Ares Management shows strong revenue gains.

Ares Management earnings arrived last week.

Revenue grew by 94% to $466.5 million year-over-year while the reported earnings of $.23 a share represented a 153% increase over last year. Assets under management rose 15% to $144.3 billion. The Ares Management earnings report also showed a 14% increase in the quarterly dividend. The shares now yield more than 4%.

Ares Management is a leading global alternative investment manager operating three integrated businesses: Credit, Private Equity and Real Estate. Its global platform had $144 billion of assets under management as of September 30, 2019, and employs more than 1,200 employees in over 20 offices across four continents.

Ares Management Earnings Report

On the conference call CEO Michael Arougheti commented on the quarter telling investors that “ In summary we are executing well across all aspects of our business strategic expansion capital raising and investment performance and we believe that we have laid a very strong foundation for future growth. We have great visibility into next year’s fundraising pipeline and we expect it to be a very strong year. The secular growth trends supporting our franchise continue to accelerate and we firmly believe that the best is yet to come for our business.”

He also discussed the condition in the leveraged loan market, a key market for Ares.

He told analysts that “I think there has been a little bit of a dislocation in the leverage loan market consistent with some of the themes that we have talked about in prior quarters which is generally a dispersion in the market and probably more sensitivity around the quality of underlying borrowers. So recently we have effectively seen a sell-off in weaker single B credit in favor of higher-rated BB credit. That’s created some opportunities for us because with that volatility and our market position in the liquid markets we think that we can capture excess return. And importantly in our direct lending business, we now get to refer to a wider spread environment as we are pricing new loan transactions.”

Arougheti on the Private Credit Market

He also discussed private credit markets saying “I think it’s important when we talk about private credit that folks understand that when we talk about private credit at Ares we are not just talking about corporate cash flow middle-market lending. That is a big part of our franchise but not the only part of our franchise. And I think that it under sizes the global opportunity in private credit generally. So when we talk about private credit we talk about middle-market cash flow lending. We talk about self-originated asset-backed and asset oriented lending which is alternative credit. We talk about real estate lending. And then we talk about all of our opportunistic credit businesses. So when you look at the $106 billion of credit and you add real estate to it it’s about $111 billion. $70 billion of it is direct lending about $10 billion is alternative credit. And as I mentioned in the prepared remarks $5 billion in real estate.”

On the Track Record

The firm is excited about the prospect of their real estate business with Argouheti telling investors that “it’s funny our real estate business is probably one of our fastest-growing businesses. Track record of performance there which you all can see publicly has really been best-in-class and that’s showing up in the sequential increase in fund size every time we bring a product to market. We talked about the success we just had getting to the hard cap pretty quickly on our fifth fund but we are experiencing similar momentum in our two current funds that are in the market. So I think you’ll continue to see steady-state growth opportunities in those core real estate fund families. We are seeing accelerated growth in our real estate credit business both in our traditional value-add lending franchise within our mortgage REIT and our SMAs.”

We continue to live in a yield-starved world and private credit and alternative asset firms like Ares are well-positioned to continue growing assets and earnings by providing investors with much-needed returns. Analysts currently expect full-year earnings to grow by 387% to $1.46 a share and to increase 29% next year to $1.88. The longer-term growth expectation is close to 15% as institutions and individuals alike increase their allocation to alternative strategies.