Ares Management (ARES) investor relations material

Macro environment and portfolio positioning

• Navigating multiple macro challenges, including geopolitics, inflation, and higher-for-longer rates, with a diversified strategy that supports profitable growth in any rate environment.

• Portfolio companies show broad-based growth of 9%-12% and strong real estate utilization, with high rent demand and NOI growth.

• Private credit portfolios benefit from floating-rate structures, with higher rates supporting outperformance and strong interest coverage ratios.

• Direct lending portfolios have significant equity subordination, mitigating default risk, and current non-accrual rates are below historical averages.

• Institutional demand for private credit remains robust, with less refinancing risk and higher management fee income due to portfolio durability.

Sector and asset class trends

• Software portfolio exposure to AI risk is actively managed, with 86% of holdings expected to benefit from AI, and only 1% at high risk of disruption.

• Real estate and infrastructure businesses are growing, focusing on multifamily, industrial, and data center development in key global markets.

• Asset-based finance (ABF) is a major growth engine, with a balanced approach between investment grade and sub-investment grade, and institutionalization of the asset class accelerating.

• Insurance strategy through Aspida is delivering rapid growth, targeting $50 billion AUM by 2028, with a balance sheet-light approach.

• Secondaries business is expanding, with a shift from LP-led to GP-led transactions, leveraging deep relationships and asset-level underwriting.

Market dynamics and capital flows

• Direct lending terms have improved, with higher spreads, lower leverage, and better documentation, shifting to a lender-friendly market.

• Retail outflows are concentrated in U.S. direct lending, but institutional inflows and European private credit are offsetting this trend.

• Institutional investors are increasing allocations to private credit, viewing volatility as an opportunity for enhanced returns.

• The business model is highly diversified, asset-light, and countercyclical, supporting consistent organic growth and resilience through market cycles.

• FRE and RI growth guidance remains intact, with a strong pipeline of uninvested capital and low leverage supporting future performance.