ARES - NYSE

Welcome to the Ares Management Corporation's First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Monday, May 5, 2025. I will now turn the call over to Greg Mason, Co-Head of Public Markets, Investor Relations for Ares Management. Please go ahead, sir.

Good morning, and thank you for joining us today for our first quarter 2025 conference call. I'm joined today by Michael Arougheti, our Chief Executive Officer, and Jarrod Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results, and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in Ares or any Ares fund. During this call, we'll refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our first quarter earnings presentation available on the Investor Resources section of our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared a quarterly dividend of $1.12 per share on the company's Class A and non-voting common stock, representing an increase of 20% over our dividend for the same quarter a year ago. The dividend will be paid on June 30th, 2025, to holders of record on June 16th. Now, I'll turn the call over to Mike, who will start with some comments on the current market environment and our first quarter financial results.

Thank you, Greg, and good morning. We hope everybody is doing well. In the first quarter, Ares continued to generate strong financial results in spite of increased market volatility and growing uncertainty. Our results included year-over-year growth in management fees of 18%, FRE growth of 22% and after-tax realized income per share of Class A common stock growth of 36%. We also saw continued momentum in our fundraising and deployment activities as well as strong investment performance across our platform. On the fundraising front, we raised over $20 billion in gross new capital commitments, which was the highest level for the first quarter fundraising on record with broad contributions across all major strategies. We deployed over $31 billion in the quarter with an improving gross-to-net deployment ratio of 49% in our private credit strategies. In fact, capital deployment in our drawdown funds increased nearly 20% over the fourth quarter and was the highest first quarter on record. The first quarter also marked a significant milestone for Ares as we crossed over $0.5 trillion and reached $546 billion of total AUM, including $45 billion of AUM added through the acquisition of GCP. Overall, both our AUM and fee paying AUM grew by 27% and 25%, respectively on a year-over-year basis. Coming into the New Year, the market was anticipating that the new administration's pro-growth, regulatory and tax policies would unlock a greater amount of M&A led transactions. At the beginning of the year, as reflected in our strong deployment, we were seeing the early signs of a growing future pipeline of transactions and pent-up activity. However, anxiety and market volatility were building throughout the quarter. And following the announcement of the April 2nd tariffs and subsequent geopolitical events, the market entered a new phase of volatility and uncertainty over the ultimate outcome and impact of tariff policies. Activity in the liquid credit and equity markets dropped off significantly as most banks and liquid market investors moved to a risk-off position. Since then, the liquid markets have started to thaw, but they remain less predictable and highly selective. As one would expect, when traditional capital providers and public markets retrench, the stability and certainty of the private markets becomes even more valuable. Fortunately for Ares, we have a record amount of dry powder and we operate a large array of flexible private market strategies that can take advantage and gain share during periods of retrenchment. Today, we have $142 billion of available capital, including over $99 billion in AUM not yet paying fees. This provides us with significant capital to deploy with meaningful capacity for additional management fee growth. As many of you know, Ares has a history of demonstrating resilience and growth through periods of extreme market volatility and recession, such as during the global financial crisis and the COVID-19 pandemic. There are several reasons why we believe that we fared well through these periods of dislocation. We operate a management fee centric business, which is exemplified by our direct balance sheet investments being less than 0.5% of our assets under management. We have very low balance sheet leverage and we don't carry any retail bank deposits or direct insurance liabilities on our balance sheet. Instead, we primarily operate with long dated locked up third-party capital that is match funded with our assets. This means that we can be patient when entering and exiting investments across our portfolios and our fund structures are designed so that we are not a forced seller of assets. We maintain significant levels of available capital and operate flexible strategies so that we can be opportunistic and invest in primary and secondary markets through cycles. Finally, we have large and experienced portfolio management teams that can help us protect or reposition investments in periods of stress. These attributes of our business and operating philosophy have translated into stable to accelerating growth in AUM and management fees in past market dislocations. We believe that investors have come to value our ability to invest opportunistically even in down markets and some of our best performing funds have been in vintages covering recessions or market dislocations. We believe that our asset light business model places our third-party clients first and foremost. Given the uncertainty over the path of economic growth, we believe that we also benefit from being overweighed in assets that are senior to equity in the capital structure. We believe that these credit assets are more defensive and insulated from changes in cash flows and market values. In addition, when it becomes more difficult to sell companies or assets, it can be easier to deploy capital and credit as the need for more creative financing solutions increases. Including our credit products within our real-estate, infrastructure and secondary strategies, more than 72% of our total AUM is in credit related products and over 92% of these credit assets are senior loans. As we assess the quality of our corporate credit portfolios today, we believe that we are entering this period of uncertainty from a position of strength. The initial assessment of our portfolios reveals a limited direct exposure to changes in tariff rates. As a firm, we're more focused on domestic, middle-market service oriented businesses that tend to have less exposure to international markets and global supply chains. While we will remain actively engaged with our portfolio companies and are carefully monitoring any primary or second order impacts from tariffs, we are optimistic about our ability to navigate any issues that arise in the portfolio. And as Jarrod will highlight later, our corporate loan portfolios are performing well and remain conservatively positioned. We continue to believe that this is an opportune time for continued growth in our real estate business. Tariffs should drive up construction costs, which might constrain supply in markets that are already supply constrained. This, coupled with a decrease in cost-of-capital and lower interest rates should improve values of real-estate held and spur transaction activity. Now, let me turn to some quarterly operating highlights to give you more details on our recent performance and key trends driving the business. We experienced the highest first quarter of fundraising activity in our firm's history as we benefited from a wide product set of funds currently in the market. Over 45% of our quarterly fundraising came from outside the credit group as we experienced improving inflows across real estate, infrastructure debt, secondaries and private equity. Within credit, our third opportunistic credit fund completed its first close this quarter, now having raised approximately $4.6 billion from a group of new and existing investors. This is a great start for the next vintage in this fund series, which is particularly well positioned to take advantage of market volatility in both the public and private markets. Our public and private BDCs combined raised over $4 billion of AUM in the quarter and our semi-liquid European direct lending product raised over $630 million and now stands at over $3 billion in AUM after only 15 months. We believe it's the largest fund of its kind in the market. Our open-end core alternative credit fund raised approximately $400 million and surpassed $6 billion in AUM, and we also issued two new CLOs in the quarter, raising $1 billion in the aggregate. Within real-estate, we raised over $3.1 billion of commitments across our 11th value-add real-estate equity fund, our real-estate debt funds and our open-ended logistics real-estate funds in the US and Japan. Our first Japan data center development fund raised approximately $1.5 billion in the first closing and we anticipate holding a final close for this fund in the near-term. In infrastructure debt, we raised an additional $1 billion across our six infrastructure debt fund and related vehicles. We also saw a pickup in flows to our non-traded REITs, which raised $400 million. Our secondaries group continues to generate significant investor interest with $2.3 billion in new commitments across PE, credit, infrastructure and real-estate funds. Our third infrastructure secondaries fund just crossed $2 billion in total commitments, more than double the previous vintage, and we expect to hold a final close this summer. In private equity secondaries, APMF now has exceeded $3 billion in AUM and we're also seeing good momentum across our institutional products. Finally, in credit secondaries, we raised $475 million in the quarter and another $700 million in April, exceeding the funds target and bringing total equity commitments in the strategy to $3 billion. And within private equity, we raised an additional approximately $1 billion in our seventh corporate private equity fund, and we expect to hold a final close this summer. So, as we think about fundraising for 2025 and how it could be impacted by the current market uncertainty, we believe that we're well-positioned due to the strength in the institutional channel and the global diversity of our investor base. We have deep relationships with RLPs who tend to be repeat investors across our funds and strategies as they seek to consolidate with key relationships. During the first quarter, nearly 63% of our fundraising came from institutional investors across more than 30 funds and numerous SMAs, of which over 85% was from existing investors. Our fundraising is becoming increasingly diverse across our fund strategies, and almost all of it is derived from third-party investors. Importantly, we've historically experienced more consistent capital allocations from institutional investors through periods of volatility as they systematically invest across vintages and asset classes with less reaction to immediate trends in the public markets. Within the Wealth channel, we believe the largely underpenetrated opportunity to offer institutional quality alternative products to private wealth investors remains one of the best strategic growth avenues for Ares. Our team continues to expand into new regions and add new distribution partners across the globe. With the addition of two new products, our open-end infrastructure fund, which began taking monthly subscriptions in the first quarter and now has over $500 million in AUM and our open-ended sports, media and entertainment product, which is now open for monthly subscriptions, our lineup covering the market opportunity is extensive across durable income, real assets and diversified growth products. During the first quarter, our strong momentum in the Wealth channel continued as we raised a record $3.7 billion in quarterly equity commitments and $5 billion in total commitments across our eight perpetual semi-liquid products. These products accounted for approximately 25% of our gross inflows during the quarter. While it's early and the path ahead is uncertain, we're encouraged by the private wealth inflows that we saw in the month of April, which totaled $1.2 billion in equity commitments. Our expectation is that our differentiated fund performance, coupled with the less volatile nature of alternative assets and the ability to buy and sell at NAV should demonstrate the relative advantages of private market investing over time. As we look forward to the remainder of the year, new M&A transactions and activity levels are likely to be slower until there's more certainty on tariffs and the impact of the economy. That said, there's great excitement and energy from our deal teams as they sense less competition from traditional capital providers and potentially enhanced investment opportunities due to the change in market conditions. While the full impact from the tariffs will take time to be absorbed across the markets, we're encouraged that the size of our firm-wide investment pipeline across our investment groups is relatively unchanged compared to where it was three months ago. Our investment teams are continuing to see significant opportunities with some strategies such as opportunistic credit, alternative credit, and secondaries expecting to see an acceleration in deal flow. In Direct Lending, we're seeing interest from larger companies and sponsors as the broadly syndicated market is less attractive. And in real assets, we're continuing to see meaningful opportunities associated with the demand for data center capacity and the need for power generation. We're also seeing positive momentum in our private equity and secondaries businesses. Our corporate private equity team recently signed three new growth buyout transactions and our secondaries group is originating a growing number of opportunities as traditional off-ramps per capital are becoming less available. Aspida is well-positioned following the completion of its equity raise last year and currently has over $20 billion of new investment capacity. Benefiting from its tech-enabled platform and growing scale, Aspida continues to have strong momentum in primary annuity originations. And on the reinsurance front, we're actively engaged with new partners across both the US and the APAC regions. So overall, we expect to remain active and opportunistic during this volatile period. And before I turn the call over to Jarrod, I do want to mention that the integration with GCP International is going very well, and we are just beginning to execute on the many synergy opportunities that we identified. The business is performing well. Early fundraising momentum is encouraging, and we're excited for the growth opportunities ahead. And now, Jarrod, will you walk us through additional details on our financial results?

Absolutely, Mike. Good morning, everyone. As Mike stated, we had a strong start to 2025 in the first quarter. We surpassed $0.5 trillion in AUM for the first time in our history, and we continue to build our future management fee and performance fee potential. We experienced meaningful year-over-year growth in management fees, FRE, and after-tax realized income per share of Class A common stock, largely driven by organic growth. We have a growing amount of accrued net performance income in our European-style funds, saw strong fund performance across many of our key products during the quarter. Looking forward, given the combination of our large and experienced investment teams, long-duration capital with flexible investment mandates, a stable asset-light business model, and one of the highest ratios of dry powder to AUM in the industry, we believe we are well-prepared to navigate the current economic and market uncertainty. Let me walk through a high-level summary of our quarterly results. Management fees were a record $818 million, representing an 18% year-over-year increase. Other fees nearly doubled year-over-year as development fees from several GCP funds were additive in the quarter. GCP enhances our vertically integrated capabilities in real estate, which enables us to generate additional leasing, development, and property management fees. All these fees are recorded in our other fee revenue line, which we expect will be more significant while also a little more lumpy over time. First quarter fee-related performance revenues totaled $28 million, a significant increase from the $4 million in Q1 '24. APMS contributed to the FRPR in Q1, and we also benefited from a European direct lending SMA that crystallized the deferred payment. We continue to expect the majority of our Credit Group FRPR for the year will be realized in the fourth quarter. In real estate, we are seeing improved performance from both of our non-traded REITs as they're getting closer to their respective high watermark performance levels, but we're still not expecting to realize any FRPR this year. Fee-related earnings of $367 million for the quarter increased 22% year-over-year. FRE margins totaled 41.5% in the first quarter, and as expected, the integration of GCP was a modest drag on the margin. Currently, GCP's FRE margins are modestly below our margins, but we believe this is temporary for two reasons. First, over the next 12 months to 24 months, we expect to realize a significant amount of synergies from the business. And second, as we raise new funds, we expect to see improved operating margins, particularly in the data center business, which is currently operating at a loss. Our net realized performance income for the quarter totaled over $40 million and was driven primarily by European waterfall tax distributions from several funds, which were recognized in the first quarter. We anticipate that more than 80% of the European waterfall payments for the year will come in the fourth quarter. At this point, we do not see any reason to change our 2025 target range of $225 million to $275 million for our net realized performance income from our European-style funds. There is a possibility that a prolonged pause in the credit markets could extend the duration of our assets and delay the timing of payments. However, with over 75% of our European-style AUM and credit-like funds, where the underlying assets are mainly loans, the interest income from these loans continues to compound. Therefore, while it is possible that the timing of certain repayments could be delayed, the ultimate amount of the performance income could potentially increase due to additional coupon payments, assuming all else is equal. Based on the dollar amount of funds and carry that are nearing the end of their fund lives, we expect materially higher European-style waterfall net realized performance income in 2026 as well. Given these dynamics, we continue to believe that European-style performance income offers greater visibility and consistency versus American-style performance income that relies primarily on the sale of assets at a gain. Our net accrued performance income on an unconsolidated basis rose modestly to just over $1 billion at quarter end, of which over $850 million is in European style funds. Overall, realized income totaled $406 million for the quarter, a 40% year-over-year increase. During the quarter, our effective tax-rate on realized income was 8.1%. We now expect the lower range of 8% to 12% for the remainder of the year due to additional tax benefits related to the GCP transaction and the equity vesting that occurred at the end of January. As you can see in the earnings presentation, our portfolios are performing very well. Each of our credit strategy composites generated positive returns in the quarter, including a gross return of 2.4% for European direct lending, 2.9% for alternative credit, which is our asset-based finance strategy, 3.2% for US senior direct lending and 4.4% for our APAC credit strategy. Over the last 12 months, five out of six of these strategies generated double-digit returns. Credit quality underlying our US and European direct lending portfolios remains strong and stable. In our US direct lending portfolio, our companies generated year-over-year EBITDA growth of over 11%. LTVs remain low at an average of 42% and interest coverage is now at 2 times. ARCC reported a decline in its non-accruals to 1.5%, which remains well below our long-term average of 2.8% since the GFC. In real estate, we continue to see improvements in property values. Our diversified non-traded REIT and our industrial non-traded REIT both generated net returns of 2.4% in the first quarter. I also wanted to highlight that since inception return of GLP J-REIT, our newly acquired Japanese REIT that trades on the Tokyo Stock Exchange, which has generated a net annual return of 13.6% over the past 12 years since its inception in 2012. We're impressed with the long-term performance of the entire investment team in Japan and are very excited to welcome the GLP Japanese franchise along with the rest of the global GCP team. I'll now turn the call back over to Mike for his concluding remarks.

Thanks, Jarrod. We believe a significant advantage for Ares is that we operate very broad and diversified investment strategies with wide ranging mandates across large global investable markets. Our global investment teams operate with flexible capital solutions, which enables us to invest in attractive relevant value investments and to pivot between public and private and primary and secondary markets depending on where we see the most attractive risk-return profiles. Our ability to provide certainty of execution in volatile markets is highly valued by our clients. And we're already seeing enhanced opportunities across corporate credit, asset backed finance, real-estate, private equity, infrastructure and secondaries as borrowers and equity partners see our consistent capital as a welcome partner, particularly when the public markets become less reliable. This also puts us in a position to generate consistent deployment and to support the long-term growth of our business throughout market cycles. So, despite the economic uncertainty, we remain optimistic about 2025 and beyond. In the past, our business has proven to be very resilient in more challenging markets and we have no reason to believe that this time will be any different. Our business is even stronger and more diversified. Our portfolios are positioned defensively and we have a record amount of available capital to continue to drive growth in our AUM and earnings metrics. As always, I'm just so proud and grateful for the hard work and dedication of our employees around the globe, and I'm also deeply appreciative of our investors' continuing support for our company. And now, operator, could you please open the line for questions?

[Operator Instructions] Our first question comes from Craig Siegenthaler of Bank of America.

Hey, good morning, Mike. Hope you and the team are doing well. We have a question on private credit, credit quality. So defaults, non-accruals, realized losses. And I heard Jarrod's prepared remarks on ARCC, but my question is, what do you expect for the remainder of 2025, just given we might have a few quarters of negative GDP growth?

Sure. Thanks, Craig. We're doing well. Hope the same for you guys. Let me reiterate some of the stats that Jarrod put out there in the prepared remarks and give a couple more to think about and then I can give you a general forward-looking view and some context about what we've seen in past markets to just give people comfort on the trajectory forward here. Number one, if you look at where the portfolios in the global credit business are positioned, about 96% of our exposure in our global credit business is senior loans. If you look at where they are positioned from a leverage standpoint, in the US private credit book, we're sitting at about a loan-to-value of 42%, in the European direct lending business, we're about 48%, which means that we just have a significant amount of equity subordination and support from our institutional equity partners, which I'm going to come back to. The non-accruals at 1.5%, that's at cost. I think people also need to appreciate if you were to look at the fair value using ARCC as a proxy, it's below 1%, about 90 basis points at fair value. So we are sitting at close to half of the historical average since the GFC on a cost basis. And so, even to the extent that we see continued earnings regression, I just don't think that there's a setup here where we're going to see a spike in non-accruals and defaults. One thing that we have the benefit of given the size of our platform and the fact that we're the agent on most of these loans is typically when you are dealing with companies that are either leading into distress or worried about the future, we start to see irregular borrowings under revolving credit facilities. We saw that spike, for example, in March and April of 2020. We are not seeing any irregular behavior within the portfolio in terms of CEOs and CFOs drawing on their lines, which I think is a real-time data point in terms of how people are feeling within the portfolio. And I want to come back to the loan-to-value because I think this is probably the most misunderstood piece of identifying risk and opportunity within the private credit market. If you were to look at that 42% to 48% LTV, what that basically says is you have private equity firms, institutional real-estate equity owners, institutional infrastructure owners that have put cash dollars below our loan. So if we begin to talk about widespread losses in the private credit market, it follows significant losses within the private and likely public equity markets. And so to isolate private credit, I think is a little bit of a mistake and maybe a misunderstanding of how these businesses work. What's unique about the market setup today, unlike past cycles, like if you look at the GFC, for example, that LTV was probably 60% to 70%. So there was less incentive for the private equity community to support the portfolio companies. If you look at the private equity business today, there's about $3 trillion plus of invested equity in the market versus about $1 trillion plus of dry powder able to be invested. In prior cycles, that ratio is more one-to-one. So again in prior cycles at a higher LTV, there was more incentive for the private equity firms and the institutional equity not to support their existing exposures. We have kind of the exact opposite now. And so the behavior that we saw through COVID with a very similar setup and the behavior we're seeing now is that we would expect that the equity owners, just given the amount of cash invested below us will do everything they can to protect the portfolio in any pocket of distress. So again, there is uncertainty going forward. We may see a quarter or two of negative growth, but I don't think that that's going to roll through the non-accrual and default numbers.

Thank you, Mike.

Sure. Thanks.

Thank you. We go next now to Bill Katz of TD Cowen.

Great. Thank you very much for taking the questions this morning. So maybe coming back to wealth management where it seems like you have a tremendous amount of momentum. So, I was wondering if you could just maybe talk a little bit about where you see the incremental growth either from a product perspective or I think you mentioned more distribution partners coming along. And then to the extent you're willing to provide it, how did the platform hold-up through the turbulence of April post Liberation Day? Thank you.

Sure. Wealth continues to be a real bright spot for the company as we talked about record capital gathering in the first quarter, $5 billion of AUM and we are seeing a broadening out of the distribution in terms of our distribution partners and geographies. As we've talked about on past calls, we were early in expanding our franchise outside of the US and continue to see 30% plus of demand coming from our European and Asia business, which we think is a real bright spot and differentiator. As we talked about in the prepared remarks, we are adding or have added two new products to the product set, one being what we believe to be a really interesting tax-advantaged infrastructure fund in a BDC form and that has some early momentum and we have begun to take subscriptions for what we think is a very highly differentiated offering in the sports, media and entertainment world. So we will be broadening out the product set and broadening out the geography. It's still early to tell, Bill, but I think we're encouraged by what we saw through the turbulence in April. And I'll give you a couple of things to just think about it to contextualize how we're feeling. April inflows of equity were about $1.2 billion, which were squarely in line with the recent pace of flows. So we did not see any meaningful change in behavior in April. When we look at redemptions, again, a lot of these funds, I think, as you know, have monthly or quarterly redemptions. So the redemption picture can be a little bit lumpier. But one of our larger funds, which is CADC, our diversified Credit Interval fund did go through a redemption period and that was on April 10th and we actually did not see any increase in redemptions in that fund in the middle of April relative to what we've seen in prior redemption periods. So the early returns are that the wealth investor is holding steady and the demand for the product is still there. As we talked about in the prepared remarks, I do think that the lack of volatility that some of these portfolios offer into the market may actually prove to be a meaningful bright spot in this market and could lead to an increase in flows over time as people really begin to appreciate what these private market portfolios can do for their overall asset allocation. But so far, so good.

Thank you.

We'll go next now to Steven Chubak of Wolfe Research.

Hi, good morning, Mike, and good morning, Jarrod. Hope you're both well. So wanted to ask on the FRE margin outlook. Just given recent market dislocation, the drag you cited from GCP, which is burdened by their lower-margin, whether you still believe the zero to 150 bps of margin expansion is achievable in the coming year? And was hoping you could just speak to some of the moving pieces just underpinning your FRE margin outlook.

Sure, thanks. Good morning, Steven. Great to hear from you. We do think that the zero to 150 basis points is still current and strong in this environment. The moving parts that you saw this quarter were really the addition of GCP and two extra months of Walton Street Mexico, which we acquired at the end of last year. If you remove for those factors, our G&A expenses were actually slightly down, and our comp expenses were essentially flat for the quarter. So just looking at core, you were actually seeing an expansion in our FRE margin. Once you step away from that and we have those additions, as I mentioned in my prepared remarks, GCP is a little bit of a drag on our margins. However, as we have further integration and we have more synergies on the expense side, I do expect that we'll be able to offset that drag in the long term. So it's something where I'm pretty excited by the progress that we showed here in the first quarter. I expect us to continue to show that progress, but still be within that zero to 150 basis point range. And I'll remind you like I always do that when we see opportunities to invest in our team, in our platform that will ultimately lead to other originations, we won't just go for FRE margin. We will always look at how we can grow the firm first and then FRE margins with deployment and growth are a natural expansion point after that.

Thanks, great.

Thank you. We'll go next now to Alex Blostein of Goldman Sachs.

Hey, good morning, everybody. Thanks for the questions. Well, I was hoping we can build a little bit on your commentary around the forward pipeline when it comes to M&A. Obviously, still lots of uncertainty in the marketplace despite the fact that market conditions have gotten a little bit easier. But can you maybe talk a little bit about if the M&A backdrop remains subdued for the next several quarters, what are the more likely areas of deployment where the firm could stay active? And how much dry powder do you guys have in those pockets within your credit franchise?

Sure. Look, I think over time, we have demonstrated that by continued diversification in the capability set and what I would think is rigorous kind of capital management of dry powder relative to the investable market that we've demonstrated our ability to invest in any market environment. And we've done that pretty consistently in the past. As an example, if you look at 2022, just to take a trip down memory lane, M&A activity was down 25%, and we grew our FP AUM 23%. Subsequently, in 2023, M&A activity was down 24%. We grew our FP AUM 14%. And if you look at the current deployment numbers, we grew our deployment roughly 60% period-over-period in an environment where M&A volumes were down, both volume and value in the 15% range. So, we're already now consistently demonstrating the ability to invest across the platform when M&A is slow. And importantly, I think that people should understand when M&A picks up, if we see volume in those primary lending strategies that generally benefit, we tend to have to defend the in-place portfolio from more aggressive refinancings. And so, as we demonstrated this quarter, we saw a meaningful uptick in the gross-to-net because the net deployment tends to be much stronger when M&A is slow. So not surprisingly, the places where we begin to see volumes pick up when M&A is slow are things like opportunistic credit, which is our ASOF franchise. And as we mentioned in the prepared remarks, we are having a significant amount of momentum in the current vintage fundraise having just had a first close in excess of $4.5 billion, and that is perfectly well-positioned for this type of market opportunity. Secondaries across the board, both GP and LP-led are significant beneficiaries of a slowdown in primary market activity. And again, not surprisingly, you saw an uptick in deployment there. Other places where we have significant opportunistic capacity is within our alternative credit and asset-backed and asset-based strategies where we can be a partner to other asset managers, banks as they deal with general illiquidity. I think it's also important that people appreciate that even in some of what the market perceives to be our primary market strategies like ARCC or US direct lending, they do have the capacity to pivot to the more opportunistic parts of the investment spectrum when the markets get choppy. And so you begin to see some of those regular way performing credit strategies turn on as a good capital partner for some of the other opportunistic strategies across the board. So I don't want to say every strategy has capacity to invest opportunistically into this market, but it's pretty close to every strategy, gets to take advantage of the market volatility when some of the other traditional forms of capital are exiting the market. So as you know, record dry powder today about $143 billion. The bulk of that is, in my opinion, available for more opportunistic type investing in this market.

Great. Very helpful. Thanks, Mike.

Thank you.

We'll go next now to Kyle Voigt of KBW.

Hi, good morning. Maybe just a question or a follow-up on GCP. I think the fee-paying AUM that came over was about $30.5 billion. I think at the time the deal announcement $32 billion, just assuming that's primarily on FX, but wondering if you could update us on the trajectory of fee-paying AUM growth at GCP in 2025? And then also just wondering if you could comment on the $245 million of 2026 FRE, which I think was synergized. Is that still the right number for a 2026 FRE run-rate when considering the current FX rates and then the state of the macro-environment we're in?

Sure. So, I'll kind of hit those in order. I think you got it exactly right on the FP AUM was really more FX-driven than anything. Ultimately, in taking a look at what's in the market for GCP, I would expect that you'll see somewhere in the neighborhood of about $7 billion of fundraising to happen over the next, let's say, maybe two quarters, three quarters, that will ultimately all flow through to FP AUM. Most their funds are paying on some version of committed capital with step-ups on invested or the ability to earn fees on things like leasing, property management or development. So we would see that pretty immediately upon fundraise go into our FP AUM. The numbers that we laid out previously are still very much in line with what we saw for the one month right now. There are some expenses that we have as we integrate that will fall-off and certainly improve performance and we've talked about that on prior calls that that's somewhere in the neighborhood of $20 million as part of that. And then there's obviously the run-rate of having a full 12 months under your belt. So overall, we've been very pleased with our first month. We've seen great momentum in the data centers, as Mike talked about in his prepared remarks. And I don't think that the macro climate has really changed our view on the need for the product set that they have whether it's in logistics or data centers and we continue to be really excited about the acquisition as we get to know the team better and we spend more time together.

I would add maybe, and it's still too early to tell. We're really pleased with the early returns on the fundraising momentum and the product set. In the world that we're living in today, there is a modest shift of investor interest and appetite away from the US markets. And so, I could envision that if we continue to be in that type of environment that the opportunity to offer non-US product in Japan and in our European distribution business could actually catch a stronger bid here and be a net beneficiary of that.

Thank you. We'll go next now to Ken Worthington of JPMorgan.

Hi, good morning. Thanks for taking the question. We've seen a number of articles mention that Europe is looking to be increasingly attractive as an investment market with private credit being called out specifically. Given Ares just recently completed the largest direct lending fund, I think ever, what are you guys seeing in terms of the pipeline and the opportunity set in Europe? And how does that compare to what you're seeing in the US?

Sure. Thanks for the question, Ken. It is interesting, there has been some -- similar to the comment I just made about Japan and European distribution. I do think that we came into the year with modest investor concern about some of the long-term structural growth challenges in Europe. And fast forward four, five months and I think that investor appetite for European product is probably marginally increased. The liquidity challenges that I articulated earlier, just about the mismatch of capital invested versus capital available is true in Europe as well. And so the pipelines in Europe in terms of the complexion of direct lending versus opportunistic strategies is true in Europe as it is in the US. As we've talked about before though, the European market from a competitive set is probably a little bit more fragmented. And while the US business is larger, I do believe that our competitive positioning in the European market is probably better just given our scale and the longevity of the track record and relationship network there. And so, I think we will be kind of a net beneficiary and pick-up share as this market continues to develop. If you look at the European direct lending business as kind of a proxy, first quarter of '25 versus first quarter of '21, we saw an increase of about 5% period-over-period. And if you looked at the LTM numbers Q1-to-Q1, it was up about 20%. So we are seeing a modest acceleration in deployment in Europe. And again, I think we feel like that trend is well in hand and that we'll continue to see good deployment out of that market.

Great. Thank you.

We'll go next now to Mike Brown of Wells Fargo.

Great. Thanks for taking my question. Mike, you touched on the opportunity in the secondaries market, clearly a hot-spot in private markets. So for the industry and Ares, can you just maybe expand on the potential in '25 versus '24? And what are your thoughts on some of the largest planned exits from a few of the endowments out there? Is that kind of a unique one-off or do you think that's a strong read-across to some of the other LP cohorts? Thank you.

Sure. Look, we came into this environment and we've been talking about this now for five plus years on the heels of the Landmark acquisition that the secondaries business was going through a period of transformation, largely driven by a shift from what was an LP led market to a more healthy balance between LP-led and GP-led. And we've been enjoying the benefit of that shift as we've been building out the product set and growing the secondaries franchise over the last five years post-acquisition. The second trend, which we talked a lot about, which we're now beginning to see come through in space is just the move away from what was largely a private equity dominated business to now represent a broader set of the alternative asset space, including real-estate, infrastructure and credit. So not surprisingly, we've been building out that fund family as well, and we're seeing good fundraising and deployment across each of those asset classes. The theme that I keep hitting on of more capital in the ground than available to invest is a big catalyst for secondaries as it is for alternative credit and other strategies, whether you're a bank, an endowment, a GP in a market where liquidity is scarce, any creative liquidity solution available to you is something that you're going to look at and you're going to be weighing these different solutions against each other in terms of accretion, dilution and how much runway it gives you to invest in growth, et cetera, et cetera. So secondaries is a big part of that. And obviously, we have one of the longest standing largest businesses in secondaries. We came into this moment, I'll get to the endowments in a second, with a market that particularly on the private equity side was challenged for DPI or challenge for the return of capital to the LP. So we saw a pretty significant amount of volume last year and had an expectation that, that volume would continue into this year. The endowment thing is real, I think that most university endowments right now are grappling with a significant reduction in research funding from the government as well as a certain level of anxiety around potential increases in the endowment tax. And so, moving to a position where you have increased liquidity or at least understand what solutions are available to you is exactly what they're supposed to be doing. And so, there's been a number of public situations that people are talking about, but I think that it's pretty broad-based within the university endowment community now to be thinking about liquidity options within the portfolio. And again, those are relationships that we have and we think that we have a really interesting product set to be a good partner to them.

Thank you. We'll go next now to Patrick Davitt of Autonomous Research.

Hey, good morning, everyone. Going back to direct lending, you mentioned pipelines have been steady. It seems like we're still seeing some bigger sponsor backed deals get announced despite the volatility and I think you guys have been on some of those. So could you also give us an idea of how the spreads have been tracking for these newer commitments? Any widening as a result of the BSL market closing or is there enough competition from other direct lenders to keep those spreads tight? Thank you.

Yeah. It's a good question. Obviously, we talked about in the prepared remarks and we always talk about this even when you're in a healthier market in terms of the value that private markets bring to the market in terms of consistency of capital, reliability, flexibility and all of those things. And obviously, they become more important when you get into a difficult market. So as we've seen in other periods of dislocation, when the liquid markets go risk-off or become significantly more selective, private credit captures a greater share of a smaller pie of new issue volume and we're seeing that now. As we talked about in the prepared remarks, when we look aggregated across the platform, the size of the pipeline hasn't changed. We've seen a little bit of a change in the complexion of the pipeline, but the size hasn't changed and that's very encouraging to us. In terms of the spreads, when we were in early April and we were in the phase of price discovery, we were pushing pretty hard to understand where a lot of these deals would clear and we're pushing pretty hard to clear the existing pipeline, kind of 100 basis points wide on fee and 100 basis points wide on spread. And that number has frankly come in now as the markets have normalized a little bit and I think people are beginning to get their arms around the competitive set. So if you were to look at ARCC as a proxy, we've probably seen spread widening of 50 basis points to 75 basis points from the pre-April levels, which is a healthy amount of widening relative to the return opportunity there, but not quite as high as we've seen in prior periods of dislocation as the markets have normalized a little bit.

We'll go next now to Benjamin Budish of Barclays.

Hi, good morning, and thanks for taking the questions. Just thinking about some of the fundraising themes, DPI, it wasn't that long ago we were hearing about the denominator effect. Just curious, where would you say currently institutional allocations to private credit bar? And do you think there is some resiliency there if things were to steam in a more negative direction? And then I'm also curious, last year, you guys started talking a little bit more about opportunities outside of the traditional alternatives bucket. I just think we've heard about from one of your competitors on the investment-grade side, but it sounds like you guys are doing some stuff there on the high-yield side as well. I'm just curious how you see the opportunity in that bucket as well to approach fixed income managers rather than alternatives, how that's holding?

Sure. I think certain media pundits and others would love to talk about the maturation of the private credit market and increased risk there. But as we already talked about, we're not seeing increased risk and we're not seeing any flagging investor appetite for the asset. And if you look at what we were able to do last year and into this year, there is still a very significant appetite for private credit exposure across the globe by geography and across strategies. I think we're still in the very early innings. There have been some very significant public institutions that have put out targets that have a near doubling of private credit exposure. When we look at the appetite that we're seeing in wealth, I think that most of the large gatekeepers on the wealth platforms would tell you that they would expect to see private credit exposures broadly within their portfolio double. And it's pretty easy to understand why. And if you look at our performance, our alternative credit business generated a 12.5% LTM return. Our US senior direct lending business 15% return, our Asia Pacific credit composite 25% return, European direct lending 12% and so on and so forth. So when you could get exposures at the top half of an asset's enterprise value and make double-digit returns without taking a significant amount of interest-rate risk. That's a really good place to be. And when you look at where those assets are delivering return relative to the equity markets, I think it really stands out from a relative value standpoint. So not surprisingly, people are allocating to it. And I think if you believe what I said earlier, which is that we don't expect to see massive deterioration in credit performance relative to equity performance, I don't see any reason why that would slow down. With regard to the increasingly loud narrative around private investment grade, the themes are the same, anytime an institutional or individual investor can generate excess return on a ratings equivalent basis, whether that rating is investment-grade or sub-investment grade to the extent that they can, they're going to allocate to it. And I think part of this big transformational shift into the private markets as people have gotten much better at understanding what their liquidity needs are. They have a willingness to increasing allocate to less liquid, not illiquid, but less liquid markets to capture that return. And I think they see a significant benefit in the higher spreads that they're getting as a mitigant to whatever liquidity they think they may be giving up. And I also think that most sophisticated investors have seen with each passing crisis that liquidity is rarely there at the price that you want it when the markets are in dislocation. And so people have tended over time to overpay for liquidity only to find that it's not there at the price that they want it and so are getting more emboldened to be in the private markets and look for excess return. We are obviously very large participants in the asset-based finance market, both on the investment-grade rated side and the sub-investment-grade-rated side. We don't talk about it maybe as much as some of our peers do, but it's roughly 50% of our business is high-grade and 50% is sub-investment grade. Obviously, there are different outcomes for investors. And so we are not necessarily seeing the same investors coming to us for high-grade exposure as those that are coming to us for sub-investment grade, but we think it's important to have both. We think it enhances the value proposition to the client base, but we also think it actually enhances our origination capability in markets like this. So we'll continue to grow both of them. Alternative credit is one of our fastest growing businesses at Ares. I would expect that to continue because of the continued kind of transition of assets out of banks and this secular shift of private markets, both high grade and sub.

Okay, great. Thanks, Mike.

We'll go next now to Brian McKenna of Citizens.

Thanks. Good morning, everyone. So a follow-up on private wealth, Mike. You noted that institutional fundraising is more consistent during periods of volatility. On the other hand, while the historical look-back to shorter, private wealth flows have typically been more cyclical and it takes time for allocations to reaccelerate after-market volatility. It does seem like retail flows to date have held up better for you. But do you think private wealth behavior and their mindset around allocating capital during periods of volatility ultimately changes over time to something more similar to institutional investors? And then if it does, is it really just a function of more education and then these investors having a better understanding of how the private markets work, and ultimately what areas can deliver for them through the cycle?

It's a great question. I'm glad you asked it. Maybe just to go back in time a little bit. We were late to the wealth business in some respects, but we've obviously now made significant investments and are probably one of the top three or four distributors into the channel. And to your point, and this was probably informed by our 20-year history at ARCC, at least historically, the retail investor has tended to be much more pro-cyclical than the institutional investor, meaning they're putting money into the market when the market is going up and they tend to get a little scared when the markets are going down. And our experience is when the markets are going down, that's the best time to be in the market, taking advantage of the dislocation. And so we probably came into the wealth business informed by our prior experience with the retail investors that they are less consistent and more pro-cyclical of the institutions. And it was critical for us as we thought about building wealth that we did not over-index to the growth in wealth, but that we understood that the growth in the wealth business would be a diversifier to our institutional business and that continues to be how we run it. I think the challenge is if you are over-indexed to growth in wealth, you're pro-cyclical when the market is going up because when someone gives you $1, you have to put it in the market. And one of the ways that good alternative investment managers generate excess return, frankly, is sometimes not to invest and to wait for a better investment environment. And then obviously, to the extent that flows slow, you can't take advantage of the best vintages and it actually has a really meaningful impact on long-term performance. So we've always been mindful of getting the right blend of institutional and retail for that reason. Now to your point, the fact that we are not seeing that type of behavior now is encouraging. And it could be that we and our peers are having the desired effect of educating this market to understand the value of privates in terms of the lower volatility in NAV and mark-to-market, the lower volatility in cash flow and the price durability. And so I do think a lot of energy has been put forward by us and the peer set to educate the advisor community and the investor community about what privates can do in these types of markets. So it is possible that retail investor behavior changes. We hope it does because we think it's good for the investor, but we have to be open to a world where it's not true and that if the retail flows slow, we don't want to be in a position where it affects our ability to invest and continue to grow the business. So early signs are encouraging. It is possible that the paradigm has shifted. It's too early to tell. But if you look at the 20 years or 30 years prior to this, it would tell you that the retail investor tends to act in opposition to the institutional investor, and we hope that changes, but I can't tell you for sure that it has yet.

Okay. That's great. Super helpful. Appreciate it.

And we'll take our final question from Michael Cyprys of Morgan Stanley.

Hey, good morning. Thanks for squeezing me in here. Just a question on asset-based finance. I was hoping you could elaborate a bit on the opportunity set that you see in today's marketplace for ABF? How you expect that to evolve over the next 12 months to 24 months? And talk about some of the steps you're taking to expand your origination access, including progress on-bank partnerships? Thank you.

Sure. Thanks, Mike. Look, we were early to asset-based finance. And as we've talked about it before, we believe that in order to win in asset-based finance, you need a couple of things. One, you need large experienced teams across the waterfront of different asset types. Two, you need meaningful scale because a lot of these transactions are multiple hundreds-of-million-dollar type or $1 billion type transactions and you need a very significant relationship network with your bank counterparties. And so not surprisingly, Ares and others like us that have been able to accumulate scale of talent and scale of capital are taking significant share. We probably don't talk about enough just how scarce the talent is in this market, is a very specialized capability set in terms of how you originate and how you structure a lot of these transactions. And so unlike some of the other parts of the alternative asset business, I think that those that have already accumulated large teams like ours, I think we now have 80 plus people in our alternative credit business, I think already have a meaningful competitive advantage that's going to be tough to catch-up with. In terms of bank partnerships, that is a big opportunity. It's not the only opportunity as I said earlier. I think the combination of changes in bank regulation and some of what's going on just generally in the capital markets, we're seeing significant volumes coming from the banks, but we're also seeing significant volumes come from other managers who are doing various things around their portfolios to increase the longevity of their capital base. We have been and I expect will continue to be one of the larger participants in the bank market. We obviously have very significant relationships. We're a large counterparty. We're a trusted partner. As an example, I think we talked about this maybe on the last earnings call in January, we announced publicly that we had purchased a $1.3 billion loan portfolio from a European bank that had been active around digital infrastructure and they were looking to free up balance sheet capital. And I raised that only because a lot of these trades are not just capital relief or risk management, but it's an effort on the part of some of these banks just to extend the capital runway and find a way to monetize what's a very strong customer franchise as they're grappling with less liquidity. And so -- but the nature of these deals is pretty widespread. Some of them are portfolio purchases, some of them are forward flow agreements, some are SRTs. We've been very active on SRTs in places like BDC revolvers and subscription lines. So there is not a one-size fits-all, but you have to be able to understand each of these submarkets and come in with a flexible creative solution to the banks. And again, I think there's a very small handful of people in the market ourselves are in that group that can actually execute on these things. And I think that we'll continue to see a lot of those as the year progresses.

Great. Thanks so much.

Thank you. I will now turn the call back over to Mr. Arougheti for any closing remarks.

Great. We don't have any other than to reiterate just how grateful we are for the continued support and for spending time with us today, and we'll talk to you all next quarter. Thank you.