Ares Management Corp
For the period ended Dec 31, 2024. Filed Feb 27, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 27, 2025
ARES$133.98+0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-27.
0001628280-24-007014
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-27.
0001628280-25-008665
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 394 previous paragraphs and 404 current paragraphs.
215 unchanged; 100 reworded; 77 added; 75 removed; 4 previous and 12 current paragraphs rearranged.
Tables are not compared: 82 previous and 96 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (77)
Current report
During 2024, global markets were fueled by the easing of monetary policy by the Federal Reserve and several other major central banks with predominately positive returns despite seeing mixed performances towards the end of the year. U.S. and European high yield bonds and leveraged loans showed positive performance driven by stable demand and improved access to capital markets. The APAC markets experienced favorable performance, with growth driven by moderate inflation, lower unemployment and lower interest rate expectations, which supported consumption in Southeast Asia, India, and Australia. China announced policy stimulus measures affecting monetary policy, the property sector and equity markets, contributing to positive investor sentiment. Globally, reduced bank lending and limited capital accessibility continued to support private credit growth.
Current report
The private equity industry benefited from lower interest rates, cooling inflation and tighter credit spreads, leading to a meaningful increase in the private equity deal value in the U.S. Despite challenges such as inflation and potential tariffs, market sentiment remains optimistic due to lower taxes, favorable regulations and technology advancements. We believe that demand for strong performance, combined with a favorable deal-making environment, will support deployment opportunities in 2025.
Current report
The U.S. and European commercial real estate markets experienced increased deal activity on a year over year basis that was 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, we believe 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.
Current report
(1) ARCC’s management fee rate is reduced from 1.50% to 1.00% on all assets financed using leverage over 1.0x debt to equity.
Current report
We are party to contractual expense support agreements with certain perpetual wealth vehicles under which we may advance a portion of certain expenses to support distribution efforts to investors. These expenses are subject to reimbursement from the perpetual wealth vehicles and may result in a corresponding reduction to our Part I Fees until expenses have been recovered.
Current report
We are party to contractual expense limitation agreements with certain perpetual wealth vehicles under which we may advance a portion of certain expenses to reduce the perpetual wealth vehicles’ expense ratios. Such expenses are subject to reimbursement from the perpetual wealth vehicles and may result in a corresponding reduction to our fee related performance revenues until the expenses have been recovered.
Current report
Details regarding our fee related performance revenues by strategy, excluding publicly-traded and perpetual wealth vehicles described above, are presented below:
Current report
Performance Income. Performance income is a term that we use to refer to a sub-set of performance-based fees and only includes incentive fees earned from funds with stated investment periods or carried interest.
Current report
Marketing costs include placement fees and supplemental distribution fees. Placement fees are fundraising costs for campaign funds and include: (i) upfront fees based on commitments to a fund; and (ii) service fees for periodic investor services that are recognized as services are provided. Supplemental distribution fees are fundraising costs associated with wealth products, generally paid to strategic investors and/or financial intermediaries for the distribution of shares and may be upfront on a portion of sales, ongoing as a percentage of net asset value or temporary in the form of a fee concession. We may reduce Part I Fee compensation and fee related performance compensation associated with certain perpetual wealth vehicles by a portion of the supplemental distribution fees paid to the extent that Part I Fees and fee related performance revenues are earned from these vehicles. In such instances, the related compensation will be less than 60%.
Current report
Results of Operations
Current report
Carried Interest Allocation. The following table sets forth carried interest allocation by segment ($ in millions):
Current report
Incentive Fees. The following table sets forth incentive fees by segment ($ in millions):
Current report
We earned higher incentive fees for the year ended December 31, 2024 compared to the year ended December 31, 2023 as a result of growth in our IGAUM, primarily driven by deployment of capital within credit funds that are generating returns in excess of their hurdle rates mostly in our U.S. and European direct lending strategies and our alternative credit strategy. For further detail regarding the incentive fees within each of our segments, see discussion of fee related performance revenues and realized net performance income within “—Results of Operations by Segment.”
Current report
Principal Investment Income. For equity method investments where we serve as general partner, we present the activity of net realized and unrealized gains on investments and realized investment income together with net capital activity. The following tables present the change in fair value of our equity method investments where we serve as general partner ($ in millions):
Current report
•Principal investment income, primarily due to: (i) realized gains generated from funds within our infrastructure debt, real estate debt and our U.S. and European direct lending strategies; and (ii) interest income from newly admitted investors in an insurance fund
Current report
•Net capital activity from our investments in credit funds, primarily driven by transfers of capital investments within European direct lending and APAC credit funds to employee co-investment vehicles
Current report
•Principal investment income from realized gains generated from funds within our infrastructure debt and our U.S. and European direct lending strategies
Current report
•Net capital activities from our investments in credit and private equity funds, primarily driven by: (i) transfers of capital investments within opportunistic credit, alternative credit and corporate private equity funds to employee co-investment vehicles; partially offset by (ii) investments made within our real estate debt strategy
Current report
Compensation and Benefits. The increase in compensation and benefits for the year ended December 31, 2024 compared to the prior year reflects the continued growth in salary and benefits for increased staff levels. The most significant expense increases were equity-based compensation, salary expense and Part I Fee compensation. Equity-based compensation expense increased by $96.9 million from the prior year as result of newly issued unvested awards, magnified by our increased stock price. In addition, we accelerated expense for certain awards requiring no future service as retirement provisions have been achieved. These provisions increased expense by $17.4 million and $10.0 million for the years ended December 31, 2024 and 2023, respectively.
Current report
The increase in compensation and benefits for the year ended December 31, 2024 compared to the prior yearwas also driven by: (i) an increase in salary expense of $54.2 million primarily attributable to headcount growth to support the expansion of our business; and (ii) higher Part I Fee compensation of $43.1 million.
Current report
Compensation and benefits for the year ended December 31, 2024 also included: (i) $20.0 million from the performance-based, acquisition-related compensation arrangement established in connection with the acquisition of Crescent Point Capital (“Crescent Point”) (the “Crescent Point Acquisition”) that closed in the fourth quarter of 2023; and (ii) $17.7 million of bonus payments made at the close of the WSM Acquisition. The performance-based, acquisition-related compensation arrangement for the Crescent Point Acquisition contributed $5.0 million of expense for the year ended December 31, 2023. See “Note 8. Commitments and Contingencies” for a further description of the contingent liabilities related to the Crescent Point Acquisition arrangement.
Current report
Average headcount increased by 11% to 2,971 professionals for the year-to-date period in 2024 from 2,674 professionals in 2023.
Current report
General, Administrative and Other Expenses. The increase in general, administrative and other expenses for the year ended December 31, 2024 compared to the prior year reflects the continued growth to support staff levels and fundraising activities. The most significant expense increases were marketing costs, acquisition-related costs, occupancy costs, information services costs and information technology costs.
Current report
Marketing costs, which include placement fees and supplemental distribution fees, increased by $62.8 million for the year ended December 31, 2024 compared to the prior year, to support fundraising for our funds and distribution of shares in our perpetual wealth vehicles. Supplemental distribution fees increased by $37.3 million over the comparative periods as a result of increases in sales volumes and net asset value of our wealth products. We expect that these fees will fluctuate with sales volumes and net asset value as we have expanded the diversity of our wealth products. Placement fees increased by $14.2 million for the year ended December 31, 2024 compared to the prior year primarily due to new commitments to Ares Senior Direct Lending Fund III, L.P. (“SDL III”). Marketing costs associated with fund formation, program sponsorships and investor events increased by $11.3 million for the year ended December 31, 2024 compared to the prior year, including our first firmwide annual general meeting with investors (“AGM”).
Current report
Acquisition-related costs increased by $45.4 million for the year ended December 31, 2024 compared to the prior year. Acquisition-related costs generally precede a business combination, varying with the size, scale and complexity of the transaction. The majority of the costs incurred in the current year are related to the GCP Acquisition. The GCP Acquisition is expected to close in the first half of 2025. We also incurred costs in the current year for various strategic acquisitions, including the WSM Acquisition which was completed in the fourth quarter of 2024. We expect to continue to incur acquisition-related costs until acquisitions are completed.
Current report
In addition, occupancy costs, information services and information technology costs collectively increased by $39.7 million for the year ended December 31, 2024 compared to the prior year to support our growing headcount and the expansion of our business, including costs for our new corporate headquarters that we occupied beginning in third quarter of 2024.
Current report
During the year ended December 31, 2024, we recognized a non-cash impairment charge of $8.9 million to the fair value of management contracts of certain funds primarily within the Credit Group. During the year ended December 31, 2023, we recognized a non-cash impairment charge of $78.7 million, primarily related to the value of client relationships from the acquisition of Landmark Partners, LLC (the “Landmark Acquisition”).
Current report
Net Realized and Unrealized Gains on Investments; Interest and Dividend Income. For investments where we do not serve as general partner, we present the activity of net realized and unrealized gains on investments and interest and dividend income together with net capital activity. The following tables present the change in fair value of these investments ($ in millions):
Current report
•Interest and dividend income, primarily due to: (i) interest income generated from our investments in CLOs; and (ii) $11.5 million of interest income generated from capital raised in anticipation of the GCP Acquisition, which was temporarily invested in treasury-backed securities. Following the completion of the GCP Acquisition, this portion of interest income will subside
Current report
•Net capital activity driven by the collection of principal associated with loans that we made within our real estate debt strategy
Current report
•Interest and dividend income, primarily due to: (i) interest income generated from our investments in CLOs; and (ii) dividends from our investment in APMF
Current report
•Net capital activity driven by an investment made in a strategic investment in a Brazilian alternative asset manager and the deployment of capital into an investment within our real estate debt strategy
Current report
Interest Expense. Interest expense increased for the year ended December 31, 2024 compared to the prior year primarily due to the issuance of the 2028 Senior Notes in November 2023 and 2054 Senior Notes in October 2024 that collectively increased interest expense by $37.8 million. The increase in interest expense was partially offset by reductions of: (i) $4.5 million from our Credit Facility due to lower average outstanding balance during the second half of 2024; and (ii) $2.5 million from the repayment of our 2024 Senior Notes in October 2024. We expect interest expense to trend higher in future periods as the issuance of our 2054 Senior Notes is expected to result in greater interest expense than the collective savings resulting from the lower anticipated balances from our Credit Facility and repayment of our 2024 Senior Notes.
Current report
The activity for the year ended December 31, 2024 also included $5.5 million of one-time interest expense related to a temporary bridge facility that was established in connection with the GCP Acquisition. The facility was not utilized and was terminated in the fourth quarter of 2024.
Current report
The change in ownership compared to the prior year was primarily driven by the issuances of shares of Class A common stock in connection with exchanges of AOG Units, the public offering that closed during the year ended December 31, 2024 (the “Offering”), stock option exercises and vesting of restricted unit awards.
Current report
We use Realized Income (“RI”) as a non-GAAP profit measure in making operating decisions, assessing performance and allocating resources. Fee Related Earnings (“FRE”) is a component of RI that excludes realized activities associated with investment income and performance income.
Current report
FRE and RI should be considered in addition to and not in lieu of, the results of operations, which are discussed further under “—Components of Consolidated Results of Operations” and are prepared in accordance with GAAP. We operate through our distinct operating segments. On January 1, 2024, we changed our segment composition. The special opportunities strategy, historically part of the Private Equity Group, was renamed to opportunistic credit and integrated into the Credit Group. Historical results have been modified to conform with the current presentation. On December 1, 2024, we completed the WSM Acquisition. The acquired business is presented within the Real Assets Group within our North American real estate equity strategy, which we renamed from U.S. real estate equity following the WSM Acquisition. The strategy name change did not result in any change to the historical composition of our segments.
Current report
The following table presents the components of and causes for changes in the Credit Group’s management fees for the year ended December 31, 2024 compared to the prior year ($ in millions):
Current report
Fee Related Performance Revenues. The chart below presents fee related performance revenues, including the number of funds generating, for the Credit Group by strategy ($ in millions):
Current report
The increase in fee related performance revenues for the year ended December 31, 2024 compared to the year ended December 31, 2023 was primarily attributable to higher incentive fees earned from an open-ended core alternative credit fund, which increased its IGAUM over the current year measurement period.
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Previous report
During 2023, global markets endured heightened volatility but finished the year positively with improving investor sentiment amid the possibility of monetary easing in 2024. Despite the macroeconomic headwinds and escalated conflicts in the Middle East and Ukraine, U.S. and European high yield bonds and leveraged loans returned positive performance. The Asian markets experienced mixed performance as the region overall continued to show growth primarily driven by resilient demand in Southeast Asia and India. India, in particular, demonstrated healthy economic growth driven by its manufacturing and services sectors. On the other hand, China’s weaker than expected economic recovery led Chinese policymakers to continue taking measures to support economic growth. Overall, reduced lending activity by banks and limited capital accessibility continued to fuel private credit growth.
Previous report
Global equity markets similarly rallied during the fourth quarter to finish the year on a positive note. While the public markets ended the year positively, the private markets continued to experience challenges with downward pressure on valuations and muted the opportunities for realizations. The private equity markets also experienced a prolonged slowdown in deal activity, and we believe potential liquidity constraints from investors have increased the need for flexible capital solutions. In addition, businesses have struggled to navigate this challenging growth and inflationary environment, which we believe has heightened the need for partnerships with value-add managers. This environment underscores the importance of investing in resilient industries with long-term secular tailwinds where we have expertise. Our focus continues to be on investment opportunities in the healthcare and services sectors, with limited exposure to energy, and we continue to invest opportunistically in consumer and industrials. Asset selectivity, deliberate portfolio construction, a flexible investment mandate and a differentiated view to drive value creation through earnings growth will be instrumental in delivering attractive returns to investors.
Previous report
The commercial real estate markets continued to be impacted by the macroeconomic environment throughout 2023. European and U.S. real estate deal activity remained subdued with limited transactional liquidity. Given the higher interest rate environment, property valuations remain soft, with capitalization rate yields widening further over the year. However, we believe certain of these market trends will be offset by continued strong fundamentals, such as occupancy and rental rates, in property types that include multifamily and industrial.
Previous report
The current market environment has had a more pronounced negative impact on certain industries, including energy, which is an industry in which few of our funds have made investments. As of December 31, 2023, 1% of our total AUM was invested in debt and equity investments in the energy sector (of which less than 1% of our total AUM was invested in midstream investments and also includes oil and gas exploration) and less than 1% of our total AUM was invested in renewable energy investments.
Previous report
Performance Income. We may receive performance income from our funds that may be either incentive fees earned from funds with stated investment periods as described above, or a special allocation of income, which we refer to as carried interest. Performance income is recognized when specified investment returns are achieved by the fund.
Previous report
The activity for the year ended December 31, 2022 was primarily composed of appreciation of our investments in certain funds in our infrastructure opportunities strategy, dividend income from various investments in funds within our U.S. direct lending strategy and realized gains from the sale of underlying properties held by funds in our U.S. real estate equity strategy.
Previous report
Compensation and Benefits. The decrease in compensation and benefits was primarily driven by the performance-based, acquisition-related compensation arrangements (“earnouts”) that were established in connection with the acquisition of Black Creek Group’s real estate investment advisory and distribution business (the “Black Creek Acquisition”). The maximum contingent payment associated with the Black Creek Acquisition earnout was achieved and the incremental expense of $218.1 million was recorded during the year ended December 31, 2022. Conversely, the earnout associated with a Landmark private equity secondaries fund was not achieved because revenue targets associated with fundraising did not meet certain thresholds. As a result, the associated compensation expense of $21.0 million was reversed during the year ended December 31, 2022.
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Excluding the impact of earnouts as described above, compensation and benefits increased by 14% for the year ended December 31, 2023 compared to the prior year, primarily driven by: (i) an increase in salary expense of $74.4 million, primarily attributable to headcount growth to support the expansion of our business; (ii) higher Part I Fees compensation of $58.3 million; and (iii) higher equity-based compensation expense of $55.6 million as the number of unvested restricted units being amortized has increased as has the value of these units with our rising stock price. Average headcount increased by 16% to 2,674 professionals for the year-to-date period in 2023 from 2,305 professionals in 2022.
Previous report
General, Administrative and Other Expenses. For each year presented, we recognized impairment charges and recorded accelerated amortization expense in connection with acquired intangible assets (as discussed further below). Before giving effect to these costs, general, administrative and other expenses increased by 13% for the year ended December 31, 2023 compared to the prior year. However, due to the recognition of higher impairment charges in the prior year, general, administrative and other expenses over the comparative period has actually decreased by $35.1 million, or 5%, but this trend is not expected to continue.
Previous report
Travel, marketing and certain fringe benefits collectively increased by $26.8 million for the year ended December 31, 2023 compared to the prior year as we: (i) continued to increase our marketing efforts driven by more investor meetings and events; and (ii) conducted more in-person company meetings and events with a focus on promoting collaboration and integration of acquired businesses. Occupancy costs, information services and information technology costs also increased during the comparative period, to support our growing headcount, the expansion of our business and the build out of our new corporate headquarters. Collectively, these expenses increased by $25.9 million for the year ended December 31, 2023 compared to the prior year. Additionally, professional service fees increased by $9.8 million for the year ended December 31, 2023 compared to 2022 primarily due to the reorganization of our income tax compliance function and to higher consulting fees to support various ongoing initiatives to enhance our operations.
Previous report
Separately, we expect to incur higher supplemental distribution fees in future periods as we continue to develop our distribution relationships and expand our retail product offerings. These expenses were $20.2 million and increased by $7.3 million for the year ended December 31, 2023 when compared to prior year and will fluctuate with sales volumes and assets under management of our non-traded products.
Previous report
During the year ended December 31, 2023, we recognized non-cash impairment charges of $78.7 million related to certain intangible assets comprised of: (i) $65.7 million to the fair value of certain client relationships from Landmark in connection with lower expected FPAUM in a private equity secondaries fund from existing investors; (ii) $7.8 million to the carrying value of SSG’s trade name as we rebranded Ares SSG as APAC credit and discontinued the use of the SSG trade name; and (iii) $5.2 million to the fair value of management contracts of certain funds in connection with lower than expected future fee revenue generated from these funds, of which $4.6 million was due to the shortened investment period of an infrastructure debt fund as we directed existing limited partner commitments to other investment vehicles within the strategy. During the year ended December 31, 2022, we recognized non-cash impairment charges of $181.6 million, in connection with intangible assets associated with Landmark’s trade name, management contracts of certain Landmark funds, Black Creek funds and SSG funds and resulted in the amortization expense associated with these intangible assets to decrease in subsequent periods. Excluding the non-cash impairment charges described above, amortization expense decreased by $7.6 million for the year ended December 31, 2023 compared to the prior year, as we no longer recognize amortization expense for the aforementioned intangible assets.
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Net Realized and Unrealized Gains on Investments. The activity for the year ended December 31, 2023 primarily includes a net gain of $70.9 million from our investment in X-energy. AAC I entered into a contract to merge with X-energy that ultimately did not occur as the shareholders of AAC I elected to redeem the investments held in trust in lieu of completing the merger. As the merger was not completed, we directly invested in X-energy. The net gain is primarily a result of the increase in value of various common and preferred equity securities in X-energy. The fair value of these investments are sensitive to changes in underlying assumptions and may demonstrate significant volatility over the short term.
Previous report
The activity for the year ended December 31, 2022 reflects unrealized gains from the same strategic investments that manage portfolios of non-performing loans and real estate owned properties and was partially offset by unrealized losses from our investments in the subordinated notes of U.S. CLOs.
Previous report
Interest Expense. Higher average interest rates driven by rising SOFR rates and a higher average outstanding balance of the Credit Facility contributed to an increase in interest expense for the year ended December 31, 2023 compared to 2022. The issuance of the 2028 Senior Notes in November 2023 also increased interest expense by $4.6 million for the year ended December 31, 2023 compared to the same period in 2022 and will result in interest expense of $8.2 million for the full quarter prospectively.
Previous report
The change in ownership was primarily driven by the issuance of Class A common stock in connection with stock option exercises, vesting of restricted stock awards, the completion of the SSG Buyout and the Crescent Point Acquisition. The increase in the weighted average daily ownership for AMC common stockholders was partially offset by the issuance of AOG Units in connection with the settlement of the Black Creek earnout that increased the ownership of AOG Units not held by AMC.
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We use the following non-GAAP measures to make operating decisions, assess performance and allocate resources:
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•Fee Related Earnings (“FRE”)
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•Realized Income (“RI”)
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These non-GAAP financial measures supplement and should be considered in addition to and not in lieu of, the results of operations, which are discussed further under “—Components of Consolidated Results of Operations” and are prepared in accordance with GAAP. We operate through our distinct operating segments. On March 31, 2023, we completed the SSG Buyout. We rebranded Ares SSG as Ares Asia and the Ares SSG credit business, including the Asian special situations, Asian secured lending and APAC direct lending strategies, as APAC credit. APAC credit has been reclassified effective January 1, 2023 and is now presented within the Credit Group. In connection with this reclassification, we will no longer use Strategic Initiatives to describe all other operating segments, instead reporting the collective results as Other. Separately, the Private Equity Group includes APAC private equity following the Crescent Point Acquisition. Historical periods have been modified to conform to the current period presentation.
Previous report
In February 2024, we announced that our special opportunities strategy, historically reported as a component of our Private Equity Group, will be integrated into the Credit Group to align management of this strategy and will form the foundation for a new opportunistic credit strategy. For segment reporting purposes, the change will require the reclassification of the special opportunities strategy from the Private Equity Group to the Credit Group and will be presented in our results beginning in 2024. Adjusted for this change, as of December 31, 2023, the Credit Group managed $299.4 billion in AUM with approximately 490 investment professionals and the Private Equity Group managed $24.5 billion in AUM with approximately 85 investment professionals, with both groups continuing to manage investments across the U.S., Europe and Asia-Pacific.
Previous report
Management fees on existing funds increased primarily from deployment of capital with Pathfinder I, an open-ended core alternative credit fund, ACE V, PCS II and Ares Senior Direct Lending Fund II, L.P. (“SDL II”) collectively generating additional management fees of $97.0 million for the year ended December 31, 2023 compared to the prior year. Management fees from ARCC, excluding Part I Fees described below, increased by $19.3 million for the year ended December 31, 2023 compared to the prior year primarily due to an increase in the average size of ARCC’s portfolio.
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Excluding catch-up fees, management fees from Ares SSG Capital Partners VI, L.P. (“SSG Fund VI”) increased by $13.7 million forthe year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to new capital commitments. The remaining increase in management fees from funds in existence in both periods was primarily driven by deployment of capital in other direct lending funds and SMAs. Management fees from CLOs also increased for the year ended December 31, 2023 compared to the prior year primarily due to the net addition of four CLOs for the year ended December 31, 2023.
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Part I Fees increased for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to an increase in pre-incentive fee net investment income generated by ARCC and CADC, driven by an increase in the average size of their portfolios and by the impact of rising interest rates, given their primarily floating-rate loan portfolios. The increase in Part I Fees included fees from ASIF of $5.1 million beginning in the third quarter of 2023.
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Fee Related Performance Revenues. The increase for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily attributable to higher returns from certain perpetual capital funds that have benefited from rising interest rates on predominately floating-rate loans. Incentive fees from perpetual capital were mostly generated from 14 U.S. direct lending funds, ten European direct lending funds and one alternative credit fund for the year ended December 31, 2023 compared to ten European direct lending and eight U.S. direct lending funds for the year ended December 31, 2022.
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Compensation and Benefits. The increase in compensation and benefits for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily driven by: (i) higher fee related performance compensation and Part I Fees compensation of $59.4 million and $58.3 million, respectively, corresponding to the increases in revenues; and (ii) an increase in salary expense of $14.1 million, primarily attributable to headcount growth to support the expansion of our business. Separately, compensation and benefits increased by $4.7 million for the nine months ended December 31, 2023 following the SSG Buyout on March 31, 2023, reflecting the costs associated with the 20% change in ownership that were previously not part of our cost structure.
Previous report
General, Administrative and Other Expenses. Certain expenses increased during the current period, including: (i) occupancy costs, which support our growing headcount that are based in higher cost locations; (ii) information services such as research and market data; and (iii) information technology costs. These expenses collectively increased by $9.4 million for the year ended December 31, 2023 compared to the prior year. Additionally, supplemental distribution fees which fluctuate with sales volumes and managed assets of our non-traded products, contributed $5.1 million of the increase for the year ended December 31, 2023 when compared to prior year. We expect to incur higher supplemental distribution fees in future periods as we continue to develop our distribution relationships and expand our retail product offerings. For the year ended December 31, 2023, travel and marketing expenses have also increased by $4.1 million when compared to the year ended December 31, 2022, as marketing efforts continued to increase driven by more in-person investor meetings and events.
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Realized net performance income for the years ended December 31, 2023 and 2022 included aggregate tax distributions of $54.7 million and $48.1 million, respectively, from ACE IV, ACE V and PCS I, among other European direct lending funds. Realized net performance income for the year ended December 31, 2023 also included incentive fees primarily from ten direct lending funds and six alternative credit funds. Realized net performance income for the year ended December 31, 2022 also included incentive fees primarily from nine direct lending funds and two alternative credit funds.
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Realized net investment income for the years ended December 31, 2023 and 2022 was primarily attributable to interest income generated from our CLO investments. In addition, the year ended December 31, 2023 included realized gains from the sale of our investment in a commercial finance fund during the second quarter of 2023.
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Realized net investment income for the year ended December 31, 2022 was also attributable to: (i) realizations from the settlement of forward contracts entered into to hedge our exposure to foreign currency fluctuations, primarily from the Euro; (ii) distributions from a U.S. direct lending fund and a European direct lending fund; and (iii) income recognized in connection with distributions from a commercial finance fund.
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Interest expense, which is allocated among our segments based on the cost basis of balance sheet investments, increased over the comparative periods primarily due to rising SOFR rates and a higher average outstanding balance of the Credit Facility and to the issuance of the 2028 Senior Notes in November 2023.
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The following table presents the change in accrued performance income for the Credit Group ($ in thousands):
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(9)Performance for the open-ended core alternative credit fund, a perpetual capital vehicle, is presented as a drawdown fund as investor commitments to the fund are drawn sequentially in order of closing date, typically over a period of approximately 12 to 18 months. The fund is made up of a Class M (“Main Class”) and a Class C (“Constrained Class”). The Main Class includes investors electing to participate in all investments and the Constrained Class includes investors electing to be excluded from exposure to liquid investments. The gross and net IRR and gross and net MoIC presented in the table are for the Main Class. The gross and net IRRs for the Constrained Class are 10.8% and 7.7%, respectively. The gross and net MoIC for the Constrained Class are 1.2x and 1.1x, respectively.
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Management fees from ASOF II increased by $35.3 million for theyear ended December 31, 2023 compared to the prior year primarily driven by deployment. Management fees also increased by $7.4 million for the year ended December 31, 2023 due to the Crescent Point Acquisition. The increase in management fees was partially offset by decreaseof $5.0 million in fees from ACOF IVfor the year ended December 31, 2023 compared to the prior year as the fund stopped paying management fees during the fourth quarter of 2022. Management fees from ASOF I also decreased by$5.6 millionfor the year ended December 31, 2023 compared to the prior year due to asset realizations that reduced the fee base.
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Other Fees. Other fees increased year ended December 31, 2023 compared to the prior year primarily due tohigher administrative service fees on funds that pay on invested capital, driven by deployment from ASOF II and ACOF VI.
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Compensation and Benefits. Although salary and benefits costs have modestly increased during the year ended December 31, 2023 compared to the prior yearto reflect merit increases for existing personnel, as well as changes in headcount from the Crescent Point Acquisition, compensation and benefits have decreased over the comparative period, primarily driven by lower incentive-based compensation which is discretionary and may fluctuate each year. In connection to the Crescent Point Acquisition, we recognized $3.1 million of compensation and benefits for the three months ended December 31, 2023 following the transaction close date of October 2, 2023.
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Average headcount increased by 6% to 129 investment and investment support professionals for the year-to-date period in 2023 from 122 professionals in 2022, primarily due to the Crescent Point Acquisition.
Previous report
General, Administrative and Other Expenses. Placement fees increased by $2.9 million for the year ended December 31, 2023 compared to the prior year primarily driven by new capital commitments to ASOF II subsequent to the second quarter of 2022 and through its final close in the fourth quarter of 2022. Additionally, occupancy costs which support our professionals that are based in higher cost locations, increased by $1.4 million for the year ended December 31, 2023 when compared to the year ended December 31, 2022. Separately, the Crescent Point Acquisition that closed on October 2, 2023, contributed an additional $1.2 million of expenses, primarily consisted of consulting fees and occupancy costs.
Previous report
Realized net performance income for the years ended December 31, 2023 and 2022 was primarily attributable to tax distributions from ASOF I. Realized net performance income for the year ended December 31, 2023 also included realized gains from the partial sale of ACOF IV’s investment in AZEK, while the year ended December 31, 2022 included realized gains from the partial sale and recapitalization of ACOF IV’s investment in an energy company.
Previous report
Realized net investment loss for the year ended December 31, 2023 also reflects realized losses from two corporate private equity funds, including the liquidation of one of those funds following the disposition of its remaining assets. The activity for the year ended December 31, 2023 was partially offset by dividend income from SSF IV and realized gains from the partial sale of ACOF IV’s investment in AZEK.
Showing the first 40 of 75 passages. Open the source sections for the rest.
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Previous wording
This section of the Annual Report on Form 10-K discusses activity as of and for the years ended December 31, 2023 and 2022. For discussion on activity for the year ended December 31, 2021 and period-over-period analysis on results for the year ended December 31, 2022 to 2021, refer to Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Current wording
This section of the Annual Report on Form 10-K discusses activity as of and for the years ended December 31, 2024 and 2023. For discussion on activity for the year ended December 31, 2022 and period-over-period analysis on results for the year ended December 31, 2023 to 2022, refer to Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. We have reclassified certain prior period amounts to conform to the current year presentation.
Previous wording
We believe that our disciplined investment philosophy across our distinct but complementary investment groups contributes to the stability of our performance throughout market cycles. For the year ended December 31, 2023, approximately 95% of our management fees were derived from perpetual capital vehicles and long-dated funds. Our funds have a stable base of committed capital enabling us to invest in assets with a long-term focus over different points in a market cycle and to take advantage of market volatility. However, our results from operations, including the fair value of our AUM, are affected by a variety of factors. Conditions in the global financial markets and economic and political environments may impact our business, particularly in the U.S., Western Europe and Asia.
Current wording
We believe that our disciplined investment philosophy across our distinct but complementary investment groups contributes to the stability of our performance throughout market cycles. For the year ended December 31, 2024, 95% of our management fees were derived from perpetual capital vehicles or long-dated funds. Our funds have a stable base of committed capital enabling us to invest in assets with a long-term focus over different points in a market cycle and to take advantage of market volatility. However, our results from operations, including the fair value of our AUM, are affected by a variety of factors. Conditions in the global financial markets and economic and political environments may impact our business, particularly in the U.S., Europe and APAC.
Previous wording
•Our ability to fundraise and increase AUM and fee paying AUM. During the year ended December 31, 2023, we raised $74.5 billion of gross new capital across our commingled funds, SMAs and other vehicles, and continued to expand our investor base, raising capital from over 125 different investment vehicles and over 625 institutional investors, including approximately 300 direct institutional investors that were new to Ares. Our fundraising efforts helped drive AUM growth of 19% for 2023. During 2024, we expect that our fundraising will come from a combination of our existing and new strategies in the U.S., Europe and APAC. As of December 31, 2023, AUM not yet paying fees includes $62.9 billion of AUM available for future deployment which could generate approximately $621.6 million in potential incremental annual management fees. Our potential future deployment, coupled with our future fundraising prospects, gives us the opportunity to increase our management fees in 2024.
Current wording
•Our ability to fundraise and increase AUM and fee paying AUM. During the year ended December 31, 2024, we raised $92.7 billion of gross new capital across our commingled funds, SMAs, wealth products and other vehicles, and continued to expand our 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. Our fundraising efforts helped drive AUM growth of 16% for 2024. During 2025, we expect that our fundraising will come from a combination of our existing and new strategies in North America, Europe and APAC. As of December 31, 2024, AUM not yet paying fees includes $81.0 billion of AUM available for future deployment which could generate approximately $728.8 million in potential incremental annual management fees. Our potential future deployment, coupled with our future fundraising prospects, gives us the opportunity to increase our management fees in 2025.
Previous wording
• Our ability to attract new capital and investors with our broad multi-asset class product offering. Our ability to attract new capital and investors in our funds is driven, in part, by the extent to which they continue to see the alternative asset management industry generally, and our investment products specifically, as an attractive vehicle for capital appreciation and income generation. We continually seek to create avenues to meet our investors’ evolving needs by offering an expansive range of funds, developing new products and creating managed accounts and other investment vehicles tailored to our investors’ goals. We continue to expand our distribution channels, expanding into the retail channel through our 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. We offer a variety of investment strategies depending upon investors’ risk tolerance and expected returns.
Current wording
• Our ability to attract new capital and investors with our broad multi-asset class product offering. Our ability to attract new capital and investors in our funds is driven, in part, by the extent to which they continue to see the alternative asset management industry generally, and our investment products specifically, as an attractive vehicle for capital appreciation and income generation. We continually seek to create avenues to meet our investors’ evolving needs by offering an expansive range of funds, developing new products and creating managed accounts and other investment vehicles tailored to our investors’ goals. We continue to expand our distribution channels throughout the wealth channel with our 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. We offer a variety of investment strategies depending upon investors’ risk tolerance and expected returns.
Previous wording
• Our disciplined investment approach and successful deployment of capital. Our ability to maintain and grow our revenue base is dependent upon our ability to successfully deploy the capital that our investors have committed to our funds. Greater competition, high valuations, cost of credit and other general market conditions have affected and may continue to affect our ability to identify and execute attractive investments. Under our disciplined investment approach, we deploy capital only when we have sourced a suitable investment opportunity at an attractive price. During the year ended December 31, 2023, we deployed $68.1 billion of gross capital across our investment groups compared to $79.8 billion deployed in 2022. We believe we continue to be well-positioned to invest our assets opportunistically. As of December 31, 2023, we had $111.4 billion of capital available for investment compared to $84.6 billion as of December 31, 2022.
Current wording
• Our disciplined investment approach and successful deployment of capital. Our ability to maintain and grow our revenue base is dependent upon our ability to successfully deploy the capital that our investors have committed to our funds. Greater competition, high valuations, cost of credit and other general market conditions have affected and may continue to affect our ability to identify and execute attractive investments. Under our disciplined investment approach, we deploy capital only when we have sourced a suitable investment opportunity at an attractive price. During the year ended December 31, 2024, we deployed $106.7 billion of gross capital across our investment groups compared to $68.1 billion deployed in 2023. We believe we continue to be well-positioned to invest our assets opportunistically. As of December 31, 2024, we had $133.1 billion of capital available for investment compared to $111.4 billion as of December 31, 2023.
Previous wording
See “Item 1A. Risk Factors” included in this Annual Report on Form 10-K for a discussion of the risks our businesses are subject to.
Current wording
See “Item 1. Business—Overview” for a comprehensive overview of our business, and “Item 1A. Risk Factors” for a discussion of the risks our businesses are subject to, both included in this Annual Report on Form 10-K.
Previous wording
We measure our business performance using certain operating metrics that are common to the alternative asset management industry, which are discussed below.
Current wording
We measure our business performance using certain operating metrics that are common to the alternative investment management industry and are discussed below.
Previous wording
(1) Includes $15.1 billion and $14.4 billion of AUM of funds from which we indirectly earn management fees as of December 31, 2023 and 2022, respectively and includes $4.3 billion and $3.4 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2023 and 2022, respectively.
Current wording
(1) Includes $14.4 billion and $15.1 billion of AUM of funds from which we indirectly earn management fees as of December 31, 2024 and 2023, respectively, and includes $4.7 billion and $4.3 billion of non-fee paying AUM from our general partner and employee commitments as of December 31, 2024 and 2023, respectively.
Previous wording
(2)Includes $58.8 billion and $56.0 billion from funds that primarily invest in illiquid strategies as of December 31, 2023 and 2022, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.
Current wording
(2)Includes $71.9 billion and $58.8 billion from funds that primarily invest in illiquid strategies as of December 31, 2024 and 2023, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.
Previous wording
We view the duration of funds we manage as a metric to measure the stability of our future management fees. For both the years ended December 31, 2023 and 2022, 95% of management fees were earned from perpetual capital or long-dated funds. The charts below present the composition of our segment management fees by the initial fund duration:
Current wording
We view the duration of funds we manage as a metric to measure the stability of our future management fees. For both the years ended December 31, 2024 and 2023, 95% of management fees were earned from perpetual capital or long-dated funds.
Previous wording
As of December 31, 2023, AUM Not Yet Paying Fees includes $62.9 billion of AUM available for future deployment that could generate approximately $621.6 million in potential incremental annual management fees. As of December 31, 2022, AUM Not Yet Paying Fees included $41.8 billion of AUM available for future deployment that could generate approximately $410.9 million in potential incremental annual management fees.
Current wording
As of December 31, 2024, AUM Not Yet Paying Fees includes $81.0 billion of AUM available for future deployment that could generate approximately $728.8 million in potential incremental annual management fees, which represents 29% embedded gross base management fee growth upon deployment. As of December 31, 2023, AUM Not Yet Paying Fees included $62.9 billion of AUM available for future deployment that could generate approximately $621.6 million in potential incremental annual management fees.
Previous wording
Fund performance information for our funds considered to be “significant funds” is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. Our significant funds are commingled funds that either contributed at least 1% of our total management fees or represented at least 1% of the Company’s total FPAUM for the past two consecutive quarters. In addition to management fees, each of our significant funds may generate carried interest or incentive fees upon the achievement of performance hurdles. The fund performance information reflected in this discussion and analysis is not indicative of our overall performance. An investment in Ares is not an investment in any of our funds. Past performance is not indicative of future results. As with any investment, there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these funds or our other existing and future funds will achieve similar returns.
Current wording
Fund performance information for our funds considered to be “significant funds” is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. Our significant funds are commingled funds that either contributed at least 1% of our total management fees or comprised at least 1% of our total FPAUM for each of the last two consecutive quarters. In addition to management fees, each of our significant funds may generate carried interest or incentive fees upon the achievement of performance hurdles. The fund performance information reflected in this discussion and analysis is not indicative of our overall performance. An investment in Ares is not an investment in any of our funds. Past performance is not indicative of future results. As with any investment, there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these funds or our other existing and future funds will achieve similar returns.
Previous wording
To further facilitate an understanding of the impact a significant fund may have on our results, we present our drawdown funds as either harvesting investments or deploying capital to indicate the fund’s stage in its life cycle. A fund harvesting investments is generally not seeking to deploy capital into new investment opportunities, while a fund deploying capital is generally seeking new investment opportunities.
Current wording
To further facilitate an understanding of the impact a significant fund may have on our results, we present our drawdown funds as either harvesting investments or deploying capital to indicate the fund’s stage in its life cycle. A fund harvesting investments is past its investment period and opportunistically seeking to monetize investments, while a fund deploying capital is generally seeking new investment opportunities.
Previous wording
The management fees we receive from our drawdown style funds are typically payable on a quarterly basis over the life of the fund and do not fluctuate with the changes in investment performance of the fund. The investment management agreements we enter into with clients in connection with contractual SMAs may generally be terminated by such clients with reasonably short prior written notice. Typically, terminations do not require liquidation of the SMAs and such SMAs will continue to exist until the underlying investments are liquidated. The management fees we receive from our SMAs are generally paid on a periodic basis (typically quarterly, subject to the termination rights described above) and are based on either invested capital or on the net asset value of the separately managed account.
Current wording
The management fees we receive from our drawdown style funds are typically payable on a quarterly basis over the life of the fund and do not fluctuate with the changes in investment performance of the fund. The investment management agreements we enter into with clients in connection with contractual SMAs may generally be terminated by such clients with reasonably short prior written notice. Typically, terminations do not require liquidation of the SMAs and such SMAs will continue to exist until the underlying investments are liquidated. The management fees we receive from our SMAs are generally paid on a periodic basis (typically quarterly, subject to the termination rights described above) and are based on either invested capital or on the net asset value of the SMA.
Previous wording
We receive management fees in accordance with the investment advisory and management agreements of our retail vehicles, including both our publicly-traded and non-traded vehicles, that must be reviewed or approved annually by their independent boards of directors.
Current wording
The investment advisory and management agreements of our publicly-traded and perpetual wealth vehicles must be reviewed or approved annually by their independent boards of directors.
Previous wording
Details regarding our management fees from our retail vehicles are presented below:
Current wording
Details regarding our management fees from our publicly-traded and perpetual wealth vehicles are presented below:
Previous wording
Details regarding our management fees by strategy are presented below:
Current wording
Details regarding our management fees by strategy, excluding publicly-traded and perpetual wealth vehicles described above, are presented below:
Previous wording
(6) Fee range represents typical range during the investment period. Management fees for special opportunities funds generally step down to between 1.00% to 1.25% of the invested capital or the aggregate cost basis of unrealized portfolio investments following the expiration or termination of the investment period.
Current wording
(3) Fee range represents typical range during the investment period. Management fees for opportunistic credit funds generally step down to between 1.00% to 1.25% of the invested capital or the aggregate cost basis of unrealized portfolio investments following the expiration or termination of the investment period.
Previous wording
(4) Certain funds pay a lower management fee rate on committed capital which increases when such capital is invested. The funds in this strategy are comprised of closed-end funds, with investment period termination or management contract termination dates. The funds also include co-investment accounts with fees ranging from 0.50% to 1.50%, which generally do not include investment period termination or management contract termination dates.
Current wording
(5) Certain funds pay a lower management fee rate on committed capital which increases when such capital is invested. The funds in this strategy are comprised of closed-end funds, with investment period termination or management contract termination dates. The funds also include co-investment accounts with fees ranging from 0.25% to 1.00%, which generally do not include investment period termination or management contract termination dates.
Previous wording
(8) Certain funds pay a lower management fee rate on committed capital which increases when such capital is invested. Following the expiration or termination of the investment period the basis on which management fees are earned for certain closed-end funds, managed accounts and co-investment vehicles in this strategy changes from committed capital to invested capital with no change in the management fee rate. AIREIT and AREIT pay management fees based on NAV plus net capital raised and outstanding from our 1031 exchange programs.
Current wording
(6) Certain funds pay a lower management fee rate on committed capital which increases when such capital is invested. Following the expiration or termination of the investment period the basis on which management fees are earned for certain closed-end funds, managed accounts and co-investment vehicles in this strategy changes from committed capital to invested capital with no change in the management fee rate. Our diversified non-traded REIT and our industrial non-traded REIT pay management fees based on NAV plus net capital raised and outstanding from our 1031 exchange programs.
Previous wording
(5) Fee range represents typical range during the investment period. Management fees for corporate private equity funds generally step down to between 0.75% and 1.25% of the aggregate adjusted cost of unrealized portfolio investments following the earlier to occur of: (i) the expiration or termination of the investment period; and (ii) the activation of a successor fund.
Current wording
(9) Fee rate represents typical rate during the investment period. Management fees for corporate private equity funds generally step down to 0.75% of the aggregate adjusted cost of unrealized portfolio investments following the earlier to occur of: (i) the expiration or termination of the investment period; and (ii) the activation of a successor fund.
Previous wording
(7) Fee range represents typical range during the investment period. Management fees for APAC private equity funds generally step down to 2.00% of the aggregate adjusted cost of unrealized portfolio investments following the expiration or termination of the investment period. The funds also include co-investment vehicles with fees rates of 2.00%, which generally do not include investment period termination or management contract termination dates.
Current wording
(10) Fee rate represents typical rate during the investment period. Management fees for APAC private equity funds generally step down the fee base to the aggregate adjusted cost of unrealized portfolio investments following the expiration or termination of the investment period. The funds also include co-investment vehicles with fee rates of 2.00%, which generally do not include investment period termination or management contract termination dates.
Previous wording
Incentive Fees. The general partners, managers or similar entities of certain of our funds receive performance-based fees. These fees are generally based on the annual investment returns of the applicable fund, subject to certain net loss carry-forward provisions, high-watermarks and/or preferred returns. Such performance-based fees may also be based on a fund’s cumulative net investment returns for the measurement period, in some cases subject to a high-watermark or a preferred return. Incentive fees are realized at the end of a measurement period, typically quarterly or annually. Realized incentive fees are generally higher during the second half of the year due to the nature of certain funds that typically realize incentive fees at the end of the calendar year. Once realized, such incentive fees are not subject to repayment. Cash from the realizations is typically received in the period subsequent to the measurement period. Incentive fees are composed of both fee related performance revenues, which are based on perpetual capital, and those incentive fees earned from funds with stated investment periods:
Current wording
Incentive Fees. The general partners, managers or similar entities of certain of our funds receive incentive fees, a performance-based fee representing a portion of the investment returns of the applicable fund for a specified measurement period, generally one year, subject to certain net loss carry-forward provisions, high-watermarks and/or preferred returns. These performance-based fees may also be based on a fund’s cumulative net investment returns for the measurement period, in some cases subject to a high-watermark or a preferred return. Incentive fees are realized at the end of a measurement period, typically quarterly or annually. Realized incentive fees are generally higher during the second half of the year, aligning with the measurement period that typically ends at the end of the calendar year. Once realized, such incentive fees are not subject to repayment. Cash from the realizations is typically received in the period subsequent to the measurement period. Incentive fees are composed of both fee related performance revenues, which are earned from perpetual capital vehicles, and those incentive fees earned from funds with stated investment periods.
Previous wording
Details regarding our fee related performance revenues are presented below:
Current wording
Details regarding our fee related performance revenues from our publicly-traded and perpetual wealth vehicles are presented below:
Previous wording
(1) We may receive Part II Fees, which are not paid unless ARCC and ASIF achieve cumulative aggregate realized capital gains (net of cumulative aggregate realized capital losses and aggregate unrealized capital depreciation). For ARCC and ASIF, incentive fees represent 20.0% and 12.5%, respectively, of the cumulative aggregate realized capital gains (net of cumulative aggregate realized losses and aggregate unrealized capital depreciation) and such fees are presented as incentive fees earned from funds with stated investment periods.
Current wording
(1) We may receive Part II Fees, which are not paid unless ARCC, ASIF, our open-ended European direct lending fund and our infrastructure private BDC achieve cumulative aggregate realized capital gains (net of cumulative aggregate realized capital losses and aggregate unrealized capital depreciation), subject to certain catch-up provisions. Incentive fees from ARCC represent 20.0% of the cumulative aggregate realized capital gains (net of cumulative aggregate realized losses and aggregate unrealized capital depreciation). For ASIF, our open-ended European direct lending fund, and for our infrastructure private BDC, incentive fees represent 12.5% of the cumulative aggregate realized capital gains (net of cumulative aggregate realized losses and aggregate unrealized capital depreciation). Such fees are presented as incentive fees earned from funds with stated investment periods.
Previous wording
Funds generally follow either an American-style waterfall or a European-style waterfall. For American-style waterfalls, the general partner is entitled to receive carried interest after a fund investment is realized if the investors in the fund have received distributions in excess of the capital contributed for such investment and all prior realized investments (plus allocable expenses), as well as the preferred return. For European-style waterfalls, the general partner is entitled to receive carried interest if the investors in the fund have received distributions in an amount equal to all prior capital contributions plus a preferred return.
Current wording
Funds generally follow either an American-style waterfall or a European-style waterfall. For American-style waterfalls, we in our role as general partner are entitled to receive carried interest after a fund investment is realized if the investors in the fund have received distributions in excess of the capital contributed for such investment and all prior realized investments (plus allocable expenses), as well as the preferred return. For European-style waterfalls, we in our role as general partner are entitled to receive carried interest if the investors in the fund have received distributions in an amount equal to all prior capital contributions plus a preferred return.
Previous wording
Compensation and Benefits. Compensation generally includes salaries, bonuses, health and welfare benefits, payroll related taxes, equity compensation, Part I Fee incentive compensation and fee related performance compensation expenses. Compensation and benefits expenses are typically correlated to the operating performance of our segments, which is used to determine incentive-based compensation for each segment. Incentive-based compensation is accrued over the service period to which it relates. Our discretionary incentive-based compensation generally represents our annual bonus pool, is based on our operating performance and may fluctuate throughout the year until payments are made. The majority of our incentive-based compensation is paid during the fourth quarter. Certain of our senior partners are not paid an annual salary or bonus, instead they only receive distributions based on their ownership interest when declared by our board of directors. We use changes in headcount, which represents the full-time equivalency of active employees during each period, to analyze changes in compensation and benefits. Part I Fee incentive compensation and fee related performance compensation represent approximately 60% of Part I Fees and of fee related performance revenues, respectively, before giving effect to payroll related taxes. Compensation expense also includes employee commissions that are generated in connection with our like-kind 1031 exchange program and other private placement transactions conducted through AWMS. Incremental changes in fair value of certain contingent liabilities established in connection with our various acquisitions are recognized ratably over the service period and are also presented within compensation and benefits.
Current wording
Compensation and Benefits. Compensation generally includes salaries, bonuses, health and welfare benefits, payroll-related taxes, equity compensation, Part I Fee compensation and fee related performance compensation expenses. Compensation and benefits expenses are typically correlated to the operating performance of our segments, which is used to determine incentive-based compensation for each segment. Incentive-based compensation is accrued over the service period to which it relates. Our discretionary incentive-based compensation includes our annual bonus pool, is based on our operating performance and may fluctuate throughout the year until payments are made. The majority of our annual bonus payments are made in the fourth quarter. Certain of our senior partners are not paid an annual salary or bonus, instead they only receive distributions based on their ownership interest when declared by our board of directors. Part I Fee compensation and fee related performance compensation represent approximately 60% of Part I Fees and of fee related performance revenues, respectively, before giving effect to payroll-related taxes. We also reduce certain Part I Fee compensation and fee related performance compensation by a portion of the supplemental distribution fees paid to the extent that Part I Fees and fee related performance revenues are earned from certain perpetual wealth vehicles. We pay sales-based bonuses for the sale and distribution of our wealth products through AWMS, including our exchange programs associated with our non-traded REITs. Incremental changes in fair value of certain contingent liabilities established in connection with our various acquisitions are recognized ratably over the service period and are also presented within compensation and benefits. We use changes in headcount, which represents the full-time equivalency of active employees during each period, to analyze changes in compensation and benefits.
Previous wording
Equity compensation represents a form of non-cash compensation that we use to align our employees with the long-term interests of our shareholders. Equity-based awards are typically granted in the form of restricted units that generally vest over a service period between three and five years. We issue equity awards with a long-term focus of limiting the average dilutive impact on our Class A common stockholders to no more than 1.5% annually. Because we withhold shares equal to the fair value of our employee tax withholding liabilities and pay the taxes on their behalf in cash, fewer net shares are issued upon vesting. This result has reduced the average annual dilutive impact of these awards to less than 1.0% annually. We expect the expenses recognized in connection with these awards to fluctuate with changes in the price of our Class A common stock.
Current wording
Equity compensation represents a form of non-cash compensation that we use to align our employees with the long-term interests of our shareholders. Equity-based awards are typically granted in the form of restricted units or restricted stock (collectively “unvested awards”) that generally vest over a service period between three and five years. We issue equity awards with a long-term focus of limiting the average dilutive impact on our Class A common stockholders to no more than 1.5% annually. Because we withhold shares equal to the fair value of our employee tax withholding liabilities and pay the taxes on their behalf in cash, fewer net shares are issued upon vesting. This result has reduced the average annual dilutive impact of these awards to less than 1.0% annually. We expect the expenses recognized in connection with these awards to fluctuate with changes in the price of our Class A common stock.
Previous wording
Performance Related Compensation. Performance related compensation includes compensation directly related to carried interest allocation and incentive fees earned from funds with stated investment periods, generally consisting of percentage interests that we grant to our professionals. Depending on the nature of each fund, the performance related compensation generally represents 60% to 80% of the carried interest allocation and aforementioned incentive fees recognized by us before giving effect to payroll related taxes. We have an obligation to pay our professionals a portion of the carried interest allocation earned from certain funds. The performance related compensation payable is calculated based upon the recognition of carried interest allocation and is not paid to recipients until the carried interest allocation is received. Performance related compensation may include allocations to charitable organizations as part of our philanthropic initiatives.
Current wording
Performance Related Compensation. Performance related compensation includes compensation directly related to carried interest allocation and incentive fees earned from funds with stated investment periods, generally consisting of percentage interests that we grant to our professionals. Depending on the nature of each fund, the performance related compensation generally represents 60% to 80% of the carried interest allocation and aforementioned incentive fees recognized by us before giving effect to payroll-related taxes. The performance related compensation payable is calculated based upon the recognition of carried interest allocation and is not paid to recipients until the carried interest allocation is received. Performance related compensation may include allocations to charitable organizations as part of our philanthropic initiatives.
Previous wording
General, Administrative and Other Expenses. General and administrative expenses include costs primarily related to occupancy, professional services, travel, information services and information technology costs, placement fees, depreciation, amortization of intangibles, supplemental distribution fees and other general operating items. Placement fees are paid to placement agents and include: (i) upfront fees based on commitments to a fund; and (ii) service fees for periodic investor services that are recognized as services are provided. Supplemental distribution fees are paid to brokerage firms, banks or other financial intermediaries for the distribution of shares in our non-traded vehicles and may be calculated on either sales volumes or levels of assets under management.
Current wording
General, Administrative and Other Expenses. General and administrative expenses include costs primarily related to occupancy, professional services, travel, information services and information technology costs, marketing costs, depreciation, amortization of intangibles and other general operating items. These expenses are largely influenced by changes in headcount growth, fundraising activities or strategic initiatives/acquisitions.
Previous wording
Other Income (Expense), Net. Other income (expense), net consists of transaction gains (losses) on the revaluation of assets and liabilities denominated in non-functional currencies and of other non-operating and non-investment related activities, such as bargain purchase gain, changes in fair value of contingent obligations, loss on disposal of assets, among other items.
Current wording
Other Income (Expense), Net. Other income (expense), net consists of (i) non-economic transaction gains (losses) on the revaluation of assets and liabilities denominated in currencies other than an entity’s functional currency; and (ii) other non-operating and non-investment related activities, such as changes in fair value of contingent liabilities, loss on disposal of assets, among other items.
Previous wording
The majority of our Consolidated Funds are not subject to income tax as the funds’ investors are responsible for reporting their share of income or loss. To the extent required by federal, state and foreign income tax laws and regulations, certain funds may incur income tax liabilities.
Current wording
The majority of our Consolidated Funds are not subject to income tax as the funds’ investors are responsible for reporting their share of income or loss on a pass-through basis. To the extent required by federal, state and foreign income tax laws and regulations, certain funds may incur income tax liabilities.
Previous wording
In connection with our acquisition of SSG in July 2020, the former owners of SSG retained a 20% ownership interest in a subsidiary of an AOG entity that is reflected as redeemable interest in AOG entities. Net income (loss) attributable to redeemable interest in AOG entities is allocated based on the ownership percentage attributable to the redeemable interest. On March 31, 2023, we acquired a portion of the remaining ownership interest in SSG that was retained by the former owners of SSG (the “SSG Buyout”), and we now own 100% of Ares SSG’s fee-generating business. Following the SSG Buyout, legacy owners of SSG retained an ownership interest in certain non-controlled investments that will continue to be reflected as redeemable interests, and the income generated by these investments will continue to be allocated ratably based on ownership.
Current wording
In connection with our acquisition of a majority interest in SSG Capital Holdings Limited and its operating subsidiaries (“SSG” and subsequently rebranded as “Ares SSG”) in July 2020, the former owners of SSG retained a 20% ownership interest in a subsidiary of an AOG entity that is reflected as redeemable interest in AOG entities. Net income (loss) attributable to redeemable interest in AOG entities is allocated based on the ownership percentage attributable to the redeemable interest. On March 31, 2023, we acquired a portion of the remaining ownership interest in SSG that was retained by the former owners of SSG (the “SSG Buyout”), and we now own 100% of Ares SSG’s fee-generating business. Following the SSG Buyout, legacy owners of SSG retained an ownership interest in certain non-controlled investments that will continue to be reflected as redeemable interests, and the income generated by these investments will continue to be allocated ratably based on ownership.
Previous wording
Consolidated Funds represented approximately 4% of our AUM as of December 31, 2023, 2% of our management fees and 2% of our carried interest and incentive fees for the year ended December 31, 2023. As of December 31, 2023, we consolidated 28 CLOs, 10 private funds and one SPAC, and as of December 31, 2022, we consolidated 25 CLOs, 10 private funds and one SPAC.
Current wording
Consolidated Funds represented approximately 3% of our AUM as of December 31, 2024 and 2% of total revenues for the year ended December 31, 2024. As of December 31, 2024, we consolidated 27 CLOs, ten private funds and one SPAC, and as of December 31, 2023, we consolidated 28 CLOs, ten private funds and one SPAC.
Previous wording
We generally deconsolidate funds and CLOs when we are no longer deemed to have a controlling interest in the entity. During the year ended December 31, 2023, we deconsolidated one SPAC as a result of liquidation and one private fund as a result of a significant change in ownership. During the year ended December 31, 2022, we did not deconsolidate any entities.
Current wording
We generally deconsolidate funds and CLOs when we are no longer deemed to have a controlling interest in the entity. During the year ended December 31, 2024, we deconsolidated one CLO as a result of significant change in ownership. During the year ended December 31, 2023, we deconsolidated one SPAC as a result of liquidation and one private fund as a result of a significant change in ownership.
Previous wording
Management Fees. Capital deployment in direct lending funds within the Credit Group led to a rise in FPAUM and additional management fees of $166.1 million for theyear ended December 31, 2023 compared to the prior year. Part I Fees contributed $109.6 million to the increase for theyear ended December 31, 2023 compared to the prior year. The increase in Part I Fees was primarily due to the increase in pre-incentive fee net investment income generated by ARCC and CADC, driven by an increase in the average size of their portfolios and the impact of rising interest rates, given their primarily floating-rate loan portfolios. Of the total increase in Part I Fees, ASIF contributed $5.1 million as it began generating fees during the third quarter of 2023. Within the Real Assets Group, AIREIT and AREIT contributed additional management fees of $11.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 driven by increases in the average capital base of AIREIT and AREIT. Also, management fees from Ares Infrastructure Debt Fund V L.P. (“IDF V”) increased by $9.3 million for the year ended December 31, 2023 compared to the prior year, primarily driven by deployment of capital. Within the Private Equity Group, the Crescent Point Acquisition contributed $7.4 million to the increase in management fees for the year ended December 31, 2023. For detail regarding the fluctuations of management fees within each of our segments see “—Results of Operations by Segment.”
Current wording
Management Fees. Capital deployment in direct lending and alternative credit funds within the Credit Group led to a rise in FPAUM, contributing an increase in management fees of$230.6 million for theyear ended December 31, 2024 compared to the prior year. Part I Fees increased by $96.3 million for theyear ended December 31, 2024 compared to the prior year. The increase in Part I Fees was primarily due to: (i) the increase in pre-incentive fee net investment income generated by ASIF, ARCC and CADC, driven by an increase in the average size of their portfolios; and (ii) the increase in pre-incentive fee net investment income from our open-ended European direct lending fund that began generating Part I Fees after the third quarter of 2023. For detail regarding the fluctuations of management fees within each of our segments, see “—Results of Operations by Segment.”
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Incentive Fees. The activity was principally composed of the following ($ in millions):
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The activity was principally composed of the following:
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Principal Investment Income. The activity for the year ended December 31, 2023 was primarily composed of: (i) appreciation of our investments in certain funds in our European and U.S. direct lending, special opportunities, infrastructure debt and alternative credit strategies; (ii) dividend income from SSF IV and a European real estate fund; (iii) interest income from an open-ended core alternative credit fund; partially offset by (iv) unrealized losses of our investments in certain funds in our corporate private equity and real estate secondaries strategies.
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The activity for the year ended December 31, 2024 was primarily attributable to:
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Administrative, Transaction and Other Fees. The increase in administrative, transaction and other fees for the year ended December 31, 2023 compared to the prior year was primarily driven by: (i) higher administrative fees of $13.6 million as a result of the deconsolidation of a commercial finance fund during the second quarter of 2023; (ii) an increase of $8.7 million in administrative service fees based on invested capital primarily from certain private funds within our Credit Group, driven by deployment; (iii) higher credit transaction fees of $2.4 million primarily from the infrastructure debt strategy that are generated periodically and relate to the arrangement and origination of loans; partially offset by (iv) lower acquisition and development fees of $11.4 million, resulting from a reduction in property-related activities within certain industrial U.S. real estate equity funds; (v) a decrease of $10.8 million in facilitation fees and program administration fees from reduced sales activity within the 1031 exchange programs associated with our non-traded REITs.
Current wording
Administrative, Transaction and Other Fees. The increase for the year ended December 31, 2024 compared to the prior year was driven by: (i) higher administrative service fees of $17.8 million primarily from private funds within our Credit Group that are based on invested capital and from our perpetual wealth vehicles; and (ii) higher administrative fees of $5.2 million from a commercial finance fund that were previously eliminated when this fund was consolidated into our results until the second quarter of 2023; and (iii) higher property management and development fees of $3.5 million resulting from an increase in property-related activities within certain North American real estate equity funds; partially offset by (iv) lower credit transaction fees of $11.0 million, primarily from the infrastructure debt strategy, which are infrequent in nature and lower loan origination income earned from certain managed accounts within the U.S. direct lending strategy, driven by a lower capacity of investable capital; and (v) lower asset-based, net distribution fees associated with our non-traded REITs of $5.3 million.
Previous wording
Performance Related Compensation. Changes in performance related compensation are directly associated with the changes in carried interest allocation and incentive fees described above and include associated payroll related taxes as well as carried interest and incentive fees allocated to charitable organizations as part of our philanthropic initiatives.
Current wording
Performance Related Compensation. Changes in performance related compensation are directly associated with the changes in carried interest allocation and incentive fees described above and include associated payroll-related taxes as well as carried interest and incentive fees allocated to charitable organizations as part of our philanthropic initiatives. Performance related compensation generally represents 60% to 80% of carried interest allocation and incentive fees recognized before giving effect to payroll taxes and will vary based on the mix of funds generating carried interest allocation and incentive fees for that period.
Showing the first 40 of 100 pairs. Open the source sections for the rest.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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The charts below present the composition of our segment management fees by the initial fund duration:
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The activity for the year ended December 31, 2023 was primarily attributable to:
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The activity for the year ended December 31, 2024 was primarily attributable to:
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•Net unrealized gains from the appreciation of our investment in APMF
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The activity for the year ended December 31, 2023 was primarily attributable to:
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The following table presents the change in accrued performance income for the Credit Group ($ in millions):
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The following table presents the change in accrued performance income for the Real Assets Group ($ in millions):
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The following table presents the performance data of the Real Assets Group’s significant drawdown fund as of December 31, 2024 ($ in millions):
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The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Private Equity Group ($ in millions):
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The following table presents the change in accrued performance income for the Secondaries Group ($ in millions):
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For a discussion of our equity, see “Note 13. Equity and Redeemable Interest,” within our consolidated financial statements included in this Annual Report on Form 10-K.
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Carried Interest Allocation. The activity was principally composed of the following ($ in millions):
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The following table presents the performance data of the Real Assets Group’s significant drawdown funds as of December 31, 2023 ($ in millions):
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(7)IDF IV is made up of U.S. Dollar hedged, U.S. Dollar unhedged, Euro unhedged, Yen hedged parallel funds and a single investor U.S. Dollar parallel fund. The gross and net IRR and MoIC presented in the table are for the U.S. Dollar hedged parallel fund. The gross and net IRR for the U.S. Dollar unhedged parallel fund are 6.6% and 4.5%, respectively. The gross and net MoIC for the U.S. Dollar unhedged parallel fund are 1.2x and 1.1x, respectively. The gross and net IRR for the Euro unhedged parallel fund are 6.4% and 5.1%, respectively. The gross and net MoIC for the Euro unhedged parallel fund are 1.2x and 1.1x, respectively. The gross and net IRR for the Yen hedged parallel fund are 4.6% and 2.8%, respectively. The gross and net MoIC for the Yen hedged parallel fund are 1.1x and 1.1x, respectively. The gross and net IRR for the single investor U.S. Dollar parallel fund are 5.1% and 4.0%, respectively. The gross and net MoIC for the single investor U.S. Dollar parallel fund are 1.1x and 1.1x, respectively. Original capital commitments are converted to U.S. Dollars at the prevailing exchange rate at the time of fund's closing. All other values for IDF IV are for the combined fund and are converted to U.S. Dollars at the prevailing quarter-end exchange rate.
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Realized investment income for the year ended December 31, 2023 reflects dividend income received from APMF.