Breaking Down Ares Management and Its Earnings Report

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The alternative asset manager saw gains in earnings and revenue for the quarter

Ares Management Corporation reported earning this week.

Revenue grew by 94% to $466.5 million year-over-year. Earnings per share came in at $0.23. That figure represented a 153% increase over last year. Assets under management rose 15% to $144.3 billion. Ares also announced a 14% increase in the quarterly dividend. The shares now yield more than 4%.

Ares Management operates across three integrated businesses: Credit, Private Equity and Real Estate. The firm’s global platform had $144 billion of assets under management as of September 30, 2019.

“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,” said CEO Michael Arougheti. “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 state of the leveraged loan market, a key market for Ares. “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,” he said. “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.”

Michael Arougheti on the State of the Private Credit Market

Arougheti also discussed the private credit market.

“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,” he said. “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.”

He talked about how private credit reflects 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,” he said. “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, [and] about $10 billion in alternative credit. And as I mentioned in the prepared remarks $5 billion in real estate.”

Ares Management Sees Opportunity in Real Estate

The firm is excited about the prospect of their real estate business with Mr. 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. 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 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

 

 

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