ARES (ARES) Q1 2024: AUM Not-Yet-Paying Fees Surges 28%, Locking in Forward Fee Growth
ARES delivered a quarter defined by robust fundraising, accelerating deployment, and a significant build in future fee-earning assets. The firm's asset-light model, record AUM not-yet-paying fees, and broad-based capital inflows across private credit, wealth, and insurance channels position it for continued earnings growth. Management’s conviction in outpacing industry fundraising trends and harvesting secular tailwinds in private credit and infrastructure sets up ARES for structural outperformance as transaction activity rebounds.
Summary
- Fee Growth Visibility: Record AUM not-yet-paying fees signals locked-in management fee expansion.
- Deployment Outpaces Peers: Diverse fundraising and incumbent borrower relationships are driving market share gains.
- Secular Tailwinds: Private credit, infrastructure, and wealth channels are compounding structural growth levers.
Business Overview
ARES Management is a global alternative asset manager specializing in private credit, direct lending, real assets, private equity, and secondaries. The firm generates revenue primarily from management fees on assets under management (AUM), performance fees (carried interest), and administrative fees from insurance and wealth solutions. Major segments include private credit (direct lending, asset-based, opportunistic, and infrastructure credit), real assets (real estate and infrastructure), private equity, and a fast-growing wealth management platform.
Performance Analysis
ARES delivered double-digit YoY growth across all key financial metrics, with AUM up 19% to $428 billion and fee-related earnings (FRE) rising 18%. Fee-paying AUM climbed 14%, while management fees increased 15%, reflecting strong deployment across U.S. and European direct lending, alternative credit, and opportunistic credit. Notably, AUM not-yet-paying fees surged 28%, reaching nearly $65 billion, representing a powerful forward indicator of future management fee growth.
Gross capital raised exceeded $17 billion, with deployment activity in private credit totaling nearly $15 billion and gross deployment overall up 52% YoY. However, net deployment was more muted due to elevated refinancing activity, temporarily slowing fee-paying AUM growth. Realized income growth was driven entirely by fee-related earnings, as performance income remained seasonally light, with the bulk expected in the second and fourth quarters due to European-style fund seasonality.
- Deployment Scale: Direct lending deployment more than doubled YoY, as ARES gained share despite muted new issue activity.
- Fundraising Momentum: Both U.S. and European flagship direct lending funds exceeded prior vintages, and alternative credit raised $1.5 billion in new SMAs.
- Wealth Channel Acceleration: Non-traded wealth products reached $25 billion AUM, nearly quadrupling in under three years, with international inflows rising sharply.
ARES’s asset-light balance sheet, with less than 0.5% of AUM invested directly, underscores its fee-based earnings model and limits exposure to market volatility.
Executive Commentary
"Our AUM increased to $428 billion, which is well ahead of the growth trajectory that we outlined for our year-end 2025 goal of $500 billion. And our available capital and AUM not yet paying fees both reached new records, up more than 27% year-over-year."
Michael Arrighetti, Chief Executive Officer
"We continue to deliver strong results in the first quarter with mid- to high-teens growth in AUM, management fees, fee-related earnings, and realized income, along with stronger growth of 28% in our AUM not-yet-paying fees, which we view as a leading indicator of our capacity for future growth."
Jared Phillips, Chief Financial Officer
Strategic Positioning
1. Private Credit Platform Scale
ARES’s $280 billion in private credit AUM spans direct lending, asset-based, opportunistic, and infrastructure credit across the U.S., Europe, and Asia. This breadth allows the firm to capture secular tailwinds as banks retrench and institutional demand for private credit surges. The firm’s scale and incumbent borrower relationships enable it to efficiently deploy capital and gain share even in muted transaction environments.
2. Wealth Management Channel Inflection
The wealth management platform is reaching a critical mass, with six non-traded products amassing $25 billion AUM and quarterly inflows up 50% sequentially. International demand is accelerating, and product breadth is expanding, positioning ARES to further diversify capital sources and reduce cyclicality risk inherent in retail flows.
3. Infrastructure and Real Estate Debt Expansion
ARES is aggressively building out infrastructure debt and real estate credit capabilities, targeting multi-trillion dollar addressable markets underpinned by digital infrastructure, energy transition, and bank balance sheet deleveraging. The firm’s acquisition of AMP’s infrastructure debt business and growing origination funnel in opportunistic real estate debt signal intent to become a market leader in these capital-intensive verticals.
4. Asset-Light Insurance Solutions
The affiliated insurance platform, Aspida, is scaling rapidly with $14 billion AUM and a model focused on third-party capital and arm’s-length fee generation. ARES’s asset-light approach reduces risk and supports recurring fee streams, while third-party insurance relationships now exceed $50 billion in AUM across 150 clients.
5. Diversified Fundraising and Deployment Model
ARES’s balanced reliance on institutional, retail, and insurance channels, combined with both drawdown and perpetual capital vehicles, provides resilience against pro-cyclical retail flows and ensures consistent deployment through market cycles. This strategic mix is a core differentiator versus peers more reliant on a single channel.
Key Considerations
This quarter’s results reinforce ARES’s structural advantages in scale, distribution, and multi-segment growth, but also highlight the importance of careful deployment pacing and capital mix management as market conditions evolve.
Key Considerations:
- Fee Stream Durability: Record AUM not-yet-paying fees creates multi-year management fee visibility regardless of near-term market volatility.
- Deployment Versus Refinancing Mix: Elevated refinancing activity muted net deployment, but the historical gross-to-net ratio suggests upside as M&A rebounds.
- Channel Diversification: Balanced fundraising across institutional, wealth, and insurance channels mitigates pro-cyclicality and supports steady growth.
- Opportunistic Credit Tailwind: Higher-for-longer rates and stressed balance sheets are driving demand for bespoke liquidity solutions, positioning ARES as a preferred partner.
- Management Fee Rate Stability: Fee rates held steady at 100-110 bps, with mix shift the primary source of quarterly variability.
Risks
Key risks include potential delays in M&A recovery, which could further mute net deployment and slow fee-paying AUM growth despite strong fundraising. Prolonged refinancing cycles, tightening spreads, and increased competition from banks and other asset managers could compress margins. Regulatory changes, especially in insurance and wealth channels, and macroeconomic volatility remain material uncertainties. Management’s asset-light approach limits balance sheet risk, but the business remains exposed to cyclical flows and performance dispersion across strategies.
Forward Outlook
For Q2 2024, ARES expects:
- Realizations to remain seasonally light, with the majority of performance income from European-style funds concentrated in Q2 and Q4.
- Continued strong fundraising and deployment momentum, particularly in private credit and wealth channels.
For full-year 2024, management maintained guidance:
- Net realized performance income from European-style funds of $420 million for 2024 and 2025, with over two-thirds realized in 2025.
- 20% growth objectives for fee-related earnings and dividends per share.
Management emphasized record dry powder and accelerating pipeline activity as drivers for increased deployment and fee growth in the back half of the year.
- Anticipates final closes for flagship direct lending funds in U.S. and Europe.
- Expects continued international expansion and product launches in the wealth channel.
Takeaways
ARES is executing on a multi-pronged growth strategy that leverages scale, channel diversity, and asset-light capital formation to lock in future fee growth and earnings visibility.
- Fee Growth Pipeline: Record AUM not-yet-paying fees and shadow AUM set up multi-year management fee expansion as deployment accelerates.
- Strategic Breadth: Private credit leadership, infrastructure and real estate credit expansion, and wealth channel inflection create differentiated growth levers versus peers.
- Watch for M&A Recovery: The pace of net deployment and realization timing will be the key swing factors for near-term earnings and fee growth trajectory.
Conclusion
ARES’s Q1 results affirm its position as a leading global alternative manager with structural growth levers across private credit, real assets, and wealth channels. The firm’s record AUM not-yet-paying fees, balanced fundraising, and asset-light model provide high visibility into future earnings, with secular tailwinds and expanding market share supporting a bullish long-term outlook.
Industry Read-Through
ARES’s results and commentary highlight accelerating consolidation in alternatives, with scale managers capturing disproportionate fundraising and deployment flows as institutional LPs concentrate relationships. Private credit, infrastructure, and opportunistic credit are becoming core allocations for both institutional and retail investors, with banks’ retrenchment and digital infrastructure buildout driving multi-year capital demand. Industry peers reliant on wealth channels face increased cyclicality risk, while diversified platforms with drawdown and perpetual vehicles are best positioned for through-cycle growth. Expect continued fee rate stability among top managers, but increased performance dispersion and fundraising bifurcation as market cycles evolve.