Executive Summary / Key Takeaways

• Ares Management ($ARES) is strategically positioned to capitalize on the secular shift towards private markets, leveraging its diversified platform, deep origination capabilities, and significant dry powder to drive growth across credit, real assets, private equity, and secondaries.
• The recent acquisition of GCP International significantly enhances Ares' Real Assets business, adding complementary capabilities in digital infrastructure and expanding its global footprint, particularly in Asia, contributing meaningfully to Q1 2025 financial performance and future growth prospects.
• First quarter 2025 results demonstrated strong year-over-year growth in key metrics, including management fees (up 19%), Fee Related Earnings (up 22%), and Realized Income (up 40%), supported by robust fundraising (record Q1) and opportunistic deployment despite broader market volatility.
• Ares maintains a strong outlook for 2025, projecting another good fundraising year, a significant increase in European-style net realized performance income, and FRE margin expansion, underpinned by the deployment of its substantial available capital ($142 billion as of March 31, 2025) and the scaling of strategic initiatives like the wealth management channel and Aspida.
• While market volatility and integration costs present near-term considerations, Ares' asset-light, management fee-centric model, coupled with its focus on senior credit positions and diversified funding sources, provides resilience and flexibility to navigate dynamic environments and capture enhanced opportunities.

Ares' Foundation and Strategic Positioning in a Shifting Landscape

Ares Management Corporation ($ARES) stands as a prominent global alternative investment manager, strategically structured around integrated groups spanning Credit, Real Assets, Private Equity, and Secondaries. This diversified platform, built through a history of organic growth and targeted acquisitions like SSG, Landmark Partners, Crescent Point, Walton Street Mexico, and most recently, GCP International, positions Ares to capitalize on the profound secular shift of assets moving from traditional banking systems into the private markets. This trend, coupled with the growing demand for alternative investments from both institutional and private wealth channels and the increasing need for specialized financing solutions in areas like infrastructure and digital assets, forms the core of Ares' market opportunity.

The company operates with a management fee-centric model, characterized by an asset-light balance sheet and long-duration, locked-up third-party capital. This structure affords Ares patience and flexibility, enabling opportunistic investing across market cycles and avoiding the pressures of being a forced seller. Ares' strategic response to the evolving landscape involves continuously expanding its capabilities, deepening its origination networks, and broadening its product suite across geographies and asset classes. This includes a deliberate focus on areas like Asset-Based Finance (ABF), digital infrastructure, and the wealth management channel, where significant growth potential exists.

Ares distinguishes itself competitively through its proprietary deal-sourcing network and deep incumbency advantages, particularly in the middle-market lending space. While larger peers like Blackstone (BX) and Apollo Global Management (APO) possess greater scale and broader market share, Ares leverages its specialized expertise and agile operations to achieve higher efficiency in deal execution and asset management within its targeted niches. Ares' focus on providing bespoke financing solutions and its ability to pivot across market segments—from liquid to illiquid, sponsored to non-sponsored—provides a competitive edge, particularly when traditional capital providers retrench. The company's diversified segments also offer a degree of resilience against sector-specific downturns, contributing to more consistent financial performance compared to competitors with more concentrated portfolios.

While not a technology company in the traditional sense, Ares' competitive differentiation is significantly underpinned by its operational and technological capabilities. This includes sophisticated platforms for deal origination, rigorous portfolio management, robust risk systems, and expanding distribution technology, notably within Ares Wealth Management Solutions (AWMS) and the tech-enabled Aspida platform. These capabilities drive tangible benefits such as faster deal execution, enhanced underwriting precision, and more efficient capital deployment and distribution. For instance, Ares' approach to AI-driven analytics in credit assessment contributes to its ability to identify and manage risk effectively. This focus on operational technology enhances Ares' competitive moat by improving efficiency and enabling the delivery of differentiated outcomes for investors, allowing it to compete effectively against peers who may have broader tech adoption but potentially lack the same depth in specialized alternative asset operations.

Performance Reflecting Strategic Execution in Q1 2025

Ares' first quarter 2025 financial results underscore the effectiveness of its strategy in navigating a dynamic market environment. Total revenues saw a significant increase, driven by robust growth across key components. Management fees rose by a notable 19% year-over-year, reaching $817.0 million, propelled by capital raised in perpetual capital vehicles and deployment in private funds within the Credit Group, as well as the impactful contributions from the recently acquired GCP International and Walton Street Mexico within the Real Assets Group. The GCP acquisition alone contributed $29.4 million in additional management fees and $13.6 million in property-related other fees, highlighting the immediate financial benefits of this strategic expansion.

Performance-related revenues also saw substantial growth. Carried interest allocation increased significantly to $160.0 million, primarily from strong performance in Credit funds (direct lending, opportunistic, alternative credit) and Private Equity funds (ACOF VI, ACOF IV). Incentive fees rose to $32.0 million, driven by contributions from a European direct lending fund and APMF. These increases reflect the underlying investment performance across Ares' diverse strategies and the structure of its fee arrangements.

Expenses also increased, partly due to the integration of acquired businesses and continued investment in the platform. Compensation and benefits rose significantly, with the GCP Acquisition contributing $151.0 million, including equity-based and contingent compensation. Excluding the GCP impact, compensation and benefits still increased by 23%, driven by higher equity-based compensation, payroll taxes, and salary expenses from headcount growth. General, administrative and other expenses also saw a significant increase, with GCP contributing $50.2 million, including acquisition-related costs and intangible asset amortization. Despite these increased costs, Fee Related Earnings (FRE), a key measure of core operating performance, grew by a strong 22% year-over-year to $367.3 million. While the GCP acquisition initially impacted FRE margins, management expects this to improve as synergies are realized and new funds scale. Realized Income (RI) saw an even more substantial increase of 40% to $405.9 million, benefiting from higher realized performance income, particularly European-style tax distributions.

Operational metrics in Q1 2025 further illustrate Ares' strength. The company reported a record $20.0 billion in gross new capital commitments, demonstrating continued fundraising momentum across all major strategies, including significant contributions from the wealth channel and institutional investors. Deployment activity remained strong, with over $31 billion invested in the quarter, and an improving gross-to-net deployment ratio in private credit strategies. Investment performance across credit composites remained positive, with strong credit quality metrics like low non-accruals and healthy LTVs in direct lending portfolios, reinforcing the defensive positioning of Ares' credit assets.

Strategic Growth Initiatives and Forward Outlook

Ares Management is actively pursuing several strategic initiatives designed to drive future growth and enhance its market position. The integration of GCP International is a top priority, with management expecting to realize significant cost synergies over the next 12-24 months and improve operating margins, particularly as new funds, including data center development vehicles in Japan and Europe, are raised. These GCP-related fund launches are expected to contribute approximately $7 billion in fundraising over the next two to three quarters, flowing directly into fee-paying AUM.

The expansion of the wealth management channel remains a key strategic growth avenue. Ares continues to invest in broadening its product suite, including new offerings like a core infrastructure fund and a sports, media, and entertainment product, and is actively expanding its distribution partnerships globally. Management expects total management fees from wealth products to increase by over 65% in 2025, reaching $500 million to $550 million, despite anticipated increases in distribution expenses. The momentum in the RIA and single-family office channel is also expected to continue.

Aspida, Ares' insurance platform, is well-positioned for continued growth following its recent equity raise, providing over $20 billion in new investment capacity. Aspida's strong momentum in primary annuity originations and engagement in reinsurance opportunities are expected to contribute to Ares' overall growth. The Asset-Based Finance (ABF) business is also projected for continued expansion, driven by the ongoing transition of assets out of banks and the secular shift to private markets, with Ares leveraging its experienced teams, scale, and bank relationships to capture opportunities in portfolio purchases, forward flow agreements, and SRTs/CRTs.

Looking ahead, Ares maintains a positive outlook for 2025. Management anticipates another strong fundraising year, potentially only modestly lower than the record 2024, supported by a diverse pipeline of institutional and retail funds. They project a significant increase in European-style net realized performance income in 2025, estimated to be between $225 million and $275 million, with materially higher amounts expected in 2026. FRE margin expansion of 0 to 150 basis points is targeted for 2025, driven by deployment and scaling initiatives, despite the initial impact of GCP margins. The effective tax rate on realized income is expected to be in the range of 8% to 12% for the remainder of 2025, benefiting from GCP-related tax benefits. This outlook is based on assumptions of a gradual improvement in the transaction environment and the successful execution of strategic growth plans.

Risks and Challenges

Despite the positive outlook and strategic positioning, Ares faces several risks and challenges. The global financial markets remain subject to volatility and uncertainty, as evidenced by the impact of recent trade tariffs and geopolitical events on liquid markets. A prolonged slowdown in transaction activity could impact deployment velocity, although Ares' diversified strategies and dry powder are intended to mitigate this. Changes in the fair value of underlying investments, influenced by external factors like market volatility and interest rates, can affect carried interest and performance income, potentially leading to contingent repayment obligations, although management views the risk of significant repayment as remote under current valuations.

Integrating acquired businesses like GCP International and Walton Street Mexico presents execution risks, including achieving expected synergies and managing associated costs and contingent liabilities. While management is optimistic about the integration progress, these efforts require significant resources and attention. Scaling the wealth management channel, while a major opportunity, involves increasing distribution expenses in the near term, which could pressure margins before the associated management fees fully scale. Competition across all segments remains intense, requiring continuous investment in origination, talent, and technology to maintain market share and performance. Regulatory changes and tax audits also pose potential risks, although management does not currently anticipate a material adverse effect from ongoing matters.

Conclusion

Ares Management Corporation is a formidable player in the alternative investment landscape, leveraging its integrated platform and strategic acquisitions to capitalize on the enduring shift towards private markets. The company's Q1 2025 performance, marked by strong growth in management fees, FRE, and Realized Income, demonstrates its ability to execute its strategy and generate results even amidst market volatility. The successful integration of GCP International and the continued scaling of its wealth management and Asset-Based Finance businesses are poised to drive future AUM and earnings growth.

With a record level of dry powder and a diversified pipeline of funds, Ares is well-equipped to deploy capital opportunistically and capture market share as the transaction environment evolves. While risks such as market uncertainty and integration challenges persist, Ares' management fee-centric model, defensive portfolio positioning, and focus on operational excellence provide a foundation of resilience. The company's clear guidance for increased European-style performance income and FRE margin expansion underscores management's confidence in the trajectory ahead, reinforcing the investment thesis centered on durable growth and expanding profitability in the dynamic world of alternative asset management.