Ares Management Corporation (ARES) Earnings

Management highlights

- Fundraising Highlights * Achieved a record Q2 gross fundraising of $36 billion, bringing H1 2026 total gross fundraising to ~$66 billion, putting the firm on track for another full-year record. Approximately 70% of 2026 YTD capital raised came outside the four largest credit fund families, across ~90 different funds/vehicles, demonstrating increased business diversification. * In credit: Alternative asset-based finance (ABF) fund Pathfinder 3 completed full fundraising with $8.5 billion in equity commitments, exceeding its $6.5 billion target; over $12 billion in debt/equity raised across U.S. and European direct lending vehicles; first close for the next generation U.S. senior direct lending fund is expected in fall 2026, with the seventh European direct lending fund launching in early 2027. * In real assets: Open-ended core infrastructure fund raised $1.9 billion in equity; sixth infrastructure debt fund raised $500 million in Q2, reaching $3.7 billion YTD, on track for a final close above the prior vintage's $5 billion; Global Digital Infrastructure Fund expects meaningful closings starting in late Q3 2026, with full completion in 2027; fifth Japan Industrial Development Fund raised $1.8 billion, reaching $3.4 billion total commitments, on track for a final close above the prior $2.5 billion hard cap; real estate debt raised $2.8 billion across a new global commingled fund and separately managed accounts. * In wealth management: Raised $3.9 billion in gross equity in Q2, up 15% YoY, with H1 2026 total at $8 billion; reached over $76 billion in wealth product AUM, with QoQ annualized AUM growth exceeding 25%; the Evergreen core infrastructure fund has raised over $5.7 billion in just over two years, holding the number two rank in trailing twelve month gross fundraising for infrastructure Evergreen funds with ~20% market share. * In secondaries: Global structured solution strategy raised over $500 million; the next real estate secondaries fund expects an initial close in H2 2026, with fundraising pacing ahead of the prior vintage. - Investment & Deployment Highlights * Overall Q2 investment activity increased meaningfully YoY to ~$36 billion, up from ~$27 billion in Q2 2025; the firm-wide forward investment pipeline improved 20% QoQ to a new record, pointing to a stronger H2 deployment outlook. * U.S. direct lending deployed $12.4 billion in gross commitments in Q2, with 75% of deployment going to incumbent borrowers, and deployment improved sequentially from Q1; European direct lending deployment is ahead of full-year expectations, with a record pipeline entering Q3. * Digital infrastructure development platform Ada Infrastructure currently has 7 large data center campuses under execution, representing 22 individual investments with ~1 gigawatt of compute capacity, and a strong future project pipeline. * Real estate deployed over $4 billion in Q2, with activity rebounding particularly in North America and Japan; the firm is expanding selective investments into historically underweight sectors including hospitality and retail. * Secondaries market volumes are growing, with first half 2026 credit secondaries volumes already matching full year 2025 levels, driven by ongoing investor demand for liquidity and increased GP-led solution activity. - Portfolio Performance Highlights * Overall fund performance remains strong, particularly across credit and real asset strategies: 12-month gross returns are 16.4% for alternative credit, 8.9% for opportunistic credit, 11.2% for U.S. senior direct lending, 8.3% for European direct lending, 19% for APAC credit, 9.8% for infrastructure equity, 7.5% for infrastructure debt; APMF secondaries delivered a 16.2% net 12-month return and 15% net return since inception. * Underlying credit fundamentals are stable: U.S. direct lending non-accrual levels remain low at <2%, with 9% YoY organic EBITDA growth across portfolio companies; the non-traded BDC has 0.5% non-accruals, 13% YoY organic EBITDA growth, and stable monthly dividends declared through September 2026. * 84% of total AUM is held in perpetual or long-dated funds, which generate 94% of the firm's total management fees, providing durable capital base and earnings stability.

Guidance

- The firm reaffirms it remains on track to achieve its 2026 full-year financial objectives, consistent with long-term targets of 16% to 20% CAGR for fee-related earnings, 20%+ CAGR for realized income and dividend growth. - Management expects full-year 2026 margin improvement to reach the upper end of the 0 to 150 basis point target range. - The firm expects ~$10 million of realized net performance income in Q3 2026, and reaffirms previously communicated full-year performance income expectations. - The full-year 2026 tax rate guidance of 11% to 15% is maintained, and Q2 2026's 13.7% tax rate falls within this range. - The digital infrastructure business confirms its prior forecast of $50 million to $100 million in annual fee-related earnings in 2027 and beyond, and management reaffirms confidence in this projection based on current fundraising and portfolio momentum. - Wealth management management expects a similar level of gross fundraising in H2 2026 as the $8 billion raised in H1 2026.

Segment performance

At quarter end, total AUM increased 17% YoY to ~$671 billion, and fee-paying AUM (FPAUM) also increased 17% YoY to ~$410 billion. Breakdown of FPAUM growth by segment: 1) Credit: 17% YoY increase; 2) Secondaries: 28% YoY increase; 3) Private equity: 27% YoY increase; 4) Real assets: 11% YoY increase; 5) Other businesses (primarily insurance solutions): 54% YoY increase. Fee-related earnings (FRE) grew 20% YoY to ~$491 million in Q2, with year-to-date FRE margin reaching 42.3%, 100 basis points above the prior year period. Realized net performance income was ~$51 million in Q2, over three times the prior year period; year-to-date realized net performance income grew 119% YoY to ~$126 million. Total realized income grew 31% YoY to ~$522 million in Q2; after-tax realized income grew 27% YoY to ~$468 million, with after-tax realized income per share up 25% YoY to $1.29.

Risks & headwinds

- Wealth channel non-traded BDC redemptions remain concentrated among a small group of non-U.S. family offices and smaller institutions, which represent ~10% of the vehicle's NAV, though redemptions from the core U.S. individual investor base are low (~2.5% of NAV) and declined 35% QoQ. - Wealth flows may be more pro-cyclical than previously expected, which is why the firm continues to prioritize growth in the institutional channel. - Inorganic private equity growth opportunities require multiple boxes to be checked (cultural, strategic, financial fit) and have less linear growth profiles than the firm's core businesses, so meaningful expansion is not guaranteed. - Private equity secondary returns have historically been lower and more range-bound than primary private equity, with wider return dispersion in the primary market, which creates a persistent performance gap relative to primary PE.

Analyst Q&A

• Q: What is driving accelerating institutional demand for private credit, when will private wealth demand stabilize, and might the two channels be counter-cyclical? /

  A: Stronger demand is evidenced by oversubscribed hard-cap fund closes (Pathfinder 3 hit $8.5B vs a $6.5B target in a single close), driven by long-term under-allocation to private credit among institutions, and wider spreads from reduced wealth channel competition that improve return opportunities. For wealth, core U.S. individual investor redemptions are low and declining, with most redemptions concentrated in APAC non-U.S. family offices; the remaining redemption queue has already been cut in half over two quarters, and stabilization is expected within 2-3 quarters. Management notes wealth flows may be more pro-cyclical than expected, justifying continued focus on institutional growth, though the diversified channel strategy remains prudent. (478 characters)

• Q: What is Aries' framework for inorganic growth, and what is the strategic case for larger private equity exposure? /

  A: Any inorganic transaction must meet four core criteria: it must be culturally accretive for this people-focused business, strategically accretive by adding new capabilities/distribution, able to deliver clear revenue and operational synergies, and financially accretive to shareholders. Strategically, a larger private equity footprint aligns with existing institutional investor demand for more PE exposure from Aries, enables broader capital solutions for corporate/entrepreneur clients, drives synergy with capital markets businesses, and meets growing wealth channel demand for private equity exposure. Management notes that any deal must have the right price, given PE's more episodic growth profile. (545 characters)

• Q: U.S. direct lending sponsor M&A remains subdued, but management struck a constructive tone — what is driving this outlook, and how does pipeline impact back-half management fee growth? /

  A: Aries' overall platform pipeline is 20% higher quarter-over-quarter to a new record, with broad-based acceleration across all segments, reducing reliance on U.S. direct lending for P&L growth even if M&A is slow. For U.S. direct lending, new deal indicators including signed NDAs are up 35% quarter-over-quarter, indicating meaningful accelerating sponsor activity heading into the back half of the year. Even with slow M&A, Aries has demonstrated it can deploy consistently via incumbent borrower relationships and non-sponsored business, supporting steady fee growth. (412 characters)

• Q: What is driving the path to the upper end of the 2026 margin improvement guidance range, and what is the incremental margin outlook for 2027? /

  A: Margin expansion is driven by faster revenue growth relative to expense growth: one-time Q2 expenses for the biennial institutional AGM will not repeat in H2, the acquired GCP business has exited transitional service agreements and is now adding new revenues while removing fixed expenses, and faster deployment drives incremental revenue that flows through to margins. Management's primary priority is hitting long-term earnings growth targets, so incremental margin gains are often reinvested into high-return areas including marketing for fundraising and additional origination team capacity to sustain long-term growth. (403 characters)