The Private Equity Industry Sees Strong Growth

The private equity industry has experienced a meaningful increase in deal value in the U.S. over the past year, benefiting from lower interest rates, cooling inflation, and tighter credit spreads. Despite challenges such as inflation and potential tariffs, market sentiment remains optimistic due to lower taxes, favorable regulations, and technology advancements. Ares believes that the demand for strong performance, combined with a favorable deal-making environment, will support deployment opportunities in 2025.

Commercial Real Estate Markets Show Signs of Recovery

The U.S. and European commercial real estate markets saw increased deal activity on a year-over-year basis, largely supported by the improving macroeconomic environment. Property valuations are showing signs of recovery, and capitalization rates are stabilizing or compressing. The European real estate markets are showing slower signs of recovery, with the volatility in interest rates having a greater impact on performance during the year. Despite variations in market performance by sector and geography, Ares believes multifamily and industrial properties will benefit from favorable long-term structural trends. Infrastructure investment opportunities continue to be supported by the convergence of two megatrends – digital infrastructure and artificial intelligence adoption – paired with surging power demand expectations. Renewable energy transaction volume remained strong, which has supported elevated renewable energy revenue contract prices.

Ares’ Portfolios Well-Positioned for Fluctuating Interest Rates

Ares believes its portfolios across all strategies are well-positioned for a fluctuating interest rate environment. On a market value basis, approximately 85% of its debt assets and 57% of its total assets were floating-rate instruments as of December 31, 2024.

Key Considerations for Ares’ Strategic Decisions

In 2024, some of the key considerations pertaining to Ares’ strategic decisions included:

Fundraising and AUM Growth

• During the year ended December 31, 2024, Ares raised $92.7 billion of gross new capital across its commingled funds, SMAs, wealth products, and other vehicles, and continued to expand its investor base, raising capital from over 185 different investment vehicles and over 660 institutional investors, including over 310 direct institutional investors that were new to Ares. This helped drive AUM growth of 16% for 2024.
• As of December 31, 2024, Ares had $81.0 billion of AUM available for future deployment, which could generate approximately $728.8 million in potential incremental annual management fees.

Attracting New Capital and Investors

• Ares’ ability to attract new capital and investors is driven by the extent to which they continue to see the alternative asset management industry and Ares’ investment products as attractive vehicles for capital appreciation and income generation.
• Ares continues to expand its distribution channels throughout the wealth channel with its global wealth management offerings, as well as the needs of traditional institutional investors, such as pension funds, sovereign wealth funds, and endowments.
• If market volatility persists or increases, investors may seek absolute return strategies that seek to mitigate volatility, which Ares offers across a variety of investment strategies.

Disciplined Investment Approach and Successful Deployment of Capital

• Ares’ ability to maintain and grow its revenue base is dependent upon its ability to successfully deploy the capital that its investors have committed to its funds.
• Under its disciplined investment approach, Ares deploys capital only when it has sourced a suitable investment opportunity at an attractive price. During the year ended December 31, 2024, Ares deployed $106.7 billion of gross capital across its investment groups compared to $68.1 billion deployed in 2023.
• As of December 31, 2024, Ares had $133.1 billion of capital available for investment compared to $111.4 billion as of December 31, 2023.

Investing Capital and Generating Returns Through Market Cycles

• The strength of Ares’ investment performance affects investors’ willingness to commit capital to its funds. The flexibility of the capital Ares is able to attract is one of the main drivers of the growth of its AUM and the management fees it earns.
• Current market conditions and a changing regulatory environment have created opportunities for Ares’ businesses, which utilize flexible investment mandates to manage portfolios through market cycles.

Operating Metrics

Assets Under Management (AUM)

• AUM refers to the assets Ares manages and is viewed as a metric to measure its investment and fundraising performance as it reflects assets generally at fair value plus available uncalled capital.
• Ares’ total AUM grew by 16% in 2024 to $484.4 billion, driven by net new par/equity commitments of $58.1 billion and net new debt commitments of $33.9 billion.

Fee Paying Assets Under Management (FPAUM)

• FPAUM refers to AUM from which Ares directly earns management fees and is equal to the sum of all the individual fee bases of its funds that directly contribute to its management fees.
• Ares’ total FPAUM grew by 11% in 2024 to $292.6 billion, driven by commitments, deployment/subscriptions, and an increase in leverage.

Perpetual Capital Assets Under Management

• Ares has a significant portion of its AUM in perpetual capital vehicles, which provide stability and visibility to its future management fees.

Available Capital and AUM Not Yet Paying Fees

• As of December 31, 2024, Ares had $81.0 billion of AUM available for future deployment that could generate approximately $728.8 million in potential incremental annual management fees.

Incentive Eligible Assets Under Management (IEAUM) and Incentive Generating Assets Under Management (IGAUM)

• Ares tracks its IEAUM and IGAUM as these metrics are directly related to its ability to generate performance income.

Fund Performance Metrics

• Ares provides detailed information on the performance of its “significant funds,” which are commingled funds that either contributed at least 1% of its total management fees or comprised at least 1% of its total FPAUM for each of the last two consecutive quarters.

Consolidated Results of Operations

Revenues

• Management fees increased by 15% in 2024, driven by capital deployment in direct lending and alternative credit funds within the Credit Group, as well as an increase in Part I Fees.
• Carried interest allocation decreased by 37% in 2024, primarily due to reversals of unrealized carried interest in the Private Equity Group.
• Incentive fees increased by 24% in 2024, driven by growth in IGAUM, primarily in the Credit Group’s U.S. and European direct lending strategies and alternative credit strategy.

Expenses

• Compensation and benefits increased by 16% in 2024, primarily due to higher equity-based compensation, salary expense, and Part I Fee compensation.
• Performance related compensation decreased by 26% in 2024, in line with the decrease in carried interest allocation.
• General, administrative, and other expenses increased by 12% in 2024, driven by higher marketing costs, acquisition-related costs, occupancy costs, information services costs, and information technology costs.

Other Income (Expense)

• Net realized and unrealized gains on investments decreased by 79% in 2024, primarily due to lower gains from Ares’ strategic investments.
• Interest expense increased by 35% in 2024, primarily due to the issuance of the 2028 Senior Notes and 2054 Senior Notes.

Income Taxes

• Income tax expense decreased by 5% in 2024, primarily due to lower pre-tax income allocable to Ares Management Corporation as the income attributed to redeemable and non-controlling interests is generally passed through to partners and not subject to corporate income taxes.

Redeemable and Non-Controlling Interests

• Net income attributable to redeemable and non-controlling interests in Ares Operating Group entities decreased by 15% in 2024, primarily due to the respective changes in income before taxes and weighted average daily ownership.

Segment Analysis

Credit Group

• The Credit Group’s Fee Related Earnings (FRE) increased by 19% in 2024, driven by higher management fees and fee related performance revenues, partially offset by higher compensation and benefits and general, administrative, and other expenses.
• The Credit Group’s Realized Income (RI) increased by 17% in 2024, primarily due to higher FRE and realized net performance income, partially offset by lower realized net investment income.
• Accrued carried interest in the Credit Group increased to $1.9 billion as of December 31, 2024, driven by strong performance in several direct lending, opportunistic credit, and alternative credit funds.

Real Assets Group, Private Equity Group, Secondaries Group, and Other Businesses

• The performance of these segments is also discussed, with details on their FRE and RI, as well as the key drivers of their results.

Overall, Ares’ financial performance in 2024 demonstrates its ability to grow its AUM and FPAUM, generate stable management fees, and capitalize on investment opportunities across its diverse platform. The company’s focus on disciplined investing, fundraising, and managing its expenses has positioned it well to navigate the current market environment and continue delivering value to its investors.