As we raise new funds, we expect to see improved operating margins, particularly in the data center business which is currently operating at a loss. . .

Jarrod Phillips: Our net realized performance income for the quarter totaled over $40 million and was driven primarily by European waterfall tax distributions from several funds which were recognized in the first quarter. We anticipate that more than 80% of the European waterfall payments for the year will come in the fourth quarter.

Jarrod Phillips: At this point, we did not see any reasons to change our 2025 target range of 225 to 275 million for our net realized performance income from our European style funds. [inaudible]

Jarrod Phillips: There is a possibility that a prolonged pause in the credit markets could extend the duration of our assets and delay the timing of payments.

Jarrod Phillips: However, with over 75% of our European-style AUM and credit-like funds, where the underlying assets are mainly loans, the interest income from these loans continues to compound. .

Jarrod Phillips: Therefore, while it is possible, the timing of certain repayments could be delayed, the ultimate amount of the performance income could potentially increase due to additional coupon payments, assuming all else equal.

Jarrod Phillips: Based on the dollar amount of funds and carry that are nearing the end of their fun lives, we expect materially higher European-style waterfall net-realized performance income in 2026 as well.

Jarrod Phillips: Given these dynamics, we continue to believe that European style performance income offers greater visibility and consistency versus American style performance income that relies primarily on the sale of assets at a gain.

Jarrod Phillips: Our net accrued performance income on an unconsolidated basis pros modestly to just over 1 billion dollars a quarter end of which over 850 million dollars in European style funds.

Jarrod Phillips: Overall, realized income total 406 million for the quarter, a 40% year-over-year increase.

Jarrod Phillips: During the quarter, our effective tax rate on realized income was 8.1%. We now expect a lower range of 8 to 12% for the remainder of the year due to additional tax benefits related to the GCP transaction and the equity investment that occurred at the end of January . We now expect a lower range of 8 to 12% for the remainder of the year due to additional tax benefits related to

Jarrod Phillips: As you can see in the earnings presentation, our portfolios are performing very well. [inaudible]

Jarrod Phillips: Each of our credit strategy composites generated positive returns in the quarter, including a gross return of 2.4% for European direct lending.

Jarrod Phillips: 2.9% for alternative credit, which is our asset-based finance strategy, 3.2% for U.S. senior direct lending, and 4.4% for our APAC credit strategy.

Jarrod Phillips: over the last 12 months, 5 out of 6 of these strategies generated double digit returns.

Jarrod Phillips: Credit quality underlying our U.S. and European direct lending portfolios remains strong and stable.

Jarrod Phillips: in our US direct lending portfolio. Our companies generated year-over-year EBITDA growth of over 11%. LTVs remain low at an average of 42%, and interest coverage is now at two times.

Jarrod Phillips: ARCC reported to decline and it's not a cruise to 1.5%, which remains well below our long-term average of 2.8% since the GFC.

Jarrod Phillips: In real estate, we continue to see improvements in property values. Our diversified non-traded REIT, and our industrial non-traded REIT, both generated net returns of 2.4% in the first quarter.

Jarrod Phillips: I also wanted to highlight the Simpsonsception Return of GLPJ RE, our newly acquired Japanese REIT, the Trave on the Tokyo Stock Exchange, which is generated a net annual return of 13.6% over the past 12 years since its inception in 2012.

Jarrod Phillips: We're impressed with a long-term performance of the entire investment team in Japan, and are very excited to welcome the GLP Japanese franchise along with the rest of the global GCPT.

Mike: I'll now turn the call back over to Mike for his concluding remarks.

Thanks, Jarrod.

Mike: We believe a significant advantage for Ares is that we operate very broad and diversified investment strategies with wide-ranging mandates across large global, investable markets. Ares Mgmt is a very broad-ranging mandate across large global, investable markets across large global

Mike: Our ability to provide certainty of execution in volatile markets is highly valued by our clients.

Mike: and we're already seeing enhanced opportunities across corporate credit, asset-backed finance, real estate, private equity, infrastructure, and secondaries as borrowers and equity partners see our consistent capital as a welcome partner, particularly when the public markets become less reliable.

Mike: This also puts us in a position to generate consistent deployment and to support the long-term growth of our business throughout market cycles.

Mike: So, despite the economic uncertainty, we remain optimistic about 2025 and beyond.

Mike: In the past, our business has proven to be very resilient and more challenging markets, and we have no reason to believe that this time will be any different. This is the end of the video.

Mike: Our business is even stronger and more diversified. Our portfolios are positioned defensively, and we have a record amount of available capital to continue to drive growth in our AUM and earnings metrics.

Mike: As always, I'm just so proud and grateful for the hard work and dedication of our employees around the globe, and I'm also deeply appreciative of our investors continuing support for our company.

Mike: and now operator, could you please open the line for questions?

Speaker Change: Certainly, Mr. Aragetti, thank you. At this time, if you would like to ask a question, please press star then one on your touch-tone phone. We ask that you limit yourself to one question to allow as many callers to join the queue as possible. Thank you very much.

Speaker Change: Our first question comes from Craig Siegenthaler, a Bank of America. Thank you for your time.

Thank you.

Craig Siegenthaler: Hey, good morning, Mike. Hope you and the team are doing well. Thank you.

Speaker Change: We have a question on private credit quality, so defaults, not accruals, real-life losses.

Craig Siegenthaler: and I heard Jarrod's prepare remarks on ARCC, but my question is, what do you expect for their remainder of 2025 just given we might have a few quarters of negative GDP growth? [inaudible]

Jarrod Phillips: Sure, thanks, Craig. We're doing well. Hope the same for you guys. Thank you very much.

Craig Siegenthaler: Let me reiterate some of the stats that Jarrod put out there in the prepared remarks and give a couple more to think about and then I can give you a general forward looking view and some context about what we've seen in...

Craig Siegenthaler: , Past Markets, to just give people comfort on the trajectory forward here. Number one, if you look at where the portfolios in the global credit business are positioned, about 96% of our exposure in our global credit business is senior loans.

Craig Siegenthaler: in the European Direct Lending Business, we're about 48%, which means that we just have a significant amount of equity subordination and support from our institutional equity partners, which I'm going to come back to.

Craig Siegenthaler: The non accruals at one and a half percent, that's at cost. I think people also need to appreciate it if you were to look at the fair value using ARCC as a proxy. It's below one percent about 90 basis points at fair value, so we are sitting at close to half. [inaudible]

Craig Siegenthaler: of the historical average since the GFC on a cost basis, and so even to the extent that we see continued earnings regression, I just don't think that there's a set up here where we're going to see a spike in non-accruals and defaults. [inaudible]

Craig Siegenthaler: One thing that we have the benefit of given the size of our platform and the fact that we're the age and on most of these loans.

is typically when you are...

Craig Siegenthaler: Dealing with companies that are either leading into distress or worried about the future, we start to see irregular borrowings under revolving credit facilities. We thought that spike, for example, in March and April of 2020, we are not seeing any irregular behavior within the portfolio in terms of CEOs and CFOs drawing on their lines, which I think is a real time data point in terms of how people are feeling within the portfolio. Thank you.

Craig Siegenthaler: and I want to come back to the loan to value because I think this is probably the most misunderstood piece of identifying risk and opportunity within the private credit market. Thank you.

Craig Siegenthaler: If you were to look at that 42 to 48% LTV, what that basically says is you have private equity firms, institutional real estate equity owners, institutional infrastructure owners that have put cash dollars below our loan.

Craig Siegenthaler: A little bit of a mistake, and maybe a misunderstanding of how these businesses work. [inaudible]

Craig Siegenthaler: What's unique about the market setup today, unlike past cycles, like if you look at the GFC, for example, that LTV was probably 60 to 70%, so there was less incentive for the private equity community to support the portfolio companies. [inaudible]

Craig Siegenthaler: If you look at the private equity business today, there's about $3 trillion plus of invested equity in the market.

Craig Siegenthaler: versus about a trillion plus of dry powder able to be invested in prior cycles, that ratio is more one-to-one. So again, in prior cycles at a higher LTV,

Craig Siegenthaler: There was more incentive for the private equity firms and the institutional equity not to support their existing exposures. [inaudible]

Craig Siegenthaler: We have the exact opposite now and so the behavior that we saw through COVID with a very similar setup and the behavior we're seeing now is that we would expect that the equity owners just given the amount of cash invested below us will do everything they can to protect the portfolio and in any pocket of distress. So again, there is uncertainty going forward. We may see a quarter of two of negative growth, but I don't think that that's going to roll through the not a cruel and default numbers.

Thank you, bye [inaudible]

Thanks.

Speaker Change: Thank you. We go next now to Bill Katz of TD Cowan.

Bill Katz: Great, thank you very much for taking the questions this morning. So maybe come back to wealth management where it seems like you have a tremendous amount of momentum.

Bill Katz: I was wondering if you could just maybe talk a little bit about where you see the incremental growth either from a product perspective or I think you mentioned more distribution partners coming along and then to the extent you're willing to provide it, how did the platform hold up through the turbulence of April post liberation day. Thank you.

Short.

Bill Katz: Wealth continues to be a real bright spot for the companies we talked about, record. [inaudible]

Kaplogathering in the first quarter, $5 billion of...

Bill Katz: of AUM, and we are seeing a broadening out of the distribution in terms of our distribution partners and geographies.

Bill Katz: as we've talked about on pass calls, we were early in expanding our franchise outside of the US and continue to see 30% plus of demand coming from our European and Asia business which we think is a real bright spot and differentiator. Thank you very much.

Bill Katz: as we talked about in the prepared remarks we are adding. [inaudible]

or have added two new products to the product set.

Bill Katz: One being what we believe to be a really interesting tax advantage infrastructure fund. [inaudible]

Bill Katz: in a BDC form, and that has some early momentum, and we have begun to take subscriptions where we think is a very highly differentiated offering in the sports media and entertainment world. Thank you very much.

Bill Katz: So we will be broadening out the products at and broadening out the geography. [inaudible]

Bill Katz: It's still early to tell Bill, but I think we're encouraged by what we saw through the turbulence in April . So, we're going to see you in the next video.

Bill Katz: and I'll give you a couple things to just think about it to contextualize how we're feeling. April inflows of equity were about 1.2 billion. I'll give you a couple things to do.

Bill Katz: When we look at redemption, again, a lot of these funds, I think as you know, have monthly or quarterly redemption, so the redemption picture can be a little bit lumpier, but one of our larger funds, which is CADC, our diversified credit interval fund,

Bill Katz: did go through a redemption period and that was on April 10th. [inaudible]

An increase in redemptions in that fund.

Bill Katz: in the middle of April , relative to what we've seen in prior redemption periods. So, the early returns are that the wealth investor is holding steady and that the man for the product is still there. As we talked about in the prepared remarks, I do think that...

Bill Katz: The lack of volatility that some of these portfolios offer into the market may actually prove to be a meaningful bright spot in this market and could lead to an increase in flows over time as people really begin to appreciate what these private market portfolios can do for their overall asset allocation. Thank you very much.

But so far so good.

Thank you

We'll go back now to Steven Chubak of Wolf Research. . . .

Speaker Change: Hi, good morning life and good morning, Jarrod, hope you're both well. [inaudible]

Speaker Change: So, wanted to ask on the FRE Margin Outlook, just given recent market dislocation, the drag you cited from GCP, which is burdened by their lower margin.

Speaker Change: Whether you still believe zero to 150 bits of margin expansion is achievable in the coming year, and with so many you could dispute that some of the moving pieces is underpinning your FRE margin outlook. .

Speaker Change: Sure, thanks. Good morning, Steven. Great to hear from you. We do think that the zero to 150 basis points is still current and strong in this environment. Good morning. Good morning. Good morning.

Speaker Change: The moving parts you saw this quarter were really the addition of GCP. B.

Speaker Change: two extra months of Walton Street, Mexico, which we acquired at the end of last year. If you remove for those factors, our DNA expenses were actually slightly down and our comp expenses were essentially flat for the quarter. So just looking at core you were actually seeing an expansion. This is the end of this video.

Speaker Change: in our FRE Margin. Once you step away from that and we have those additions, as I mentioned in my prepared remarks, GCP is a little bit of a drag on our margins. However, as we have further integration and we have more synergies on the expense side, I do expect that we'll be able to offset that drag in the long term. So it's something where I'm pretty excited by the progress that we showed here in the first quarter, I expect us.

Speaker Change: to continue to show that progress, but still be within that zero to 150 basis point range. . . .

Speaker Change: And I'll remind you, like I always do, that when we see opportunities to invest in our team and our platform that will ultimately lead to other originations, we won't [inaudible]

Speaker Change: Just go for FRE margin, we'll always look at how we can grow the firm first, and then FRE margins with deployment and growth are a natural expansion point after that. [inaudible]

That's right. [inaudible]

Speaker Change: Thank you. We're going next now to Alex Blostein of the Goldman Sachs.

Hey, good morning, everybody. Thanks for the questions. Well,

Speaker Change: I was hoping we could not build a little bit on your commentary around the forward pipeline when it comes to M&A.

Speaker Change: Obviously still lots of uncertainty in the marketplace despite the fact that the market conditions have gotten a little bit easier but...

Speaker Change: Can you maybe talk a little bit about if the M&A backdrop remains subdued for the next several quarters? What are the more likely areas of deployment where the firm could stay active and how much you drive powder? Do you guys have in those pockets within your credit franchise? Thank you very much.

Speaker Change: Sure. Look, I think over time we have demonstrated that by continued diversification in the capability set

Speaker Change: and what I would think is rigorous kind of capital management of dry powder relative to the investment market that we've demonstrated our ability to invest in any market environment and we've done that pretty consistently in the past. [inaudible]

Speaker Change: period over period and an environment where M&A volumes were down both. [inaudible]

Speaker Change: Volume and Value in the 15% range, so we're already now consistently demonstrating the ability to invest across the platform when M&A is slow. Thank you very much.

and importantly, I think that...

People should understand when emanate picks up, if we see, um... [inaudible]

Speaker Change: Volume in those primary lending strategies, the generally benefit we tend to have to defend. [inaudible]

Speaker Change: V in place portfolio from more aggressive refinancings and so as we demonstrated this quarter we saw a meaningful uptick in the gross to net because the net deployment tends to be much stronger when M&A is slow.

Speaker Change: So, not surprisingly, the places where we begin to see volumes pick up. [inaudible]

Speaker Change: when M&A is slow are things like opportunistic credit, which is our ASOP franchise and as we mentioned in the...

Speaker Change: R significant beneficiaries of a slowdown in primary market activity, and again not surprisingly you saw an uptick in in deployment there. Thank you very much.

Speaker Change: Other places where we have significant opportunistic capacity is within our alternative credit and asset back and asset based strategies where we can be a partner to other asset managers, banks as they deal with general illiquidity. Thank you very much.

Speaker Change: I think it's also important that people appreciate that even in some of what the market perceives to be our primary market strategies like ARCC or US direct lending, they do have the capacity to pivot

Speaker Change: to the more opportunistic parts of the investment spectrum when the markets get choppy, and so you begin to see some of those regular way performing credit strategies turn on as a good capital partner for some of the other opportunistic strategies across the board. So,

Speaker Change: I don't want to say every strategy has capacity to invest opportunistically into this market but it's pretty close to every strategy gets to take advantage of the market volatility when some of the other traditional forms of capital are exiting the market. Thank you very much.

Speaker Change: So, as you know, record dry powder today about 143 billion, the bulk of that is in my opinion, available for more opportunistic type investing in this market.

Great, very helpful, thanks Mike.

Thank you. We'll go next now to Kyle Voigt of KBW. Thank you.

Kyle Voigt: Hi, good morning. Maybe just a question or follow up on GCP. Good morning. Good morning. Good morning.

Kyle Voigt: I think the fee-paying AUM that came over was about 30 and a half billion, I think at the time the deal announcement is 32 billion, just assuming that's primarily on FX but wondering if you could update us on the trajectory of fee-paying AUM growth at GCP in 2025.

Kyle Voigt: and then also just wondering if you could comment on the 245 million of 2026 FRE, which I think was synergized, that's still the right number for a 2026 FRE run rate when considering the current FX rates and then the state of the macro environment we're in. [inaudible]

Speaker Change: Ultimately, in taking a look at what's in the market for GCP, I would expect that you'll see somewhere in the neighborhood of about seven billion of fundraising to happen over the next. [inaudible] I'm sorry, I'm sorry

Let's say you know [inaudible]

on things like leasing property management or development. Thank you very much.

So we would see that.

Speaker Change: Pretty immediately upon fundraise go into our FPA UN. The numbers that we laid out previously are still...

Speaker Change: Very much in line with what we saw for the one month right now. There are some expenses that we have as we integrate that will fall off and certainly improve performance. And we've talked about that on prior calls that that's somewhere in the neighborhood of 20 million as part of that. And then there's obviously the run rate of having a full 12 months under your belt. [inaudible]

Speaker Change: So overall, we've been very pleased with our first month. We've seen great momentum in the data centers, as Mike talked about in his prepared remarks. And I don't think that the macro climate has really changed our view on the need for the products that they have, whether it's in logistics or data centers. And we continue to be really excited about the acquisition as we get to know the team better and we spend more time together.

Speaker Change: Yeah, I would add, maybe, and Syltura Latel, we're really pleased with the...

Speaker Change: Early returns on the fundraising momentum and the product set. In the world that we're living in today there is a modest shift of investor interest and appetite away from the U.S. markets, and so I could envision that if-

Speaker Change: If we continue to be in that type of an environment that the opportunity to offer non-US product in Japan and in our European distribution business could actually catch a stronger bid here and be in that beneficiary event.

Ken Worthington: Thank you. We're going next now to Ken Worthington of JP Morgan. We're going next now to Ken Worthington.

Hi, good morning, I'm just taking the question. [inaudible]

Speaker Change: We've seen a number of articles mentioned that Europe is looking to be increasingly attractive as an investment market.

Speaker Change: with private credit being called out specifically. Given Aries just recently completed the largest direct lending fund, I think ever, what are you guys seeing in terms of the pipeline and the opportunity set in Europe , and how does that compare to what you're seeing in the US? [inaudible]

Speaker Change: Sure, thanks for the question. It is interesting, there has been some...

Speaker Change: Similar to the comment I just made about Japan and European distribution, I do think that we came into the year with modest investor concern about some of the long term structural growth challenges in Europe . And I would like to thank all of you for joining us today.

Speaker Change: the liquidity challenges that I articulated earlier just about the mismatch of

Speaker Change: Capital Invested, versus Capital Available, is true in Europe as well, and so...

of the Pipelines in Europe in terms of the complexion. [inaudible]

Speaker Change: of Direct Lending versus Opportunistic Strategies is true in Europe as it is.

Speaker Change: Fragmented, and while the US business is larger, I do believe that our competitive positioning in the European market is probably better just given our... [inaudible]

Speaker Change: I think we will be kind of a net beneficiary and pick up share. Thank you very much.

as this market continues to develop. [inaudible]

Speaker Change: If you look at the European Direct Lending Business as kind of a proxy,

Speaker Change: period over period. And if you looked at the LTM numbers, Q1 to Q1, it was up about 20%. So we are seeing a modest acceleration in deployment in Europe . And again, I think we feel like that trend is...

Speaker Change: Well in hand, and then we'll continue to see good deployment out of that market.

Great, thank you.

We'll go next now to Mike Brown of Wells Fargo.

Great, thanks for taking my question.

Speaker Change: Blake, you touched on the opportunity and the secondary's market, clearly a hotspot in private markets.

Speaker Change: So for the industry and areas, can you just need to expand on the potential in 25 versus 24, and what are your thoughts on some of the largest plant exits from a few of the endowments out there? Is that kind of a unique one-off or do you think that's a strong read across to some of the other LP cohorts? [inaudible]

Thank you.

Sure, and

Speaker Change: Look, we came into this environment and we've been talking about this now for...

Speaker Change: 5 plus years on the heels of the landmark acquisition that the secondary business was going through a period of transformation largely driven by a shift from what was an LP lead market to a more healthy balance between LP lead and GP lead. And we've been enjoying

Speaker Change: The benefit of that shift is we've been building out the product set and growing the secondary franchise over the last five years post acquisition. [inaudible]

Speaker Change: The second trend, which we talked a lot about, which we're now beginning to see come through in space, is just the move away from what was largely a private equity-dominated business to now represent a broader set of the alternative assets base, including real estate infrastructure and credit. So, not surprisingly, we've been building out that fun family as well, and we're seeing good fundraising and deployment. Thank you very much.

across each of those classic classes. [inaudible]

Secondary as it is for alternative credit and other strategies. [inaudible]

Wether you're a bank and a downman, a GP. [inaudible]

Speaker Change: in a market where liquidity is scarce. Any creative liquidity solution available to you is something that you're going to look at, and you're going to be weighing these different solutions against each other in terms of accretion delusion, and how much runway it gives you to invest in growth, et cetera, et cetera. So, secondaries is a big part of that. Thank you.

Speaker Change: and obviously we have one of the longest standing largest businesses in secondaries. [inaudible]

in this year. [inaudible]

Speaker Change: A certain level of anxiety around potential increases in the endowment tax and so moving to a position where you have increased liquidity or at least understand what solutions are available to you know is exactly what they're supposed to be doing and so there's been a number of public. Okay.

Speaker Change: Situations that people are talking about, but I think that it's pretty broad-based within the University of Endowment community now to be thinking about liquidity options within the portfolio. And again, there was a relationship that we have and we think that we have a really interesting product set to be a good partner to them.

Speaker Change: Thank you, we go next now to Patrick Davitt of Autonomous Research.

Hey, good morning, everyone.

Speaker Change: We're back to direct lending. You mentioned pipe lines have been steady. It seems like we're still seeing some bigger sponsor back deals get announced despite the volatility and I think you guys have been on some of those so...

Speaker Change: Could you also give us an idea of how the spreads have been tracking for these newer commitments, any widening as a result of the BSL market closing or is there enough competition from other direct lenders to keep those spreads tight? Thank you.

Yeah, it's a good question, obviously. [inaudible]

Speaker Change: We talked about in the preparatory marks and we always talk about this even when you're in a healthier market in terms of the value that private markets bring to the market in terms of consistency.

Speaker Change: of capital, reliability, flexibility, and all those things, and obviously they become more important when you get into a...

Speaker Change: We're seeing that now, as we talked about in the prepare remarks, when we look aggregated across the platform, the size of the pipeline hasn't changed. We've seen a little bit of a change in the complexion of the pipeline, but the size hasn't changed, and that's...

Bury encouraging to us in terms of the spreads. [inaudible]

Speaker Change: You know, when we were in early April and we were in the phase of price discovery, we were pushing pretty hard to understand where a lot of these deals would clear. And we're pushing pretty hard to clear the existing pipeline, you know, kind of a hundred basis points wide on fee and a hundred basis points wide on spread. [inaudible]

Speaker Change: and that numbers frankly come in now as the markets have normalized a little bit and I think people are beginning to get their arms around the competitive set.

Speaker Change: So if you were to look at ARCC as a proxy, we've probably seen spread widening of 50 to 75 basis points.

Speaker Change: from the pre-April levels, which is a healthy amount of widening relative to the return opportunity there, but not quite as high as we've seen in prior periods of dislocation as the markets have normalized a little bit. [inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry,

We'll go next now to Benjamin Budish of Barclays.

Benjamin Budish: Hi, good morning and thanks for taking a question. Just thinking about some of the fundraising themes of DPI wasn't that long that we were here.

Speaker Change: and I'm not made to reflect. Just curious, where would you say currently institutional allocations to private credit bar? [inaudible]

Speaker Change: and music there's some resiliency there if things were to assume one negative direction. And I'm also curious, you know, it's last year, you guys started talking a little bit more. [inaudible]

Speaker Change: about opportunities outside of the traditional alternatives bucket. It's something we've heard about from one of your competitors on the investment side. Great, but it sounds like you guys are doing some stuff there on the high-yield side as well.

Speaker Change: I'm curious how you see the opportunity in that bucket as well to approach fixed-in commanders rather than hold training.

Speaker Change: and Stephan Wilson-Folt killed. David Fishman, Marietta Creek Johnny Course, Maryland . . . . . . . . . . . Typhoon Mathan Negative tides fluffy Lakeland 0 0 one zero negative

Sure.

You know, I think...

Speaker Change: Certain media pundits and others would love to talk about the maturation of the private credit market and increased risk there, but as we already talked about, we're not seeing increased risk and we're not seeing any flagging investor appetite for the asset. But, um,

Speaker Change: and you know, you look at what we were able to do last year and into this year there is still a very significant appetite for private credit exposure across the globe. Thank you very much.

Speaker Change: by Geography and Cross Strategies. I think we're still in the very early...

Speaker Change: Targets that have a near doubling of private credit exposure. When we look at the appetite that we're seeing in wealth, I think that most of the large gatekeepers on the wealth platforms would tell you that they would expect to see private credit exposures broadly within their portfolio double. . . .

Speaker Change: It's pretty easy to understand why and if you look at our performance, you know, our alternative credit business generated 12.5% LTM return.

RUS Senior Direct Lending Business, 15% Return.

Speaker Change: R, Asia Pacific Credit, Composite, 25% return, European Direct Lending, 12% and so on and so forth.

Speaker Change: So, you know, when you could get exposures at the top half of an asset's enterprise value,

and make double-digit returns without taking a significant amount of... [inaudible]

Speaker Change: You know, interest rate risk. That's a really good place to be. And when you look at where those assets are delivering return relative to the equity markets, I think it really stands out from a relative value standpoint. So not surprisingly, people are allocating to it, and I think, you know...

Speaker Change: If you believe what I said earlier, which is that we don't expect to see massive deterioration in credit performance relative to equity performance, I don't see any reason why that would slow down.

with regard to...

You know, the increasingly loud narrative around private...

Speaker Change: Investment grade, the themes are the same. Any time an institutional or individual investor can generate excess return. [inaudible]

Speaker Change: on a ratings equivalent basis, whether that rating is investment grade or sub-investment grade, to the extent that they can, they're going to allocate to it, and I think part of this big transformational shift. [inaudible]

Speaker Change: into the private markets. People have gotten much better at understanding what their liquidity needs are. [inaudible]

Speaker Change: They have a willingness to increasingly allocate to less liquid, not illiquid, but less liquid markets to capture that return. And I think they see a significant benefit in the higher spreads that they're getting as a mitigant to whatever liquidity they think they may be giving up.

Speaker Change: and I also think that most sophisticated investors have seen with each passing crisis that liquidity is rarely there at the price that you want it when the markets are... [inaudible]

Speaker Change: in dislocation and so people have tended over time to overpay for liquidity only to find that it's not there at the price that they want it and so are getting more emboldened to be in the private markets and look for excess return. We're going to have a look at some of the things that we're going to do in the future.

Speaker Change: We are obviously very large participants in the asset-based finance market, both on the investment grade rated side and the sub-investment grade rated side. We don't talk about it, maybe as much as some of our peers do, but it's roughly 50% of our businesses, high grade and 50% is sub-investment grade. Thank you very much.

Speaker Change: Obviously, there are different outcomes for investors and so we are not necessarily seeing the same investors coming to us for high grade exposures, those that are coming to us for some investment grave, but we think it's important to have both.

Speaker Change: We think it enhances the value proposition to the client base, but we also think it actually enhances our origination capability in markets like this. So we'll continue to grow both of them. Alternative credit is one of our fastest growing.

Speaker Change: Businesses at Areas, I would expect that to continue because of the continued Janet Transition of Assets out of banks and this, you know, secular shift of private markets, both high-grade end and sub.

Okay, great. Thanks for that, Mike.

Wilwood X now to Brian McKenna of Citizens. . .

Speaker Change: On the other hand, while the historical look back is shorter, private well flows have typically been more cyclical.

Speaker Change: and it takes time for allocations to reaccelerate after market volatility.

Speaker Change: You know, it does seem like retail flows to date, have held up better for you, but do you think private wealth behavior and their mindset around allocating capital during periods of volatility ultimately changes over time to something more similar to institutional investors? Yes, I do, I do.

Speaker Change: and then, if it does, is it really just a function of more education and then these investors having a better understanding of how the private markets work and ultimately what areas can deliver for them through the cycle. [inaudible]

Speaker Change: It's a great question. I'm glad you asked it. Maybe just to go back in time a little bit, we were late to the wealth business in some respects.

Speaker Change: but we've obviously now made significant investments and are probably one of the top three or four distributors into the channel. And to your point, and this was probably informed by our 20 year history at ARCC.

Speaker Change: At least historically, the retail investor has tended to be much more pro-cyclical than the institutional investor, meaning they're putting money into the market.

Speaker Change: when the market's going up and they tend to get a little scared when the markets are going down and our experiences when the markets are going down, that's the best time to be in the market, taking advantage of...

Speaker Change: of the dislocation, and so we probably came into the wealth.

Speaker Change: Business, informed by our prior experience with the retail investor is that they are less consistent and more pro-cyclical the institutions. [inaudible]

Speaker Change: and it was critical for us as we thought about building wealth.

Speaker Change: that we did not over index to the growth and wealth, but that we understood that the growth in the wealth business would be a diversifier to our institutional business, and that continues to be how we run it.

Speaker Change: I think the challenge is if you are over-indexed to growth and wealth.

Speaker Change: your pro-cyclical when the market is going up because when someone gives you a dollar you have to put it in the market. [inaudible]

Speaker Change: Now to your point, the fact that we are not seeing that type of behavior now is encouraging. Thank you very much.

Speaker Change: and it could be that we and our peers are having the desired effect of educating this market to understand the value of privates. [inaudible]

Speaker Change: in terms of the lower volatility in nav and mark-to-market, the lower volatility in cashflow and the price durability and so-

Speaker Change: I do think a lot of energy has been put forward by us and the peer set to educate the advisor community and the investor community about what private can do in these types of markets. Let's get started.

Speaker Change: So it is possible that retail investor behavior changes we hope it does because we think it's it's good for the investor. You're right.

but we have to be...

Open to a world where it's not true. [inaudible]

Speaker Change: and that if the retail flows slow, we don't want to be in a position where it affects our ability to invest and continue to grow the business. So early signs are encouraging. It is possible that the paradigm has shifted. It's too early to tell, but if you look at the 20 or 30 years prior to this, it would tell you that the retail investor tends to act. This is the first time we've ever seen a retail investor in the retail industry. It's the first time we've ever seen a retail investor in the retail industry.

Speaker Change: in opposition to the institutional investor, and we hope that changes, but I can't tell you for sure that it has yet.

Okay, that's great, super helpful, appreciate it.

Speaker Change: and we'll take our final question from Michael Cyprys of Morgan Stanley .

Michael Cypress: Hey, good morning. Thanks for choosing me in here. Just a question on asset-based finance. I hope you could elaborate a bit on the opportunity set that you see in today's marketplace for ABF. How you expect that to evolve over the next 12 to 24 months and talk about some of the steps you're taking to expand your origination access, including progress on bank partnerships. Thank you. Thank you.

Speaker Change: Sure, thanks, Mike. Look, we were early to asset-based finance, and as we've talked about it before, we believe...

Speaker Change: that in order to win in asset-based finance, you need a couple of things. One, you need large experience teams across the waterfront of different asset types. [inaudible]

Speaker Change: Two, you need meaningful scale because a lot of these transactions are, you know, multiple hundreds of million dollar type or billion dollar type transactions and you need a very significant

Speaker Change: relationship network within the with your bank counter parties and so not surprisingly Ares and others like us that have been able to accumulate scale of talent and scale of capital or are taking significant share. Thank you for your time.

Speaker Change: We probably don't talk about enough just how scarce the talent. [inaudible]

is in this market as a very specialized.

Capability Set,

Speaker Change: Those that have already accumulated large teams, like ours, I think we now have 80 plus people in our alternative credit business. I think already have a meaningful competitive advantage that's going to be tough to catch up with.

Speaker Change: Market, we obviously have very significant relationships, we're a large counter party, we're a trusted partner.

Speaker Change: As an example, I think we talked about this maybe on the last earnings call. In January , we announced publicly that we had purchased a $1.3 billion loan portfolio from a European bank. Thank you.

Speaker Change: that had been active around digital infrastructure, and they were looking to free up balance sheet capital.

Speaker Change: and I raise that only because a lot of these trades are not just capital relief or risk management, but it's an effort on the part of some of these banks just to extend the capital runway and...

Speaker Change: You know, find a way to monetize what's a very strong customer franchise as they're grappling with, you know, less...

Speaker Change: Liquidity, and so the nature of these deals is pretty...

Speaker Change: widespread, some of them are portfolio purchases, some of them are forward flow agreements, some are SRTs, we've been very active on SRTs in places like BDC revolvers and subscription lines. [inaudible]

Speaker Change: So there is not a one-size-fits-all, but you have to be able to understand each of these submarkets.

Speaker Change: and Common with a flexible creative solution to the banks. And again, I think there's a very small handful of people in the market, ourselves, or in that group that can actually execute on these things. And I think that, you know, we'll continue to see a lot of those as the year progresses. Thank you.

Great, thanks so much.

Speaker Change: Thank you. I'll now turn the call back over to Mr. Erragetti for any closing remarks.

Speaker Change: Great. We don't have any other event to reiterate just how grateful we are for the continued support and for spending time with us today and we'll talk to you all next quarter.

Thank you.

Speaker Change: Thank you, ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call and archived replay of this conference call will be available through June 5th, 2025.

Speaker Change: Two domestic callers by dialing 1-800-723-0394 And two international callers by dialing 1-402-220-2649

Speaker Change: In Archive, Replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website. Thank you, you may now disconnect. Thank you very much.