Ares Management Corp Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Craig Siegenthaler - BofA Global Research - Analyst : Kipp and Blair, if you're on the call, congrats on the promotions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:00PM, ARES.N - Q4 2024 Ares Management Corp Earnings Call

Question: Craig Siegenthaler - BofA Global Research - Analyst : So I have a long-term expense question. G&A expenses rose by more than 20% in 2024, and I know there's some noise in there like Crescent Point in 4Q '23 that actually helped the comp but also you had a new, New York City lease coming in this year. So we wanted your high-level thoughts on the go-forward core growth rate of G&A. And also how are supplemental distribution fees in the wealth channel a factor? And then you're also closing GCP, I think this quarter, as you said. So what will be the near-term lift from that?

Question: Craig Siegenthaler - BofA Global Research - Analyst : Just as my follow-up for Mike. Mike, given your change in responsibilities now with the elevation of Kipp and Blair, it sounds like you're going to be more focused. So curious, what are the two or three biggest strategic initiatives that you plan to focus on now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:00PM, ARES.N - Q4 2024 Ares Management Corp Earnings Call

Question: Kyle Voigt - Keefe, Bruyette & Woods, Inc. - Analyst : Maybe I could just get an update regarding M&A appetite with the GCP deal now set to close in the first quarter. Just wondering if we can get an update on how you feel about the state of your pro forma business mix, where you sit strategically from an asset class in geographical perspective? And do you still feel like there's potential gaps to fill in the product offering or internationally?

Question: Kyle Voigt - Keefe, Bruyette & Woods, Inc. - Analyst : I appreciate that. And just for my follow-up, just a question on the sequential growth in credit fee-paying AUM. I know you've noted on prior calls that that gross to net deployment ratio and expecting that to improve. I think you noted maybe an expected gradual improvement in the environment. I guess anything that you can give us in terms of helping us out with the pipeline that you're seeing, how that's going to progress in terms of that gross to net deployment ratio into the first half of the year, and how you expect it to kind of unfold through 2025 versus where you're at in 4Q?

Question: Steven Chubak - Wolfe Research - Analyst : So maybe just to start off with a question on fundraising. The momentum was quite strong to close out the year. Given the tough fundraising comp in '24, much lower expected contribution from flagships in '25, the modest year-on-year decline was admittedly better than we were anticipating that you alluded to, Mike. So I was hoping you could drill down into the drivers of their non-flagship fundraising in '25. And what contribution you're contemplating from flagships this year that's supporting that more resilient fundraising outcome?

Question: Steven Chubak - Wolfe Research - Analyst : That's really helpful color. And for my follow-up, I did want to ask on the Aspida-T. Rowe partnership. So T. Rowe, on its recent earnings call, discussed the partnership. They cited opportunities for co-developing investment offerings potentially in both insurance and private assets. I'm just curious how you think this partnership could evolve over time, where this can also serve as a potential stepping stone to eventually break into the 401(k) space.

Question: Alex Blostein - Goldman Sachs & Company, Inc. - Analyst : Mike, I was hoping we could start with a question with a point you made earlier regarding institutional investors continuing to expand their allocations to private credit and obviously been an important theme for years. But as you think about the evolution into the investment-grade private credit part of the market, can you talk a little bit about the changes you're seeing in that LP base? Are you seeing other type of insurance REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:00PM, ARES.N - Q4 2024 Ares Management Corp Earnings Call companies that are looking at the space? Historically, has been largely life so curious if you've seen more movement on the P&C side, other types of institutions as well, where those allocations could ultimately go? I mean right now, they're still quite low, and then ultimately, Ares' origination capabilities to satisfy that need.

Question: Alex Blostein - Goldman Sachs & Company, Inc. - Analyst : Got you, great. And then another one related to GCP, with the deal getting closer to completion here, I guess, in the first quarter. Can you guys just level set and remind us what their 2024 full-year management fee base is? How you guys expect that to grow over the next couple of years? And once the deal closes, what kind of products, particularly on the retail side should we be thinking about you guys expanding into?

Question: Michael Brown - Wells Fargo Securities, LLC - Analyst : So in light of the news with Co-Presidents, Kipp and Blair, I wanted to ask about Blair's side of the credit business and focus on the Europe direct lending side. I wanted to just hear about how is the health of the market there? Does the Trump administration impact some of the growth potential for the region? And how does that impact perhaps the deployment opportunities there? And just overall, how is the competitive landscape in Europe currently?

Question: Michael Brown - Wells Fargo Securities, LLC - Analyst : Okay, great. And then maybe just wanted to ask on the banks as they become more formidable competitors again, how should we think about that interplay between the broadly syndicated bond market and the private credit market? And any color on how we should think about some of the competitive landscape for indirect lending, how that can impact spreads and leverage multiples, deal structures, et cetera?

Question: Michael Brown - Wells Fargo Securities, LLC - Analyst : Okay, great. Yes, a very comprehensive answer.

Question: Bill Katz - TD Cowen - Analyst : Congrats, guys, on the promotions. Just coming back to OHA, I'd like to come at this at a slightly different angle. Does this give you an opportunity to rethink the mass affluent marketplace without compromising fee rates? I know when the KKR and the Capital Group initiative came out, there was a lot of skepticism about what the economics might look like, and I know you fiercely want to protect that base management fee. But does this give you an opportunity to potentially expand the wealth management opportunity without that compromise?

Question: Bill Katz - TD Cowen - Analyst : And then one quick one for Jarrod. Just thinking through the ins and outs for the FRE margin outlook. How should we be thinking about compensation? And the reason I'm asking is, if you have the European waterfall sort of poised to sort of accelerate rather dramatically, is there an opportunity to sort of reroute some of the compensation against that? I know you sort of provided a net number relative to the comp you're paying either on sort of the base business or even against FRPR looking ahead.

Question: Ken Worthington - JPMorgan - Analyst : Just one for me in credit. So fundraising deployment continues to be quite strong, fee-paying AUM growth less so. Can you talk about gross deployment versus net deployment and the trends there? Ultimately, what the refinance market looked like in 4Q relative to earlier in the year? And how competitive did Ares choose to be in the refinance market versus what you saw in the BSL market again this quarter?

Question: Ken Worthington - JPMorgan - Analyst : Was 4Q all that different than 1Q?

Question: Brennan Hawken - UBS - Analyst : Most of my questions have been asked and answered so I'll just keep it to one. Last quarter, you spoke to an expectation for improving FRE margin in 2025. Is there a decent -- you spoke a little earlier on G&A, which is helpful. But how should we think about the potential magnitude for that and what are the primary factors driving it?

Question: Ben Budish - Barclays Capital Inc. - Analyst : Maybe one last sort of follow-up. The last few questions have sort of been around the FRE outlook. Just curious, anything you can share with us in terms of how we might think about management fee growth in 2025? You talked about the sort of gross to net dynamics. I'm curious, is there anything to do with the sort of deployment out of perpetual versus drawdown vehicles, that sort of thing? We've obviously got your longer-term FRE guide, and clearly, there's a kind of wide range depending on the pace of deployment. But it just seems like folks are sort of wondering like, how do we sort of think about the top line growth, which will clearly be the driver of FRE margin expansion?

Question: Ben Budish - Barclays Capital Inc. - Analyst : Understood. Appreciate all that. Maybe one last sort of like nitty-gritty modeling detail. Jarrod, you talked about the sort of range of tax rate outcomes for the year depending on the pace of utilizations. I'm just curious, as the platform gets bigger, as the European waterfall style realization starts to come in, like your after-tax net income is getting bigger and bigger. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 05, 2025 / 3:00PM, ARES.N - Q4 2024 Ares Management Corp Earnings Call I'm curious like how should we think about the tax rate as you'll start to be at the -- at some point, you'll be at the corporate alternative minimum tax rate, I believe. And should we start to expect the overall rate to sort of go up? How do we think about that in the context of the sort of timing of realizations? And I realize this is probably somewhat farther out because I think that applies after like several years of over $1 billion in after-tax income. But just curious about how we might think about those pieces.

Question: Michael Cyprys - Morgan Stanley & Co. LLC - Analyst : Just with the GCP transaction, you guys are going to be in the market with a number of development vehicles for data centers. So just curious how you're thinking about the investment opportunity with data centers there, just given post the DeepSeek development that suggests that AI models may be a bit less capital energy intensive. Just curious how you're thinking about that and how your views are on evolving around CapEx across the industry.

Question: Michael Cyprys - Morgan Stanley & Co. LLC - Analyst : And then just for a follow-up question on private wealth, I was hoping maybe you could just dig in a little bit around the traction you're seeing overseas. If you could maybe elaborate a bit on the success and maybe talk about some of the differences in the approach to distribution that's needed to drive success overseas versus in the US.