Q4 2024 Earnings Summary
- Ares Management is experiencing strong international expansion in the private wealth channel, with over 35% of capital raised coming from Europe and Asia-Pacific regions. Their European direct lending product has been particularly successful, exceeding $2.2 billion in assets under management. This demonstrates Ares' ability to penetrate overseas markets and diversify their investor base.
- Ares anticipates potential fee-related earnings (FRE) margin expansion in 2025, expected to be in the range of 0 to 150 basis points, driven by increased deployment activity. Management believes that higher net deployment will contribute significantly to margin growth, underscoring the firm's operational efficiency and scalability.
- Ares is outperforming the market in deployment activity, with investment volume increasing by close to 60% year-over-year to $107 billion, compared to a 10% increase in global M&A volumes. This highlights Ares' strong origination capabilities, strategic relationships, and ability to deploy capital effectively even in less active transaction environments.
- Potential slowdown in deployment could limit FRE margin expansion: The company's Fee-Related Earnings (FRE) margin expansion relies heavily on the pace of deployment. Jarrod Phillips noted that "the pace of deployment really dictates the speed at which margin expands." If deployment slows due to market conditions, this could constrain FRE margin growth and affect profitability.
- Uncertainty in the European market due to political factors: There are concerns about how the Trump administration might impact growth in the European direct lending market. Michael Brown asked, "Does the Trump administration impact some of the growth potential for the region?" While the company believes its exposure is limited, geopolitical uncertainties could pose risks to their European operations.
- Technological advancements may challenge the data center investment thesis: Developments like DeepSeek suggest that AI models may become less capital and energy-intensive, potentially affecting the demand for data centers. Michael Cyprys inquired about this concern: "Just curious how you're thinking about that and how your views are on evolving around CapEx across the industry." A decrease in demand for data centers could negatively impact the expected returns from the GCP acquisition.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Fee‐Related Performance Revenues | Q4 2024 | $160 million to $170 million | no current guidance | no current guidance |
Net FRPR for Credit Group | Q4 2024 | $60 million to $70 million | no current guidance | no current guidance |
Net Realized Performance Income | Q4 2024 | $90 million to $95 million | no current guidance | no current guidance |
Fee‐Related Earnings (FRE) Margin | Q4 2024 | Approximately 40% | no current guidance | no current guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Expansion in the wealth management channel | Emphasized across all previous quarters with highlights including: • Over $25-32B in AUM in semiliquid/retail products. • Strong inflows driven by product innovation, geographical expansion, and new distribution partnerships (Q1 , Q2 , Q3 ). | Continued consistent focus on scaling semiliquid offerings (over $39B in AUM) with a goal of $100B, adding new global distribution platforms, and increasing international flows to 36% of capital raised (Q4 ). | Remains a core growth driver with robust fundraising and global distribution efforts accelerating. |
Strong fundraising momentum | Highlighted as a key driver each quarter: • Record or near-record capital raises (Q1 , Q2 , Q3 ) spanning private credit, real estate debt, infrastructure, etc. • Success from both institutional and retail channels. | Achieved a quarterly record of $28.3B in new commitments, totaling $92.7B for the full year, contributing to 16% YoY AUM growth (Q4 ). | Continues to be robust, setting new quarterly and annual records. |
International expansion in Europe and Asia | Repeated emphasis on building distribution, especially in European direct lending and Asia-Pacific (Q1 , Q2 , Q3 ). Focus on partnerships, real asset acquisitions, and semiliquid funds in multiple geographies. | Gained traction with over 35% of capital raised from these regions, driven by unique local distribution networks and success in European direct lending (Q4 ). Targeting new semiliquid solutions for Japan, Canada, and Latin America in 2025 (Q4 ). | Consistent priority, with growing success and future expansion plans. |
Potential FRE margin expansion tied to deployment | Cited in each quarter as contingent on pace of deployment and scale in distribution fees (Q1 , Q2 , Q3 ). Early references highlight onetime distribution costs as a headwind, with margin expansion improving as more assets deploy. | Management reiterated that deployment and scaling are crucial for FRE margin expansion. They expect stronger activity in real estate and credit to further margin gains, building on improved fundraising momentum (Q4 ). | Ongoing focus, with a positive outlook as deployment and scale accelerate. |
AI-related risks to data center demand | No discussion in Q1–Q3 about AI-driven potential slowdown; AI was previously referenced mainly as a driver of data center growth (Q1 ). | Newly introduced caution: DeepSeek’s streamlined AI model may reduce capital intensity, but executives remain optimistic about ongoing demand for compute and data centers (Q4 ). | Newly emerged topic, acknowledging a possible capex shift yet maintaining a bullish long-term view. |
Political and regulatory uncertainties in Europe | Mentioned only in Q4 from older commentary about potential exposure to trade or defense spending; minimal reference in earlier calls (no Q1–Q3 updates provided) (Q4 ). | Management noted limited direct impact due to portfolio companies’ local orientation (Q4 ). | Reintroduced in Q4, but without major concerns for portfolio companies. |
Negative returns in the secondaries segment | Discussed in Q3 as short-term underperformance, with management saying secondaries’ returns should be assessed on an inception-to-date basis (Q3 ). Not mentioned in Q1–Q2. | No mention of negative returns in the Q4 earnings call. | Topic not repeated in Q4; focus has likely shifted away. |
Tightening spreads in direct lending | Mentioned in Q1 (Q1 ) as a trend possibly stabilizing; no follow-up in Q2–Q3 on this specific phrase. | Not referenced in Q4. | No longer discussed after Q1. |
Shifting sentiment in real estate transactions | Described as slowing in Q2 but improving in Q3, with increased volumes and better valuations in industrial, multifamily, and other property types (Q2 , Q3 ). | Q4 commentary focused more on improved sentiment, with strong investor demand for real estate debt strategies and notable growth in real estate equity composites (Q4 ). | Continuing uptick in transaction activity and capital flows. |
Broader interest rate shifts | Viewed each quarter as a major determinant for capital deployment, especially in real estate; stable or lower rates generally spur transaction activity (Q2 , Q3 ). | In Q4, stability in higher rates is starting to bring capital off the sidelines, especially in private credit and real estate, supporting Ares’ deployment (Q4 ). | Remains a significant macro factor, with rate stability seen as a catalyst for new deals. |
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Fundraising Outlook
Q: How will fundraising fare in 2025 without major flagships?
A: Despite expecting a modestly lower fundraising year than 2024, we anticipate an incredibly strong 2025, with around 18 commingled funds in the market and continued momentum in areas like opportunistic credit and sports funds. Our fundraising "floor" continues to elevate due to diverse strategies and accelerating channels like insurance and wealth. -
G&A Expense Growth
Q: What's driving the over 20% rise in G&A expenses?
A: The significant increase in G&A expenses, up more than 20% in 2024, is primarily due to higher supplemental distribution fees, which reached about $50 million for the year, and increased occupancy costs from expanding our New York and Los Angeles offices. While we expect these expenses to grow as we raise more capital, we're becoming less reliant on high-fee channels. The GCP acquisition will also add new expenses but aligns with our current margins excluding a $20 million FRE drag from data centers awaiting fund launches. -
M&A Appetite
Q: Are you seeking more acquisitions after GCP?
A: With the GCP deal closing, our focus shifts towards organic growth. Each acquisition raises the bar, given our expanded capabilities. We've fulfilled most strategic objectives across corporate, real estate, and infrastructure in the U.S., Europe, and Asia. While M&A has contributed 20–25% of our growth, we now prioritize exploiting existing opportunities over new acquisitions. -
Credit Deployment & AUM Growth
Q: How will credit deployment progress in 2025?
A: Though it's early, we foresee improved deployment in 2025, aided by stabilizing rates and increased activity in private credit and real estate. Our deployment rose nearly 60% to $107 billion in 2024, outpacing global M&A volumes, which were up only 10%. Our strong incumbent relationships mean we're less dependent on M&A for growth, and slower transaction volumes can enhance our liquidity solutions' attractiveness. -
Aspida/T. Rowe Partnership
Q: What's the potential of the T. Rowe partnership?
A: We're excited about partnering with T. Rowe and Oak Hill, leveraging their fixed income capabilities for Aspida and complementing our private market offerings. This collaboration allows T. Rowe to showcase their insurance solutions and opens avenues for joint product development in retirement offerings, including potential entry into the 401(k) space. -
Strategic Focus Post Elevation
Q: What are your main strategic initiatives now?
A: My responsibilities remain unchanged. Kipp and Blair's elevation expands our management capacity to tackle high-impact growth areas like integrating GCP, capitalizing on digital infrastructure and new economy real estate, expanding in real estate and infrastructure lending, and enhancing our insurance partnerships alongside Aspida. We're also committed to mentoring the next generation of leaders.