Ares Management Corporation (ARES) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call summary and Q&A indicate strong financial performance, robust growth in various segments, and positive sentiment from analysts. The strategic focus on infrastructure, real estate, and private credit, along with strong EBITDA growth and non-traded REIT performance, suggests a positive outlook. The Q&A highlights confidence in software investments and wealth channel growth, though some management responses lacked detail. Overall, the positive aspects outweigh the negatives, leading to a positive sentiment rating.

Key Financial Performance

Assets Under Management (AUM) AUM grew 29% year-over-year to over $622 billion, driven by record fundraising of $113 billion in 2025, including $36 billion in Q4, and the GCP acquisition.

Fee-Paying Assets Under Management (FPAUM) FPAUM increased 32% year-over-year to $385 billion, supported by record deployment and fundraising activities.

Gross Deployment Gross deployment totaled $146 billion for the year, a 37% increase over 2024, with Q4 deployment reaching a record $46 billion.

Management Fees Management fees grew 27% year-over-year in Q4 to $994 million and 25% for the full year to $3.7 billion, driven by FPAUM growth.

Fee-Related Earnings (FRE) FRE increased 30% year-over-year for the full year and 33% in Q4 to a record $528 million, with FRE margins improving to 41.7%.

Net Realized Performance Income Net realized performance income for the year was $169 million, a 26% increase from 2024, with Q4 contributing $102 million.

Realized Income Realized income for the year exceeded $1.8 billion, a 26% increase from 2024, with Q4 reaching a record $589 million.

Wealth Management AUM Wealth Management AUM grew 69% year-over-year to over $66 billion, driven by $16 billion in equity flows into semi-liquid wealth products.

Insurance AUM Insurance-related AUM increased 20% year-over-year to $86 billion, supported by strong flows from Aspida and third-party insurance clients.

Real Estate Deployment Real asset deployment more than doubled from $10 billion in 2024 to over $23 billion in 2025, driven by increased market activity and demand for digital infrastructure.

Private Equity EBITDA Growth Organic portfolio company EBITDA growth was 13% for the last 12 months in the latest PE fund, ACOF VI.

U.S. Direct Lending Portfolio EBITDA Growth Portfolio companies in U.S. direct lending generated year-over-year EBITDA growth of 10%, with interest coverage improving to 2.2x.

Non-Traded REIT Performance Diversified non-traded REIT generated an 11.6% total net return in 2025, while the industrial non-traded REIT remains the #1 performer over the past 5 years.

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Operating Highlights

New Products: Expanded real estate and digital infrastructure offerings through the GCP acquisition, making Ares a global top 3 owner and operator of industrial real estate. Investments in over 25 AI projects to enhance investment decisions, sales efforts, and back-office productivity.

Geographic Expansion: Expanded investment platform and geographic reach, achieving $622 billion in AUM, a 29% growth year-over-year. Deployment activities broadened across products and regions, with significant increases in U.S. and European direct lending.

Operational Efficiencies: Investments in new data systems and AI projects to optimize operations and improve productivity. Integration of GCP acquisition expected to yield expense savings and revenue enhancements in 2026.

Strategic Shifts: Focus on scaling global origination and investment capabilities across credit, real assets, and secondaries. Enhanced Wealth Management business with AUM growth to $66 billion, up 69% year-over-year. Expansion into digital infrastructure and private investment-grade strategies.

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Risk or Challenges

Market Volatility: Concerns about software exposure due to recent market volatility. Software investments represent about 6% of total AUM and less than 9% of private credit AUM. However, the company highlights that most of these are senior secured loans with low loan-to-value ratios and strong cash flow generation.

AI Disruption: Potential risks from AI disruption in the software portfolio. The company notes that a very small percentage of the portfolio is at high risk of AI disruption, and they see opportunities for growth in digital infrastructure as a counterbalance.

Integration Challenges: The integration of the GCP acquisition is ongoing, with expectations for expense savings and revenue enhancements in 2026. However, integration processes often carry risks of delays or unforeseen costs.

Economic Uncertainty: The company acknowledges the potential for unforeseen global market disruptions that could impact transaction volumes and deployment activities in 2026.

Real Estate Market Recovery: The recovery in the real estate market is underway, but the company’s non-traded REITs are still facing high watermark challenges, which could impact fee-related performance revenues.

Interest Rate Environment: The company is optimistic about an improving interest rate environment but acknowledges that changes in interest rates could impact investment activity and financial performance.

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Guidance & Outlook

2026 Fundraising Expectations: The company expects total fundraising for 2026 to be as good or better than the record year in 2025, driven by strong demand from institutional investors and the launch of their largest funds in alternative credit and U.S. direct lending.

Deployment and Investment Activity: The company anticipates increased deployment activity in 2026, supported by an improving transaction environment, pent-up demand, and a large inventory of seasoned assets. They expect origination capacity and greater market transaction volumes to lead to further growth in deployment.

Private Equity Business: The private equity business is positioned to capitalize on a meaningful pipeline of new investments and potential realizations in 2026, supported by improving market dynamics and business confidence.

Digital Infrastructure Strategy: The company plans to raise significant additional capital for its digital infrastructure equity strategy in 2026, leveraging its vertically integrated model and global pipeline of seed assets, including cloud and AI data center projects.

Real Estate Fundraising: The company anticipates hitting the hard cap of $3.1 billion for its 11th U.S. value-add fund in the first half of 2026 and expects strong fundraising for new real estate products, including funds in Japan, the U.S., and Europe.

European-Style Performance Fees: 2026 is expected to be a significant year for the realization of European-style performance fees, with anticipated net realized performance income totaling approximately $350 million, more than doubling 2025 levels.

Fee-Related Earnings (FRE) Margins: The company expects 2026 FRE margins to be at the high end of their annual target range of 0 to 150 basis points, supported by back-office efficiencies, positive contributions from the data center business, and growth in AUM.

Wealth Channel Growth: The company expects equity inflows in the wealth channel for 2026 to meet or exceed prior year levels, driven by product breadth, performance leadership, and platform scale.

Insurance AUM Growth: The company plans to expand its private investment-grade capabilities and expects to raise more third-party insurance capital, contributing to insurance-related AUM growth in 2026.

Real Estate Market Recovery: The company expects continued recovery in the real estate market, which will contribute to growth in fee-related performance revenues (FRPR) from non-traded REITs.

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Shareholder Return Plan

Dividend Increase: Ares Management Corporation announced a 20% year-over-year increase in its first quarter 2026 common dividend, raising it to $1.35 per share on the company's Class A and nonvoting common stock. The dividend will be paid on March 31, 2026, to shareholders of record on March 17.

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Key Q&A

Q:How does the company view the impact of AI disruption on its software investments and overall deployment efforts?

A:The company is confident in its software investments, emphasizing that they have been underwriting with a focus on technology and obsolescence risk. They believe their software investments are in foundational infrastructure companies that are less likely to be disrupted by AI. The company also highlighted its ability to adapt to market changes, such as the shift to infrastructure and energy, and stated that the disruption is not expected to significantly impact aggregate origination volumes.

Q:Can you provide more details on the wealth channel's performance and sentiment from distributors?

A:The company reported strong flows in January ($1.2 billion) and similar numbers in February, with broad-based demand across private credit and core infrastructure products. They emphasized their measured approach to wealth channel growth to avoid over-reliance and ensure stability during market headwinds. The sentiment from distributors remains positive, with most investors not seeking liquidity.

Q:What are the company's views on opportunities in real assets, real estate, and secondaries?

A:The company sees significant opportunities in real assets and secondaries, driven by macroeconomic shifts and secular tailwinds. They highlighted their investments in real estate, particularly in logistics, and noted the growth in their secondaries business, which has doubled in AUM and profitability over the past 4.5 years. They also mentioned plans to bring new flagship credit vehicles to the market.

Q:What is the outlook for the company's ABF business and its deployment opportunities?

A:The ABF business is expected to continue growing, with a focus on non-rated investments for higher returns. The company has no exposure to e-commerce aggregators and minimal exposure to subprime consumer and auto sectors. They anticipate continued significant deployment opportunities in areas like digital infrastructure and fund finance, with a balanced approach between rated and non-rated investments.

Q:What is the company's strategy for non-sponsor channel opportunities in direct lending?

A:The company has invested heavily in non-sponsor origination across various industries, aiming to grow this segment from 10% to 15% of gross originations in the next 3-5 years. Non-sponsor deals typically offer higher spreads, lower leverage, and better documentation, making them attractive despite the risks.

Q:What is the company's perspective on private equity growth and potential acquisitions?

A:The company is considering acquisitions to scale its private equity business, emphasizing cultural, strategic, and financial accretion. They see private equity as a way to meet client demand, enhance capabilities, and leverage relationships. However, they acknowledge that private equity growth is episodic and must align with their focus on management fee and FRE-centric business.

Q:What is the company's exposure to software in its private credit and direct lending portfolios?

A:Software accounts for 8.7% of private credit AUM and 12% of direct lending. The company has been selective, with a 3-5% approval rate for investments, and has avoided significant exposure to ARR-based software companies, which represent less than 1% of their portfolio.

Q:What is the company's outlook on performance fees and FRPR?

A:The company expects growth in FRPR driven by credit spreads, incentive-generating AUM, and contributions from non-traded secondaries funds. They also anticipate potential contributions from their REITs as they cross high watermarks. Private equity performance fees may fluctuate due to market volatility and the nature of their holdings.

Q:What is the company's wealth management AUM distribution across regions, particularly in Asia?

A:Approximately 30% of the company's wealth management capital is gathered outside the U.S., with most flows coming from Europe and Australia/New Zealand. Asia-Pacific exposure is estimated to be in the single digits, with early successes in Japan and limited activity in developed Asia.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the size of the non-sponsor channel pipeline compared to a year ago, as well as the exact exposure of wealth management AUM in Asia. Additionally, they did not elaborate on the portion of software deals passed on over the last five years, leaving some gaps in clarity.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The earnings call highlights strong financial performance, optimistic guidance, and strategic growth initiatives, including increased dividends, robust fundraising, and expansion in real estate and private credit. The Q&A section reinforces positive sentiment, with management addressing concerns effectively and emphasizing growth opportunities. The positive outlook for real estate and private credit, coupled with strategic acquisitions and increased dividends, suggests a strong positive impact on stock price.

ARES Slides

Ares Management Q4 2025 slides: AUM surges 29% despite earnings miss

2026-02-05

Ares Management Q3 2025 slides: AUM surges 28%, stock jumps on earnings beat

2025-11-03

Ares Management Q2 2025 slides: AUM surges 28% YoY, Fee Related Earnings up 26%

2025-08-01

Ares Management Q1 2025 slides: AUM surges to $545.9 billion, realized income up 40%

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ARES Report

Ares Management Corp 10-Q

10-Q

2024-11-08

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2024-08-07

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Ares Management Corp 10-K

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