December 9, 2014
Photo: Flickr.com (CC BY-2.0)

Ares Management has joined with many of its larger peers to become a publicly traded asset manager, but a new report looks at Ares’ focus on fee generation (versus incentive income, investment income, or sources of income linked to investment performance) distinguishes the firm from similar alternatives managers.

As Ares seeks to raise Ares Special Situations Fund IV, an energy infrastructure private equity fund and an opportunistic real estate fund, partners might wonder whether Ares’ dependence on fees properly aligns the manager’s interest with theirs.

A May 2014 report by Wells Fargo noted, “Relative to its peers, Ares has by far the largest percentage of earnings coming from the more stable fee business. By way of example, in 2013, Ares derived nearly 50% of earnings from its fee business versus the industry average of roughly 20%.”[i]

The full report is available here.

KEY POINTS:

  • As Ares seeks to raise Ares Special Situations Fund IV, an energy infrastructure private equity fund and an opportunistic real estate fund, partners might wonder whether Ares’ dependence on fees properly aligns the manager’s interest with theirs.
  • In a recent earnings call, Ares CFO Dan Nguyen said, “We are also starting to experience some margin improvement on our fee-related earnings as we invest and earn fees on capital invested without of course the need to incur the same level of expenses.”For 2013, Ares fees contributed nearly half of the firm’s total earnings, representing 47%. By comparison, Ares peers averaged an 18% ratio of fees to total earnings.[i]
  • In 2013 management fees generated by Ares ($517 million) significantly outstripped operating expenses ($364 million).[ii] Management fees at Ares were 142% of expenses, far ahead of peers.
  • Even if management fees from Ares’ BDC, ARCC ($111 million in 2013) were excluded, management fees would have still outstripped expenses by nearly 12%.[iii]
  • Ares private equity group collected $93 million in management fees in 2013 to cover $41 million in expenses, meaning Ares cleared $52 million in earnings.[iv]

 

 

[i] JP Morgan analyst Initiating Coverage May 2014

[ii] Ares Management Prospectus, SEC form 424B4, page 4 filed May 5, 2014

[iii] Ares Management Prospectus, SEC form 424B4, page 4 filed May 5, 2014

[iv] Ares Management Prospectus, SEC form 424B4, page 160 filed May 5, 2014

[i] Wells Fargo, Initiating Coverage Ares Management, May 27, 2014, page 2

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