ARES (ARES) Q3 2024: $30B Deployment and 57% Wealth AUM Growth Signal Platform Scale
Ares Management’s third quarter showcased record capital deployment and accelerating fundraising momentum, especially in private credit and wealth channels. Platform breadth, scale, and product innovation are driving market share gains, even as margin pressure from distribution costs persists. Management signals 2025 will see further margin expansion and deployment acceleration as macro tailwinds build.
Summary
- Private Credit Leadership: Ares continues to outpace industry fundraising declines, capturing larger share of growing private credit demand.
- Wealth Channel Expansion: Wealth AUM grew 57% YoY with new products and international traction fueling flows.
- Deployment and Margin Outlook: Record deployment and fee-eligible AUM set up for margin expansion and higher earnings visibility into 2025.
Business Overview
Ares Management is a global alternative asset manager specializing in private credit, real assets, private equity, and alternative credit. The firm earns revenue primarily from management fees, performance fees, and incentive income across institutional and wealth channels. Major segments include private credit (direct lending, alternative credit), real estate (equity and debt), infrastructure, and a growing retail wealth platform.
Performance Analysis
ARES reported robust year-over-year growth across management fees, fee-related earnings, and realized income, driven by nearly $30 billion in quarterly deployment—its second highest ever—and $21 billion in new gross capital raised. The firm’s total assets under management (AUM) reached $464 billion, with fee-paying AUM of $287 billion and $74 billion in capital not yet paying fees, providing strong forward earnings visibility. Wealth management AUM surged 57% year-over-year, now at $32 billion, with over $11 billion raised year-to-date including leverage.
Private credit strategies remain the engine, with $13.5 billion raised in the quarter and SDL III (Senior Direct Lending Fund III) closing at $34 billion—nearly double its predecessor. Real assets also saw strong fundraising, including a 50% larger real estate opportunity fund and the launch of new infrastructure and sports media products. Supplemental distribution fees in the wealth channel increased, pressuring fee-related earnings (FRE) margins, but management views this as a scale investment with rapid absorption as AUM grows.
- Deployment Scale: $30 billion deployed in Q3, $74.6 billion year-to-date, sets up 2024 as a record year.
- Wealth Momentum: Over $1.2 billion in October equity flows and 60 distribution platforms, up 50% YoY.
- Distribution Cost Absorption: Supplemental fees now triple YoY, but expected to normalize as perpetual AUM scales.
Overall, Ares’ diversified fundraising, disciplined deployment, and product innovation underpin strong platform growth and future fee income expansion.
Executive Commentary
"Our fundraising success this year is in part due to the heightened institutional and retail investor demand that we're seeing across our private credit strategies, including global direct lending, alternative credit, real estate debt, and infrastructure debt, as well as strong interest in our liquid credit strategies."
Michael Arrighetti, Chief Executive Officer
"A record amount of $85 billion in shadow AUM or AUM not yet paying fees ideally positions us to capitalize on a return to a more normalized state of deployment and realizations in many sectors."
Jared Phillips, Chief Financial Officer
Strategic Positioning
1. Private Credit Scale and Diversification
Ares’ leadership in private credit is reinforced by its ability to attract capital across U.S., European, and alternative credit strategies, with SDL III closing at $34 billion and significant momentum in European direct lending. The firm’s broad origination platform, spanning 30 asset classes and 70+ professionals, enables flexible deployment across market cycles and geographies.
2. Expanding Wealth and Retail Distribution
The wealth management channel is a major growth engine, with AUM up 57% and products now on 60 platforms globally. New launches, such as the tax-advantaged core infrastructure fund and sports media strategies, are broadening the product suite and deepening platform relationships, particularly with RIAs and international partners.
3. Real Assets and Infrastructure Expansion
Recent acquisitions (GCP International and Walton Street Mexico) expand Ares’ real assets footprint into APAC and Latin America, adding industrial, digital infrastructure, and clean energy capabilities. The firm is positioned to capitalize on secular trends like manufacturing reshoring, AI-driven infrastructure demand, and global supply chain reorganization.
4. Margin Management and Operating Leverage
FRE margin was steady YoY but pressured by higher upfront distribution costs in the wealth channel, which management expects to absorb as perpetual AUM grows. Operating leverage from scaling wealth, combined with fee-paying AUM coming online, points to margin expansion in 2025 and beyond.
5. Product Innovation and Platform Breadth
Ares’ ongoing product innovation—such as the launch of secondaries, sports media, and tax-advantaged infrastructure vehicles—differentiates its platform and attracts both institutional and retail flows. Management sees further upside from new products leveraging recent acquisitions and global distribution.
Key Considerations
This quarter’s results highlight Ares’ ability to scale across market cycles, with platform breadth and fundraising diversity providing resilience and upside. Strategic investments in distribution and product development are driving market share gains, though near-term margin pressure from distribution costs is a watchpoint. Investors should monitor:
- Private Credit Concentration: Ares’ outperformance in private credit is linked to scale and origination breadth, but market-wide fundraising is down, increasing competition for quality assets.
- Distribution Fee Dynamics: Upfront wealth channel costs are significant but expected to be absorbed as AUM grows; management frames these as investments, not structural headwinds.
- Real Asset Cycle Timing: Acquisitions in APAC and Latin America diversify growth, but success depends on execution and timing as real estate and infrastructure cycles inflect.
- Product Suite Evolution: Continued innovation in secondaries, infrastructure, and sports media supports platform stickiness and cross-selling.
- Operating Leverage Realization: Margin expansion depends on both deployment pace and absorption of supplemental costs as new AUM begins to pay fees.
Risks
Distribution cost absorption is critical—delays in scaling perpetual AUM or slower-than-expected deployment could prolong margin compression. Broader macro risks (rate volatility, credit cycle turns, real estate market shocks) could impact fundraising, deployment, and performance fees. Competitive intensity in private credit and retail distribution may pressure pricing or require continued investment in platform and product innovation.
Forward Outlook
For Q4 2024, Ares guided to:
- Fee-related performance revenues of $160 to $170 million in the credit group
- Net realized performance income of $90 to $95 million from European and American style funds
For full-year 2024, management expects:
- Total gross capital raised in the mid $80 billion range, well above the 2021 record
- Moderately higher FRE margins versus 2023, with further expansion in 2025 as deployment broadens and operating leverage improves
Management emphasized that 2025 will see continued margin expansion, higher deployment, and a broadening of fundraising across more strategies, supported by a more constructive macro backdrop and product innovation.
- Operating leverage from scaling wealth and new fee-paying AUM expected to drive earnings growth
- Acquisitions in real assets and new product launches will diversify growth and cross-sell opportunities
Takeaways
Ares’ platform scale, product breadth, and distribution investments are driving durable growth, with significant upside as new AUM begins paying fees and operating leverage is realized.
- Fundraising Outperformance: Despite industry softness, Ares is capturing outsized share in private credit and retail, underpinned by scale and origination depth.
- Margin Trajectory: Near-term margin pressure from distribution costs is a function of growth investment, with management guiding for expansion as perpetual AUM scales.
- 2025 Setup: Investors should watch for margin inflection, deployment acceleration, and cross-segment growth as platform investments bear fruit.
Conclusion
Ares delivered a quarter defined by record deployment, robust fundraising, and significant wealth channel expansion, reinforcing its position as a scale leader in alternatives. While distribution costs weigh on margins now, the setup for 2025 is strong, with broadening deployment and margin expansion on the horizon.
Industry Read-Through
Ares’ results signal that scale and product innovation are increasingly decisive in the alternative asset management landscape. The firm’s ability to grow fundraising and deployment, even as industry-wide private credit inflows decline, highlights the benefits of platform breadth and origination capability. Wealth channel expansion and product innovation (e.g., tax-advantaged infrastructure, sports media) are becoming table stakes for growth, suggesting that smaller managers may face increasing headwinds. The rapid absorption of distribution costs as AUM scales is a key dynamic for the sector, and those unable to achieve similar scale or product diversity may see persistent margin pressure. Real asset and infrastructure cycles are turning, but execution and timing will differentiate winners from laggards in the next phase.