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| EX-99.1 - EXHIBIT 99.1 - Ares Management Corp | a2018q3-ex991.htm |
| 8-K - 8-K - Ares Management Corp | a2018q3-form8xk.htm |
Exhibit 99.2 Third Quarter 2018 Earnings Presentation
Important Notice This presentation contains “forward looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. Actual outcomes and results could differ materially from those suggested by this presentation due to the impact of many factors beyond the control of Ares Management, L.P. (“Ares” or "the Company"), including those listed in the “Risk Factors” section of our filings with the Securities and Exchange Commission (“SEC”). Any such forward-looking statements are made pursuant to the safe harbor provisions available under applicable securities laws and Ares assumes no obligation to update or revise any such forward-looking statements. Certain information discussed in this presentation was derived from third party sources and has not been independently verified and, accordingly, Ares makes no representation or warranty in respect of this information. The following slides contain summaries of certain financial and statistical information about Ares. The information contained in this presentation is summary information that is intended to be considered in the context of Ares’ SEC filings and other public announcements that Ares may make, by press release or otherwise, from time to time. Ares undertakes no duty or obligation to publicly update or revise the forward-looking statements or other information contained in this presentation. In addition, this presentation contains information about Ares, its affiliated funds and certain of their respective personnel and affiliates, and their respective historical performance. You should not view information related to the past performance of Ares and its affiliated funds as indicative of future results. Certain information set forth herein includes estimates and targets and involves significant elements of subjective judgment and analysis. Further, such information, unless otherwise stated, is before giving effect to management and incentive fees and deductions for taxes. No representations are made as to the accuracy of such estimates or targets or that all assumptions relating to such estimates or targets have been considered or stated or that such estimates or targets will be realized. This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities of Ares. Management uses certain non-GAAP financial measures, including assets under management, fee paying assets under management, economic net income, fee related earnings and realized income, to evaluate Ares’ performance and that of its business segments. Management believes that these measures provide investors with a greater understanding of Ares’ business and that investors should review the same supplemental non-GAAP financial measures that management uses to analyze Ares’ performance. The measures described herein represent those non-GAAP measures used by management, in each case, before giving effect to the consolidation of certain funds with its results in accordance with GAAP. These measures should be considered in addition to, and not in lieu of, Ares’ financial statements prepared in accordance with GAAP. The definitions and reconciliations of these measures to the most directly comparable GAAP measures, as well as an explanation of why we use these measures, are included in the Appendix. Amounts and percentages may reflect rounding adjustments and consequently totals may not appear to sum. For the definitions of certain terms used in this presentation, please refer to the "Glossary" slide in the appendix. 2
Third Quarter Highlights • Assets Under Management ("AUM") of $125.1 billion • Fee Paying AUM ("FPAUM") of $79.4 billion Assets Under • Available Capital of $34.4 billion Management • AUM Not Yet Earning Fees available for future deployment of $21.7 billion • Raised $6.8 billion in gross new capital with net inflows of $6.4 billion(1) for the quarter ended September 30, 2018 • Capital deployment of $4.9 billion during the quarter ended September 30, 2018, including $3.8 billion related to our drawdown funds • Q3-18 GAAP net income attributable to Ares Management, L.P. of $15.9 million • Q3-18 GAAP basic and diluted earnings per common share of $0.09 • Q3-18 GAAP management fees of $204.5 million(2) Financial Results • Q3-18 Unconsolidated management and other fees of $217.5 million(2) • Q3-18 Fee Related Earnings of $64.4 million • Q3-18 Realized Income of $91.4 million • Q3-18 after-tax Realized Income of $0.34 per common share(3) (6) Realized Income • Declared quarterly dividend of $0.28 per common share(4) and Dividends • Declared quarterly dividend of $0.4375 per preferred share(5) 1. Net inflows represents gross commitments less redemptions. 2. Includes ARCC Part I Fees of $33.4 million for the three months ended September 30, 2018. Difference between GAAP and Unconsolidated management fees represents $9.1 million from Consolidated Funds that is eliminated upon consolidation and other fees represents $3.9 million primarily of transaction based fees in Credit funds. 3. After-tax Realized Income per common share is net of the preferred share dividend. 4. Payable on December 31, 2018 to shareholders of record as of December 17, 2018. 5. Payable on December 31, 2018 to shareholders of record as of December 17, 2018. 6. Pro forma shares of 225,934,872 includes the sum of average common shares, Ares Operating Group Units that are exchangeable for common shares on a one-for-one basis and the dilutive effects of the Company's equity based awards. Please refer to slide 32 in this presentation for further information. 3
#ACACAC #1E3154 Gross New Capital Commitments(1) – Third Quarter of 2018 #225070 #828282 $ in millions Q3 2018 Comments Credit Group #D2D2D2 #49749B New equity commitments of $1.6 billion. Since quarter end, we raised additional equity U.S. Senior Direct Lending Commingled Fund 1,620 commitments of over $600 million bringing total equity commitments to over $2.2 billion Ares Capital Europe IV ("ACE IV") 1,132 Additional equity commitments of $1.1 billion, bringing total commitments to $7.6 billion #679FD1 Other U.S. Direct Lending 1,197 New equity commitments of $664 million and debt commitments of $533 million CLOs 1,112 Closed one new U.S. and one new E.U. CLO Other E.U. Direct Lending 985 New equity commitments of $695 million and debt commitments of $290 million #75B8F4 Structured Credit 226 New equity commitments Other Credit Funds 103 New and additional equity commitments to various funds #A7D1EA Total Credit Group $6,375 Private Equity Group #DBE6EF Special Opportunities $100 New debt commitments Total Private Equity Group $100 Real Estate Group U.S. and E.U. Equity $370 Additional equity commitments Total Real Estate Group $370 Total $6,845 1. Represents gross new commitments during Q3-18, including equity and debt commitments and gross inflows into our open-ended managed accounts and sub-advised accounts. 4
Assets Under Management AUM of $125.1 billion as of September 30, 2018 increased 18.4% year over year(1) • Q3-18 gross new capital commitments of $6.8 billion, including $4.8 billion in equity commitments, $1.1 billion of CLO commitments and $0.9 billion in other debt commitments ◦ Of the $6.8 billion in new capital commitments raised during the quarter, $2.1 billion is already earning fees and another $4.4 billion is expected to become FPAUM upon deployment • AUM growth was partially offset by distributions/redemptions of $2.4 billion,(2) primarily from funds past their reinvestment periods in the Real Estate and Credit Groups, and by reduction in leverage of $0.5 billion, primarily due to paydowns from ARCC and affiliates FPAUM of $79.4 billion as of September 30, 2018 increased 9.6% year over year • Increase in FPAUM was primarily attributable to new commitments and deployment of capital in funds in the Credit Group AUM ($ in billions) FPAUM ($ in billions) $121.4 $125.1 $10.6 $79.4 $105.6 $10.9 $76.9 $72.4 $6.8 $10.5 $23.0 $7.0 $23.6 $7.0 $16.6 $16.6 $24.6 $16.8 $86.9 $91.5 $56.0 $70.5 $48.6 $53.3 Q3-17 Q2-18 Q3-18 Q3-17 Q2-18 Q3-18 Credit Private Equity Real Estate Credit Private Equity Real Estate 1. AUM amounts include funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of Ares Capital Corporation and a registered investment adviser. ("IHAM") 2. For Q3-18, distributions totaled approximately $2.0 billion and redemptions totaled approximately $0.4 billion. 5
AUM, FPAUM and Management Fee Duration As of September 30, 2018, approximately 72% of AUM, 71% of FPAUM and 83% of management fees had a duration longer than 3 years ◦ At time of fund closing, the initial duration was greater than 7 years for approximately 77% of AUM AUM: $125.1 billion FPAUM: $79.4 billion Management Fees: $213.7 million 14% 17% 22%3% 15% 1% 2% 6% 7% 7 10% 14% 16% 18% 19% % 6% 6% 37% 8% 9% 8% 72% 7% 71% 83% 21% 14% 20% 21% 4% 25% 36% 21% 24% 30% Permanent Capital 10 or more years 7 to 9 years 3 to 6 years Fewer Than 3 years Differentiated Managed Managed Accounts Accounts(1) 1. Differentiated Managed accounts are funds that have been managed by the firm for longer than three years or that are in illiquid strategies or co-investments paying management fees. 6
Available Capital and AUM Not Yet Earning Fees Available Capital of $34.4 billion as of September 30, 2018 increased 33.6% year over year • During Q3-18, $4.7 billion in available capital came from new commitments, including $3.8 billion in net equity commitments and $0.9 billion in debt commitments primarily in U.S. and E.U. direct lending funds • Available capital growth was partially offset by capital deployment of $3.4 billion and redemptions and change in leverage of $0.1 billion AUM Not Yet Earning Fees of $25.8 billion as of September 30, 2018 increased 74.6% year over year ◦ AUM Not Yet Earning Fees increased from $14.8 billion as of Q3-17 to $25.8 billion as of Q3-18 primarily driven by new and additional commitments to U.S. and E.U. direct lending funds and partially offset by capital deployment throughout the year Available Capital ($ in millions) AUM Not Yet Earning Fees ($ in millions) $33,295 $34,419 $25,834 $3,565 $23,972 $990 $3,321 $921 $1,308 $1,690 $25,757 $6,549 $7,171 $3,114 $14,796 $920 $9,908 $2,304 $23,536 $21,361 $22,803 $24,305 $11,572 $12,735 Q3-17 Q2-18 Q3-18 Q3-17 Q2-18 Q3-18 Credit Private Equity Real Estate Credit Private Equity Real Estate 7
AUM Not Yet Earning Fees As of September 30, 2018, AUM Not Yet Earning Fees of $25.8 billion could generate approximately $280.7 million in potential incremental annual management fees, of which $233.3 million relates to the $21.7 billion of AUM available for future deployment(1) ◦ The $21.7 billion of AUM not yet earning fees available for future deployment includes approximately $19.6 billion relating to U.S. and E.U. direct lending funds and $1.1 billion in structured credit funds AUM Not Yet Earning Fees Available for Future AUM Not Yet Earning Fees: $25.8 billion Deployment: $21.7 billion $443 $1,826 $728 $237 $1,867 $21,698 $20,733 $21.7 billion of AUM Not Yet Earning Fees was available for future deployment as of September 30, 2018 ($ in millions) ($ in millions) Capital Available for Future Deployment Capital Available for Deployment for Follow-on Investments (2) Credit Private Equity Real Estate Available Capital Currently in Funds Unlikely to Be Drawn Due to Leverage Targets and Restrictions Funds in or Expected to Be in Wind-down 1. No assurance can be made that such results will be achieved. Assumes the AUM Not Yet Earning Fees as of September 30, 2018 is invested and such fees are paid on an annual basis. Does not reflect any associated reductions in management fees from certain funds, some of which may be material. Reference to $280.7 million includes approximately $27.4 million in potential incremental management fees from deploying undrawn/available credit facilities at ARCC (in excess of 0.75X leverage), which may not be drawn due to leverage target limitations and restrictions until June 21, 2019. Note that ARCC has announced its intention to increase its target leverage (over a one to three year period) to a range of 0.9X to 1.25X Debt to Equity beginning on June 21, 2019 as provided for in the 2018 Small Business Credit Availability Act. Such additional management fees from deploying undrawn/available credit in excess of 1X leverage are not reflected above. Note that no potential ARCC Part I fees are reflected in any of the amounts above. 2. Capital available for deployment for follow-on investments represents capital committed to funds that are past their investment periods but for which capital is available to be called for follow-on investments in existing portfolio companies. As of September 30, 2018, capital available for deployment for follow-on investments could generate approximately $20.0 million in potential management fees. There is no assurance such capital will be invested. 8
Incentive Eligible AUM and Incentive Generating AUM Incentive Eligible AUM of $76.3 billion as of September 30, 2018 increased by 26.3% year over year ◦ The increase of $15.9 billion was primarily driven by fundraising across E.U. and U.S. direct lending funds Incentive Generating AUM(1) of $37.2 billion as of September 30, 2018 increased by 70.9% year over year ◦ The increase was primarily driven by additional funds exceeding their hurdle rates in our Credit Group, as well as deployment of capital within funds exceeding hurdle rates as of September 30, 2017 and remaining above hurdle rates as of September 30, 2018 Of the $45.5 billion of Incentive Eligible AUM that is currently invested, 81.6% is Incentive Generating ◦ The $37.2 billion Incentive Generating AUM includes $11.9 billion relating to ARCC Part II fees which began generating in Q3 2018 Q3-18 Incentive Generating to Incentive Eligible Incentive Eligible AUM AUM Reconciliation ($ in millions) ($ in millions) Private Real Credit Equity Estate Total Incentive $73,165 $76,327 Generating AUM $26,689 $7,417 $3,045 $37,151 $7,434 $60,432 $7,465 + Uninvested $18,807 IEAUM 20,745 6,877 3,169 30,791 $7,121 $19,367 $19,601 + IEAUM below hurdle 2,652 4,513 1,220 8,385 $46,333 $50,086 Incentive Eligible $33,710 AUM $50,086 $18,807 $7,434 $76,327 Q3-17 Q2-18 Q3-18 Credit Private Equity Real Estate 1. Incentive Generating AUM includes $18.4 billion of AUM from funds generating unrealized incentive income that is not recognized as revenue by the Company until such fees are crystallized, or no longer subject to reversal. 9
Capital Deployment(1) • Total gross invested capital during Q3-18 of $4.9 billion compared to Q3-18 Capital Deployment Breakdown: $4.9 billion $5.0 billion in Q3-17 ◦ Of the total amount, $3.8 billion was related to deployment in our ($ in millions) drawdown funds compared to $3.6 billion for the same period in 2017 $277 $603 ◦ Of our drawdown funds, the most active investment strategies were E.U. direct lending, U.S. direct lending, special opportunities and infrastructure and power • Total gross invested capital for the nine months ended September 30, $3,996 2018 of $17.0 billion compared to $12.5 billion for the nine months ended September 30, 2017 ◦ Of the total amount, $12.6 billion was related to deployment in our drawdown funds compared to $9.7 billion for the same period in 2017 Credit Private Equity Real Estate Q3-18 Capital Deployment in Drawdown Funds: Q3-18 Capital Deployment by Type: $4.9 billion $3.8 billion ($ in millions) ($ in millions) $3,823 (2) $3,578 $1,053 $277 $355 $603 $757 $2,943 $2,466 $3,823 Q3-17 Q3-18 Drawdown Funds Non-drawdown Funds(2) Credit Private Equity Real Estate 1. Capital deployment figures exclude deployment from permanent capital vehicles. 2. Non-drawdown funds includes new capital deployed by managed accounts and CLOs but excludes recycled capital. 10
GAAP Statements of Operations $ in thousands, except share data Three Months Ended September 30, Nine Months Ended September 2018 2017 2018 2017 Revenues Management fees (includes ARCC Part I Fees of $33,377, $91,660 and $24,036, $76,436 for the three and nine months ended September 30, 2018 and 2017, respectively) $204,524 $183,177 $588,071 $535,990 Carried interest allocation 31,902 82,534 72,587 468,349 Incentive fees 872 4,474 13,683 11,855 Principal investment income (loss) (7,464) 4,731 (684) 45,625 Administrative, transaction and other fees 10,943 13,486 37,372 43,024 Total revenues 240,777 288,402 711,029 1,104,843 Expenses Compensation and benefits 145,594 129,347 419,225 384,905 Performance related compensation 17,606 58,637 30,479 361,044 General, administrative and other expenses 51,155 47,104 155,523 145,193 Transaction support expense — — — 275,177 Expenses of the Consolidated Funds 12,833 19,039 49,261 27,472 Total expenses 227,188 254,127 654,488 1,193,791 Other income (expense) Net realized and unrealized gain (loss) on investments 5,542 4,229 7,970 (1,471) Interest and dividend income 808 1,761 6,511 5,147 Interest expense (4,143) (5,343) (17,088) (15,576) Other income (expense), net 811 (2,492) (1,487) 16,826 Net realized and unrealized gain on investments of Consolidated Funds 5,437 35,940 26,839 55,263 Interest and other income of the Consolidated Funds 93,062 48,181 250,117 127,999 Interest expense of the Consolidated Funds (62,763) (28,127) (163,942) (86,324) Total other income 38,754 54,149 108,920 101,864 Income before taxes 52,343 88,424 165,461 12,916 Income tax expense (benefit) 5,131 4,552 29,659 (28,459) Net income 47,212 83,872 135,802 41,375 Less: Net income attributable to non-controlling interests in Consolidated Funds 13,169 18,195 23,418 25,403 Less: Net income (loss) attributable to non-controlling interests in Ares Operating Group entities 18,133 37,839 67,301 (20,610) Net income attributable to Ares Management, L.P. 15,910 27,838 45,083 36,582 Preferred equity dividends paid 5,425 5,425 16,275 16,275 Net income attributable to Ares Management, L.P. common shareholders $10,485 $22,413 $28,808 $20,307 Net income attributable to Ares Management, L.P. per common share: Basic $0.09 $0.26 $0.25 $0.22 Diluted $0.09 $0.26 $0.25 $0.22 Weighted-average common shares: Basic 98,706,419 82,166,852 94,168,582 81,704,815 Diluted 98,706,419 82,166,852 94,168,582 81,704,815 Dividend declared and paid per common share $0.28 $0.31 $1.05 $0.72 11
Financial Summary of RI, ENI and Other Measures $ in thousands, except share data (unless otherwise noted) Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 % Change 2018 2017 % Change Management fees(1) $213,662 $188,628 13% $612,792 $550,969 11% Other fees 3,872 6,144 (37)% 17,166 16,998 1% Compensation and benefits expenses(2) (115,372) (104,782) (10)% (333,487) (309,238) (8)% General, administrative and other expenses(3) (37,745) (32,011) (18)% (109,559) (100,640) (9)% Fee Related Earnings $64,417 $57,979 11% $186,912 $158,089 18% Realized net performance income $11,545 $38,010 (70)% $54,510 $62,671 (13)% Realized net investment income 15,456 20,856 (26)% 30,123 29,925 1% Realized Income $91,418 $116,845 (22)% $271,545 $250,685 8% Unrealized net performance income $4,418 $(7,081) NM $5,070 $61,676 (92)% Unrealized net investment income (loss) (20,119) (8,333) 141% (21,453) 22,979 NM Economic Net Income $75,717 $101,431 (25)% $255,162 $335,340 (24)% After-tax Economic Net Income, net of preferred share dividend $67,256 $87,318 (23)% $225,100 $298,953 (25)% After-tax Economic Net Income per share, net of preferred share dividend(4) $0.30 $0.40 (25)% $1.01 $1.39 (27)% After-tax Realized Income, net of preferred share dividend(5) $81,354 $103,113 (21)% $239,584 $213,266 12% After-tax Realized Income per common share, net of preferred share dividend(6) $0.34 $0.43 (21)% $1.01 $0.85 19% Net performance income $15,963 $30,929 (48)% $59,580 $124,347 (52)% Net investment income (4,663) 12,523 NM 8,670 52,904 (84)% Performance Related Earnings $11,300 $43,452 (74)% $68,250 $177,251 (61)% Other Data Total fee revenue(7) $229,625 $219,557 5% $672,372 $675,316 —% Effective management fee rate(8) 1.07% 1.03% — 1.06% 1.06% — 1. Includes ARCC Part I Fees of $33.4 million and $24.0 million for the three months ended September 30, 2018 and 2017, respectively, and $91.7 million and $76.4 million for the nine months ended September 30, 2018 and 2017, respectively. 2. Includes compensation and benefits expenses attributable to the Operations Management Group of $32.2 million and $27.3 million for the three months ended September 30, 2018 and 2017, respectively, and $93.9 million and $83.8 million for the nine months ended September 30, 2018 and 2017, respectively, which are not allocated to an operating segment 3. Includes G&A expenses attributable to Operations Management Group of $18.3 million and $18.3 million for the three months ended September 30, 2018 and 2017, respectively, and $56.4 million and $56.5 million for the nine months ended September 30, 2018 and 2017, respectively, which are not allocated to an operating segment. 4. Pro-forma shares of 225,934,872 includes the sum of average common shares, Ares Operating Group Units that are exchangeable for common shares on a one-for-one basis and the dilutive effects of the Company’s equity-based awards. 5. Q3-18 after-tax Realized Income includes $2.8 million of current income tax related to realized performance income and $1.9 million of current income tax related to FRE, of which $1.0 million is entity level taxes and $0.9 million is corporate level taxes. 6. After-tax Realized Income attributable to common shareholders per share calculation uses total average common shares outstanding and dilutive effects of the Company’s equity-based awards. See slide 32 for additional details. 7. Total fee revenue is calculated as management fees plus net performance income. 8. Effective management fee rate represents the quotient of management fees and the aggregate fee bases for the quarters presented. The effective rate shown excludes the effect of one-time catch-up fees. 12
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Economic Net Income, Realized Income and Fee Related Earnings: Income before taxes $52,343 $88,424 $165,461 $12,916 Adjustments: Amortization of intangibles 1,245 3,651 7,817 14,200 Depreciation expense 4,102 3,468 12,417 9,458 Equity compensation expenses(1) 23,940 18,091 67,534 52,097 Acquisition and merger-related expenses 253 2,878 (19) 258,722 Placement fees and underwriting costs 6,194 4,495 9,710 14,317 Offering costs — 33 3 688 Other expense, net(2) 3 — 13,561 — Expense of non-controlling interests in consolidated subsidiaries 819 (216) 2,178 407 (Income) loss before taxes of non-controlling interests in Consolidated Funds, net of eliminations (13,182) (19,393) (23,500) (27,465) Economic Net Income $75,717 $101,431 $255,162 $335,340 Unconsolidated performance income - unrealized $37,999 $89,423 $127,224 $(223,467) Unconsolidated performance related compensation expense - unrealized (42,417) (82,342) (132,294) 161,791 Unconsolidated net investment (income) loss - unrealized 20,119 8,333 21,453 (22,979) Realized Income $91,418 $116,845 $271,545 $250,685 Unconsolidated performance income - realized $(71,568) $(178,989) $(217,283) $(261,924) Unconsolidated performance related compensation expense - realized 60,023 140,979 162,773 199,253 Unconsolidated net investment income - realized (15,456) (20,856) (30,123) (29,925) Fee Related Earnings $64,417 $57,979 $186,912 $158,089 Performance Related Earnings Economic Net Income $75,717 $101,431 $255,162 $335,340 Less: Fee Related Earnings (64,417) (57,979) (186,912) (158,089) Performance Related Earnings $11,300 $43,452 $68,250 $177,251 Note: This table is a reconciliation of income (loss) before provision for income taxes on a consolidated basis to RI, ENI, FRE and PRE on unconsolidated basis, which shows the results of the reportable segments on a combined basis together with the Operations Management Group. Management believes that this presentation is more meaningful than a reconciliation to the reportable segments on a segment basis because such reconciliation would exclude the Operations Management Group. Differences may arise due to rounding. 1. Equity compensation expense includes $4.1 million, $14.6 million and $3.0 million, $9.7 million, related to annual bonus program for the three and nine months ended September 30, 2018 and 2017, respectively, and $15.2 million, $41.2 million and $11.5 million, $30.4 million, related to IPO and retention grants of restricted units for the three and nine months ended September 30, 2018 and 2017, respectively. Also includes $0.6 million of market condition restricted units awards for the three and nine months ended September 30, 2018. 2. Nine months ended September 30, 2018 includes an $11.8 million payment made to ARCC during the second quarter of 2018 for certain rent and utilities expenses for the years ended 2017, 2016, 2015 and 2014, and for the first quarter of 2018. The payment included $0.6 million related to the first quarter of 2018 and $0.6 million and $1.9 million related to the three and nine months ended September 30, 2017, respectively. Beginning April 1, 2018, the Company paid these expenses and recorded them as a direct operating expense within G&A. 13
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.) $ in thousands Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 Performance income and net investment income reconciliation: Unconsolidated performance income - realized $71,568 $178,989 $217,283 $261,924 Performance income - realized earned from Consolidated Funds — — (4,000) (8,086) Performance income - realized reclass(1) — (981) (521) (2,181) Unconsolidated performance income - unrealized (37,999) (89,423) (127,224) 223,467 Performance income - unrealized earned from Consolidated Funds — (1,371) — 4,327 Performance income - unrealized reclass(1) (795) (206) 732 753 Total GAAP carried interest allocation and incentive fees $32,774 $87,008 $86,270 $480,204 Unconsolidated net investment income $(4,663) $12,523 $8,670 $52,904 Net investment income (loss) from Consolidated Funds 34,731 54,897 111,710 89,759 Performance income - reclass(1) 795 1,187 (211) 1,428 Principal investment (income) loss 7,886 (14,374) (9,544) (61,709) Change in value of contingent consideration — (60) — 20,156 Other non-cash expense (3) — (1,725) — Offering costs — (33) (3) (688) Other income of non-controlling interests in consolidated subsidiaries 8 9 23 14 GAAP total other income $38,754 $54,149 $108,920 $101,864 Note: These tables tables reconciles unconsolidated performance income to our consolidated carried interest allocation and incentive fees reported in accordance with GAAP and unconsolidated other income to our consolidated GAAP other income. These reconciliations show the results of the reportable segments on a combined basis together with the Operations Management Group. Management believes that this presentation is more meaningful than a reconciliation to the reportable segments on a segment basis because such reconciliation would exclude the Operations Management Group. Differences may arise due to rounding. 1. Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations. 14
Credit Group(1) • Management and other fees increased by 18% for Q3-18 compared to Q3-17, primarily due to deployment in new U.S. and E.U. direct lending strategies and an increase in ARCC Part I Fees • Realized Income increased by $5.8 million for Q3-18 compared to Q3-17, primarily driven by increases in Fee Related Earnings Financial Summary and Highlights(2) $ in thousands Q3-18 Q3-17 % Change YTD 2018 YTD 2017 % Change Management and other fees(3) $149,070 $125,846 18% $429,291 $370,013 16% Fee Related Earnings $83,345 $72,099 16% $240,724 $203,314 18% 16% Q3-18 increase in Realized net performance income $616 $1,830 (66)% $20,694 $11,308 83% Fee Related Earnings Realized net investment income 1,140 5,364 (79)% 461 7,797 (94)% Realized Income $85,101 $79,293 7% $261,879 $222,419 18% 30% Unrealized net performance income $8,870 $13,213 (33)% $30,329 $13,705 121% Q3-18 increase in AUM Unrealized net investment income (loss) 3,294 (4,098) NM 4,042 (5,133) NM Economic Net Income $97,265 $88,408 10% $296,250 $230,991 28% Performance Related Earnings $13,920 $16,309 (15)% $55,526 $27,677 101% E.U. Direct Lending: 2.7%(4) AUM ($ in billions) $91.5 $70.5 30% High Yield: 1.7%(5) (5) FPAUM ($ in billions) $56.0 $48.6 15% Syndicated Loans: 1.9% Q3-18 gross returns NM - Not Meaningful Note: Past performance is not indicative of future results. The Credit Group had ~244 investment professionals, over 1,500 portfolio companies and 155 active funds as of September 30, 2018. 1. Segment results are shown before the unallocated support costs of the Operations Management Group. See “GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis” on slides 13-14. 2. This table is a financial summary only. See slides 23 and 24 for complete financial results. 3. Includes ARCC Part I Fees of $33.4 million and $24.0 million for Q3-18 and Q3-17, respectively, and $91.7 million and $76.4 million for Q3-18 YTD and Q3-17 YTD, respectively. The 2018 and 2017 amounts are net of the $10 million ARCC–ACAS transaction fee waiver which began in Q2-17 and will remain in place through Q3-19. 4. The net return for E.U. direct lending is 2.0% for Q3-18. Gross and net returns for E.U. direct lending are represented by a composite made up of the ACE II and ACE III Euro-denominated feeder funds. The gross and net returns for the composite made up of the ACE II and ACE III U.S. dollar denominated feeder funds are 2.9% and 2.1% for Q3-18. Returns in the chart are shown for the Euro-denominated composite as it is the larger of the two composites. Composite returns are calculated by asset-weighting the underlying fund-level returns. Returns include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses. Gross returns do not reflect the deduction of management fees, carried interest, if applicable, or any other expenses. Net returns are reduced by applicable management fees, accrued carried interest, if applicable, and other expenses. We believe aggregated performance returns reflect overall quarterly performance returns in a strategy, but are not necessarily investable funds or products themselves. 5. Net performance returns: 1.7% for U.S. Syndicated Loan funds and 1.6% for U.S. High Yield funds. Performance for Syndicated Loans is represented by our U.S. Bank Loan Aggregate Composite. Performance for High Yield is represented by our U.S. High Yield composite. 15
Private Equity Group(1) • Management and other fees decreased 6% for Q3-18 compared to Q3-17 driven by distributions from private equity funds that are past their respective investment periods • Realized Income decreased by $33.2 million for Q3-18 compared to Q3-17, primarily driven by reduced monetization activity Financial Summary and Highlights(2) $ in thousands Q3-18 Q3-17 % Change YTD 2018 YTD 2017 % Change Management and other fees $48,493 $51,762 (6)% $148,375 $148,686 —% Fee Related Earnings $25,184 $27,851 (10)% $78,979 $84,626 (7)% $2.2 billion Realized net performance income $10,684 $34,647 (69)% $27,626 $48,513 (43)% YTD distributions Realized net investment income 7,559 14,119 (46)% 17,557 15,974 10% Realized Income $43,427 $76,617 (43)% $124,162 $149,113 (17)% Unrealized net performance income $(21,938) $(28,427) (23)% $(46,259) $23,031 NM Unrealized net investment income (loss) (25,685) (8,372) 207% (29,156) 26,194 NM Q3-18: (1.9%) Economic Net Income $(4,196) $39,818 NM $48,747 $198,338 (75)% Gross return in Performance Related Earnings $(29,380) $11,967 NM $(30,232) $113,712 NM Corporate Private (3) AUM ($ in billions) $23.0 $24.6 (7)% Equity portfolio FPAUM ($ in billions) $16.6 $16.8 (1)% NM - Not Meaningful Note: Past performance is not indicative of future results. The Private Equity Group had ~98 investment professionals, 42 portfolio companies, 54 Infrastructure and Power Assets and 22 active funds and related co-investment vehicles as of September 30, 2018. 1. Segment results are shown before the unallocated support costs of the Operations Management Group. See “GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis” on slides 13-14. 2. This table is a financial summary only. See slides 23 and 24 for complete financial results. 3. Performance for corporate private equity portfolio is represented by the ACOF I-V Aggregate, which is comprised of investments held by ACOF I, ACOF II, ACOF III, ACOF IV and ACOF V. Performance returns are gross asset-level time- weighted rates of return calculated on a quarterly basis. Returns include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses. Gross returns do not reflect the deduction of management fees, carried interest, if applicable, or any other expenses including taxes. Net returns are reduced by applicable management fees, accrued carried interest, if applicable, and other expenses. Net asset-level returns for corporate private equity portfolio was (1.9%) for Q3-18. We believe aggregated performance returns reflect overall quarterly performance returns in a strategy, but are not necessarily investable funds or products themselves. 16
Real Estate Group(1) • Management and other fees increased 16% for Q3-18 compared to Q3-17, primarily driven by a U.S. equity fund and an E.U. equity fund, partially offset by the liquidation of one of our E.U. equity funds combined with the sale of investments within certain other real estate equity funds nearing the end of their fund terms • Realized Income increased by $6.7 million for Q3-18 compared to Q3-17, primarily driven by increases in Fee Related Earnings and higher net realized investment income, partially offset by lower net realized performance income Financial Summary and Highlights(2) $ in thousands Q3-18 Q3-17 % Change YTD 2018 YTD 2017 % Change Management and other fees $19,971 $17,164 16% $52,292 $49,268 6% 75% Fee Related Earnings $6,382 $3,641 75% $17,473 $10,473 67% Q3-18 increase in Fee Related Earnings Realized net performance income $245 $1,533 (84)% $6,190 $2,850 117% Realized net investment income 6,915 1,677 NM 10,027 3,297 204% 98% Realized Income $13,542 $6,851 98% $33,690 $16,620 103% Q3-18 increase in Unrealized net performance income $17,486 $8,133 115% $21,000 $24,940 (16)% Realized Income Unrealized net investment income (loss) (2,965) (127) NM (5,807) 1,591 NM Economic Net Income $28,063 $14,857 89% $48,883 $43,151 13% U.S. Equity: 5.0% Performance Related Earnings $21,681 $11,216 93% $31,410 $32,678 (4)% E.U. Equity: 9.9% AUM ($ in billions) $10.6 $10.5 1% Q3-18 Gross Returns(3) FPAUM ($ in billions) $6.8 $7.0 (3)% NM - Not Meaningful Note: Past performance is not indicative of future results. The Real Estate Group had ~76 investment professionals, 168 properties and 42 active funds as of September 30, 2018. 1. Segment results are shown before the unallocated support costs of the Operations Management Group. See “GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis” on slides 13-14. 2. This table is a financial summary only. See slides 23 and 24 for complete financial results. 3. Returns are gross time-weighted rates of return and do not reflect the deduction of management fees, carried interest, if applicable, or fund expenses. Gross return for U.S. equity is represented by U.S. Fund VIII and gross return for E.U. equity is represented by EF IV. EF IV is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross returns are for the U.S. dollar denominated feeder fund as that is the larger of the two feeders. Gross returns do not reflect the deduction of management fees, carried interest, if applicable, or any other expenses including taxes. Net returns are reduced by applicable management fees, accrued carried interest, if applicable, and other expenses. Net returns for U.S. equity and E.U. equity were 3.7% and 7.0%, respectively, for Q3-18. The gross and net returns for the Euro denominated feeder fund were 9.5% and 6.8%, respectively, for Q3-18. 17
Realized Income per Share Data Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 After-tax Realized Income, net of preferred share dividend Realized Income before taxes $91,418 $116,845 $271,545 $250,685 Entity level foreign, state and local taxes (990) (1,753) (6,213) (2,572) Preferred share dividend(1) (5,425) (5,425) (16,275) (16,275) Realized Income, net of preferred dividend $85,003 $109,667 $249,057 $231,838 Income tax(2) $(3,649) $(6,554) $(9,473) $(18,572) After-tax Realized Income, net of preferred dividend $81,354 $103,113 $239,584 $213,266 After-tax Realized Income per share(3) $0.36 $0.48 $1.07 $0.99 After-tax Realized Income per common share Realized Income, net of preferred share dividend $85,003 $109,667 $249,057 $231,838 x Average common ownership % 45.17% 38.69% 43.19% 38.57% Realized Income attributable to common shareholders $38,395 $42,432 $108,861 $89,462 Income tax(2) $(3,649) $(6,554) $(9,473) $(18,572) After-tax Realized Income attributable to common shareholders $34,746 $35,878 $99,388 $70,890 After-tax Realized Income per common share(4) $0.34 $0.43 $1.01 $0.85 1. The Company has 12,400,000 of 7% Series A Preferred Shares outstanding as of September 30, 2018. 2. Amount represents the current corporate taxes paid by the Company for the period presented. The current corporate tax payment is allocated between FRE and RI by multiplying the effective tax rate of 22.6% by realized performance related income and subtracting that result from the total current corporate tax payment to arrive at taxes on FRE. All differences between taxable income and realized income presented are attributed to FRE as FRE represents our core business operations. As a result, FRE tax rates may fluctuate over time dependent on the total amount of realizations and to tax deductible expenses that are not excluded from FRE' in a given period. 3. Pro forma shares of 225,934,872 includes the sum of common shares, Ares Operating Group Units that are exchangeable for common shares on a one-for-one basis and the dilutive effects of the Company’s equity-based awards. 4. After-tax Realized Income attributable to common shareholders per share calculation uses total average common shares outstanding and dilutive effects of the Company’s equity-based awards. See slide 32 for additional details. 18
Economic Net Income per Share Data Three Months Ended September 30, Nine Months Ended September 30, 2018 2017 2018 2017 After-tax Economic Net Income, net of preferred share dividend Economic Net Income before taxes $75,717 $101,431 $255,162 $335,340 Entity level foreign, state and local taxes (990) (1,753) (6,213) (2,572) Preferred share dividend(1) (5,425) (5,425) (16,275) (16,275) Economic Net Income, net of preferred share dividend $69,302 $94,253 $232,674 $316,493 Income tax(2) $(2,046) $(6,935) $(7,574) $(17,540) After-tax Economic Net Income, net of preferred share dividend $67,256 $87,318 $225,100 $298,953 After-tax Economic Net Income per share(3) $0.30 $0.40 $1.01 $1.39 After-tax Economic Net Income per common share Economic Net Income, net of preferred dividend $69,302 $94,253 $232,674 $316,493 x Average common ownership % 45.17% 38.69% 43.19% 38.57% Economic Net Income attributable to common shareholders $31,303 $36,469 $100,494 $122,058 Income tax(2) $(2,046) $(6,935) $(7,574) $(17,540) After-tax Economic Net Income attributable to common shareholders $29,257 $29,534 $92,920 $104,518 After-tax Economic Net Income per common share $0.29 $0.35 $0.96 $1.26 1. The Company has 12,400,000 of 7% Series A Preferred Shares outstanding as of September 30, 2018. 2. Amount represents the current corporate income tax on RI plus deferred corporate taxes on unrealized performance related income, which is calculated at the effective tax rate of 22.6% for the period. 3. Pro forma shares of 225,934,872 includes the sum of common shares, Ares Operating Group Units that are exchangeable for common shares on a one-for-one basis and the dilutive effects of the Company’s equity-based awards. 19
Balance Sheet • Substantial balance sheet value related to investments in Ares managed vehicles and net performance income receivable ◦ $122.2 million in cash and cash equivalents, $350.8 million in debt obligations including $105.0 million drawn against our $1.065 billion revolving credit facility as of September 30, 2018 ◦ As of September 30, 2018, the fair value of our corporate investment portfolio was $468.4 million in accordance with GAAP. On an unconsolidated basis, our corporate investment portfolio was $658.7 million(1) ◦ As of September 30, 2018, gross accrued carried interest allocation reported on a GAAP and unconsolidated basis was $947.3 million ▪ As of September 30, 2018, net accrued carried interest allocation, net of performance related compensation reported on a GAAP and unconsolidated basis was $259.2 million, which decreased by 4.6% from December 31, 2017 Net Accrued Carried Interest Allocation by Group – GAAP Net Accrued Carried Interest Allocation by Group – GAAP and Unconsolidated basis and Unconsolidated basis Q4 2017: $271.7 million Q3 2018: $259.2 million 18% 22% 27% 28% 60% 45% Credit Private Equity Real Estate 1. As of September 30, 2018, $89.6 million was invested in non-Ares managed vehicles. Difference between GAAP and unconsolidated investments represents investments of $190.3 million in Consolidated Funds that are eliminated upon consolidation. Corporate investment portfolio excludes accrued carried interest allocation of $947.3 million. 20
Corporate Data Board of Directors Executive Officers Research Coverage Investor Relations Contacts Michael Arougheti Michael Arougheti Bank of America Merrill Lynch Carl Drake Co-Founder, Chief Executive Officer and Co-Founder, Chief Executive Officer and Michael Carrier Partner/Head of Ares Management, LLC President of Ares President (646) 855-5004 Public Investor Relations and Communications Paul G. Joubert Ryan Berry Credit Suisse Tel: (678) 538-1981 Founding Partner of EdgeAdvisors and Partner, Chief Marketing Officer and Craig Siegenthaler cdrake@aresmgmt.com Investing Partner in Converge Venture Strategy Officer (212) 325-3104 Partners Cameron Rudd Kipp deVeer Goldman Sachs Senior Associate David Kaplan Partner, Global Head of Credit Alexander Blostein Tel: (678) 538-1986 Co-Founder and Partner of Ares, Co-Head (212) 357-9976 crudd@aresmgmt.com of Private Equity Group David Kaplan Co-Founder and Partner Jefferies General IR Contact John Kissick Gerald O'Hara Tel (U.S.): Co-Founder and Former Partner of Ares Michael McFerran (415) 229-1510 (800) 340-6597 Partner, Chief Operating Officer and Chief Tel (International): Michael Lynton Financial Officer JP Morgan (212) 808-1101 Chairman of Snap Inc. Kenneth Worthington IRARES@aresmgmt.com Antony P. Ressler (212) 622-6613 Dr. Judy D. Olian Co-Founder and Executive Chairman Please visit our website at: President of Quinnipiac University Keefe, Bruyette & Woods www.aresmgmt.com Bennett Rosenthal Robert Lee Antony P. Ressler Co-Founder and Partner (212) 887-7732 Co-Founder and Executive Chairman Michael Weiner Morgan Stanley Bennett Rosenthal Executive Vice President, Chief Legal Officer Michael Cyprys Co-Founder and Partner of Ares, Co-Head of Ares (212) 761-7619 Transfer Agent of Private Equity Group Oppenheimer & Co American Stock Transfer & Trust Company, Allison Rudary LLC (212) 667-5366 6201 15th Avenue Corporate Headquarters Brooklyn, NY 11210 RBC Capital Markets Tel: (877) 681-8121 Kenneth Lee Fax: (718) 236-2641 2000 Avenue of the Stars (212) 905-5995 12th Floor info@amstock.com www.amstock.com Los Angeles, CA 90067 UBS Investment Bank Tel: (310) 201-4100 Brent Dilts Fax: (310) 201-4170 (212) 713-1841 Wells Fargo Securities Corporate Counsel Christopher Harris Securities Listing (443) 263-6513 Proskauer Rose LLP NYSE: ARES Los Angeles, CA NYSE: ARES PR A Independent Registered Public Accounting Firm Ernst & Young LLP Los Angeles, CA 21
Appendix
Financial Details – Segments Three Months Ended September 30, 2018 $ in thousands Private Real Operations Credit Equity Estate Management Group Group Group Group Total(1) Management fees (Credit Group includes ARCC Part I Fees of $33,377) $145,414 $48,287 $19,961 $— $213,662 Other fees 3,656 206 10 — 3,872 Compensation and benefits (54,994) (17,443) (10,733) (32,202) (115,372) General, administrative and other expenses (10,731) (5,866) (2,856) (18,292) (37,745) Fee Related Earnings $83,345 $25,184 $6,382 $(50,494) $64,417 Performance income—realized $1,729 $52,729 $17,110 $— $71,568 Performance related compensation—realized (1,113) (42,045) (16,865) — (60,023) Investment income—realized 1,063 8,104 6,846 22 16,035 Interest and other investment income—realized 1,604 1,032 486 442 3,564 Interest expense (1,527) (1,577) (417) (622) (4,143) Realized income $85,101 $43,427 $13,542 $(50,652) $91,418 Performance fees—unrealized $26,867 ($109,024) $44,158 $— ($37,999) Performance fee compensation—unrealized (17,997) 87,086 (26,672) — 42,417 Investment income (loss)—unrealized 2,524 (25,725) (2,920) 5,247 (20,874) Interest and other investment income (loss)—unrealized 770 40 (45) (10) 755 Economic Net Income $97,265 $(4,196) $28,063 $(45,415) $75,717 Performance Related Earnings $13,920 $(29,380) $21,681 $5,079 $11,300 Three Months Ended September 30, 2017 $ in thousands Private Real Operations Credit Equity Estate Management (1) Group Group Group Group Total Management fees (Credit Group includes ARCC Part I Fees of $24,036) $120,178 $51,313 $17,137 $— $188,628 Other fees 5,668 449 27 — 6,144 Compensation and benefits (46,822) (19,256) (11,398) (27,306) (104,782) General, administrative and other expenses (6,925) (4,655) (2,125) (18,306) (32,011) Fee Related Earnings $72,099 $27,851 $3,641 $(45,612) $57,979 Performance income—realized $3,296 $173,304 $2,389 $— $178,989 Performance related compensation—realized (1,466) (138,657) (856) — (140,979) Investment income—realized 6,206 14,268 1,997 18 22,489 Interest and other investment income—realized 2,435 1,080 76 119 3,710 Interest expense (3,277) (1,229) (396) (441) (5,343) Realized income $79,293 $76,617 $6,851 $(45,916) $116,845 Performance fees—unrealized $33,033 ($142,822) $20,366 $— ($89,423) Performance fee compensation—unrealized (19,820) 114,395 (12,233) — 82,342 Investment income (loss)—unrealized (1,123) (8,421) (767) 4,357 (5,954) Interest and other investment income (loss)—unrealized (2,975) 49 640 (93) (2,379) Economic Net Income $88,408 $39,818 $14,857 $(41,652) $101,431 Performance Related Earnings $16,309 $11,967 $11,216 $3,960 $43,452 1. Includes results of the reportable segments on a combined basis together with the Operations Management Group. See “GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis” on slides 13-14. 23
Financial Details – Segments Nine Months Ended September 30, 2018 $ in thousands Private Real Operations Credit Equity Estate Management Group Group Group Group Total(1) Management fees (Credit Group includes ARCC Part I Fees of $91,660) $413,028 $147,492 $52,272 $— $612,792 Other fees 16,263 883 20 — 17,166 Compensation and benefits (157,166) (55,314) (27,140) (93,867) (333,487) General, administrative and other expenses (31,401) (14,082) (7,679) (56,397) (109,559) Fee Related Earnings $240,724 $78,979 $17,473 $(150,264) $186,912 Performance income—realized $48,472 $137,542 $31,269 $— $217,283 Performance related compensation—realized (27,778) (109,916) (25,079) — (162,773) Investment income—realized 2,429 17,791 9,946 1,658 31,824 Interest and other investment income—realized 7,828 4,011 1,370 2,178 15,387 Interest expense (9,796) (4,245) (1,289) (1,758) (17,088) Realized income $261,879 $124,162 $33,690 $(148,186) $271,545 Performance fees—unrealized $38,391 ($221,563) $55,948 $— ($127,224) Performance fee compensation—unrealized (8,062) 175,304 (34,948) — 132,294 Investment income (loss)—unrealized 3,872 (29,585) (4,677) 9,344 (21,046) Interest and other investment income (loss)—unrealized 170 429 (1,130) 124 (407) Economic Net Income $296,250 $48,747 $48,883 $(138,718) $255,162 Performance Related Earnings $55,526 $(30,232) $31,410 $11,546 $68,250 Nine Months Ended September 30, 2017 $ in thousands Private Real Operations Credit Equity Estate Management (1) Group Group Group Group Total Management fees (Credit Group includes ARCC Part I Fees of $76,436) $354,179 $147,559 $49,231 $— $550,969 Other fees 15,834 1,127 37 — 16,998 Compensation and benefits (143,685) (50,862) (30,848) (83,843) (309,238) General, administrative and other expenses (23,014) (13,198) (7,947) (56,481) (100,640) Fee Related Earnings $203,314 $84,626 $10,473 $(140,324) $158,089 Performance income—realized $19,957 $238,084 $3,883 $— $261,924 Performance related compensation—realized (8,649) (189,571) (1,033) — (199,253) Investment income—realized 9,049 17,564 4,153 3,217 33,983 Interest and other investment income—realized 7,548 2,549 401 1,020 11,518 Interest expense (8,800) (4,139) (1,257) (1,380) (15,576) Realized income $222,419 $149,113 $16,620 $(137,467) $250,685 Performance fees—unrealized $41,062 $118,162 $64,243 $— $223,467 Performance fee compensation—unrealized (27,357) (95,131) (39,303) — (161,791) Investment income (loss)—unrealized 16 25,479 (77) 222 25,640 Interest and other investment income (loss)—unrealized (5,149) 715 1,668 105 (2,661) Economic Net Income $230,991 $198,338 $43,151 $(137,140) $335,340 Performance Related Earnings $27,677 $113,712 $32,678 $3,184 $177,251 1. Includes results of the reportable segments on a combined basis together with the Operations Management Group. See “GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis” on slides 13-14. 24
AUM and FPAUM Rollforward Q3-18 Total AUM Rollforward ($ in millions) LTM Total AUM Rollforward ($ in millions) $ in thousands Credit Private Equity Real Estate Total $ in thousands Credit Private Equity Real Estate Total Q2-18 Ending Balance $86,858 $23,602 $10,910 $121,370 Q3-17 Ending Balance $70,477 $24,575 $10,593 $105,645 Commitments 5,522 100 370 5,992 Commitments 25,068 496 1,566 27,130 Capital reductions (490) (1) — (491) Capital reductions (2,476) (5) (45) (2,526) Distributions/redemptions (1,044) (522) (866) (2,432) Distributions/redemptions (4,080) (2,177) (1,933) (8,190) Changes in fund value 655 (188) 173 640 Changes in fund value 2,512 102 406 3,020 Q3-18 Ending Balance $91,501 $22,991 $10,587 $125,079 Q3-18 Ending Balance $91,501 $22,991 $10,587 $125,079 QoQ change $4,643 ($611) ($323) $3,709 YoY change $21,024 ($1,584) ($6) $19,434 Q3-18 Total FPAUM Rollforward ($ in millions) LTM Total FPAUM Rollforward ($ in millions) $ in thousands Credit Private Equity Real Estate Total $ in thousands Credit Private Equity Real Estate Total Q2-18 Ending Balance $53,336 $16,589 $6,963 $76,888 Q3-17 Ending Balance $48,622 $16,784 $6,992 $72,398 Commitments 1,267 — 369 1,636 Commitments 4,925 396 1,263 6,584 Subscriptions/deployment/increase in leverage 2,810 215 24 3,049 Subscriptions/deployment/increase in leverage 8,308 788 562 9,658 Distributions/redemptions/decrease in leverage (1,604) (70) (460) (2,134) Distributions/redemptions/decrease in leverage (6,815) (1,273) (1,112) (9,200) Changes in fund value 97 (4) 4 97 Changes in fund value 876 35 56 967 Change in fee basis — (106) (66) (172) Change in fee basis (10) (106) (927) (1,043) Q3-18 Ending Balance $55,906 $16,624 $6,834 $79,364 Q3-18 Ending Balance $55,906 $16,624 $6,834 $79,364 QoQ change $2,570 $35 ($129) $2,476 YoY change $7,284 ($160) ($158) $6,966 l AUM increased by 5.3% from Q2-18, primarily driven by new capital commitments to U.S. and E.U. direct lending strategies Credit l FPAUM increased by 4.8% from Q2-18, primarily driven by new commitments to syndicated loans strategy and deployment in E.U. and U.S. direct lending funds paid on invested capital l AUM decreased by 2.6% from Q2-18, driven by realizations and distributions from ACOF III and EIF funds Private Equity l FPAUM increased slightly by 0.2% from Q2-18, driven by deployment in special opportunities funds, largely offset by change in fee basis and distributions across special opportunities and EIF funds l AUM decreased by 3.0% from Q2-18, driven by distributions within U.S. equity funds, slightly offset by new commitments to E.U. and U.S. equity funds Real Estate l FPAUM decreased by 1.9% from Q2-18, primarily driven by distributions and change in fee basis within U.S. equity funds, largely offset by new commitments to E.U. and U.S. equity funds 25
AUM and FPAUM by Strategy(1) Strategy ($ in billions) AUM % AUM FPAUM % FPAUM Credit Syndicated Loans $18.7 20% $18.3 34% High Yield 4.5 5 4.5 8 Credit Opportunities 2.8 3 2.4 4 Structured Credit 5.1 6 3.6 6 U.S. Direct Lending(2) 39.2 43 18.6 33 E.U. Direct Lending 21.2 23 8.6 15 Total Credit Group $91.5 100% $56.0 100% Private Equity Corporate Private Equity ACOF V $7.9 35% $7.6 46% ACOF IV 5.5 24 3.0 18 ACOF III 3.4 15 1.4 8 ACOF I-II 0.4 2 — — ACOF Asia 0.3 1 0.1 1 Infrastructure and Power EIF I-IV and Co-investment Vehicles 3.0 13 2.7 16 EIF V 0.8 3 0.8 5 Special Opportunities SSF III-IV 1.7 7 1.0 6 Private Equity Group $23.0 100% $16.6 100% Real Estate U.S. Equity $3.9 37% $2.7 40% E.U. Equity 3.7 35 3.2 47 Debt 3.0 28 0.9 13 Real Estate Group $10.6 100% $6.8 100% Total $125.1 $79.4 1. As of September 30, 2018. 2. AUM includes ARCC, IHAM, and SDLP AUM of $15.1 billion, $4.2 billion, and $2.5 billion, respectively. ARCC’s wholly owned portfolio company, IHAM, an SEC registered investment adviser, manages 21 funds and serves as the sub-manager or sub-adviser for 2 other funds as of September 30, 2018. 26
Balance Sheet Investments by Strategy $ in thousands September 30, 2018 December 31, 2017 Credit Syndicated Loans*(1)(2) $ 84,073 $ 246,460 Credit Opportunities 4,744 4,464 Structured Credit 20,417 14,067 U.S. Direct Lending 57,583 61,411 E.U. Direct Lending 42,667 48,672 Credit Group $ 209,484 $ 375,074 Private Equity ACOF I - II $ 3,579 $ 4,047 ACOF III 88,994 120,598 ACOF IV 38,798 35,984 ACOF Asia 90,139 80,738 Infrastructure and Power 25,112 9,353 Special Opportunities 39,822 25,863 Private Equity $ 286,444 $ 276,583 Real Estate U.S. Equity $ 57,752 $ 74,617 E.U. Equity 15,463 15,914 Real Estate $ 73,215 $ 90,531 Operations Management Group Other $ 89,554 $ 80,767 Other $ 89,554 $ 80,767 Total $ 658,697 $ 822,955 Note: Reflects the balance sheet of Ares Management, L.P. and its consolidated subsidiaries, excluding the effect of Consolidation. *Through investments in Ares CLOs. 1. During the second quarter, the Company retired its non-course term loans and repurchase agreement for its CLOs totaling $206 million following the reversal of the U.S. risk retention requirements. 27
Significant Fund Performance Metrics The following table presents the performance data for significant funds in the Credit Group that are not drawdown funds: As of September 30, 2018 Returns (%)(1) Current Quarter Year-To-Date Since Inception(2) Year of AUM Primary Inception (in millions) Gross Net Gross Net Gross Net Investment Strategy Credit ARCC(3) 2004 $15,055 N/A 2.9% N/A 10.2% N/A 11.9% U.S. Direct Lending Sub-advised Client A(4) 2007 621 1.8% 1.7% 2.0% 1.7% 7.6% 7.2% High Yield Separately Managed Account Client B(4) 2016 728 1.8% 1.7% 0.8% 0.5% 5.0% 4.6% High Yield Note: Past performance is not indicative of future results. AUM and Net Returns as of September 30, 2018 unless otherwise noted. The above table includes fund performance metrics for significant funds which includes those that contributed at least 1% of total management fees for the nine months ended September 30, 2018 or comprised 1% or more of the Company’s total FPAUM as of September 30, 2018, and for which we have sole discretion for investment decisions within the fund. Please see significant fund performance endnotes on slides 30-31 for additional information. Return information presented may not reflect actual returns earned by investors in the applicable fund. ARCC is a publicly traded vehicle. 28
Significant Fund Performance Metrics* The following table presents the performance data for our significant funds, all of which are drawdown funds: As of September 30, 2018 Credit Cumulative MOIC IRR Realized Unrealized Year of Original Capital Invested (5) (6) (7) (8) (9) (10) ($ in millions) Inception AUM Commitments Capital Proceeds Value Total Value Gross Net Gross Net Primary Investment Strategy (11) ACE II 2013 $1,268 $1,216 $967 $740 $543 $1,283 1.4x 1.3x 10.3% 7.6% E.U. Direct Lending (12) ACE III 2015 5,064 2,822 2,544 221 2,768 2,989 1.2x 1.2x 16.7% 12.6% E.U. Direct Lending Private Equity Cumulative Realized Unrealized MOIC IRR Year of Original Capital Invested (1) (2) (3) (4) (5) (6) ($ in millions) Inception AUM Commitments Capital Proceeds Value Total Value Gross Net Gross Net Primary Investment Strategy ACOF III 2008 $3,412 $3,510 $3,867 $6,956 $3,110 $10,066 2.6x 2.2x 29.6% 21.1% Corporate Private Equity USPF IV 2010 1,658 1,688 1,953 1,108 1,522 2,630 1.3x 1.3x 9.7% 6.3% Infrastructure and Power ACOF IV 2012 5,479 4,700 4,106 2,528 4,615 7,143 1.7x 1.5x 20.3% 13.5% Corporate Private Equity EIF V 2015 795 801 656 192 553 745 1.1x 1.0x 14.9% 7.6% Infrastructure and Power (7)** SSF IV 2015 1,493 1,515 1,990 872 1,030 1,902 1.0x 0.9x (4.6)% (6.3)% Special Opportunities ACOF V* 2017 7,852 7,850 3,085 130 3,205 3,335 1.1x 1.0x NA NA Corporate Private Equity Real Estate Cumulative Realized Unrealized MOIC IRR Year of Original Capital Invested (1) (2) (3) (4) (5) (6) ($ in millions) Inception AUM Commitments Capital Proceeds Value Total Value Gross Net Gross Net Primary Investment Strategy (7) EF IV 2014 $1,051 $1,302 $1,126 $538 $1,091 $1,629 1.5x 1.2x 21.0% 14.5% E.U. Real Estate Equity (8) EPEP II 2015 687 747 344 135 307 442 1.3x 1.2x 19.4% 17.4% E.U. Real Estate Equity VEF IX 2017 858 870 170 4 254 258 1.0x 1.0x NA NA U.S. Real Estate Equity Note: Past performance is not indicative of future results. AUM and Net Returns as of September 30, 2018 unless otherwise noted. The above table includes fund performance metrics for significant funds which includes those that contributed at least 1% of total management fees for the nine months ended September 30, 2018 or comprised 1% or more of the Company’s total FPAUM as of September 30, 2018, and for which we have sole discretion for investment decisions within the fund. Please see significant fund performance endnotes on slides 30-31 for additional information. Return information presented may not reflect actual returns earned by investors in the applicable fund. * We do not present fund performance metrics for significant funds with less than two years of historical information, except for those significant funds which pay management fees on invested capital, in which case performance is shown at the earlier of (i) the one year anniversary of the fund's first investment and (ii) such time the fund is 50% or more invested. ** In January of 2017, a new team assumed portfolio management of SSF IV. In addition to presenting the cumulative performance measure by SSF IV, we have also adopted a new performance measurement called “SSF IV 2.0”. Since January 2017, SSF IV 2.0 has generated gross and net (realized and unrealized) internal rates of return of 15.4% and 10.7%, respectively, through September 30, 2018. 29
Significant Fund Performance Metrics Endnotes Credit 1. Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses. 2. Since inception returns are annualized. 3. Net returns are calculated using the fund's NAV and assume dividends are reinvested at the closest quarter-end NAV to the relevant quarterly ex-dividend dates. Additional information related to ARCC can be found in its financial statements filed with the SEC, which are not part of this presentation. 4. Gross returns do not reflect the deduction of management fees or any other expenses. Net returns are calculated by subtracting the applicable management fee from the gross returns on a monthly basis. 5. Realized proceeds represent the sum of all cash distributions to all partners and if applicable, exclude tax and incentive distributions made to the general partner. 6. Unrealized value represents the fund's NAV reduced by the accrued incentive allocation, if applicable. There can be no assurance that unrealized values will be realized at the valuations indicated. 7. The gross multiple of invested capital (“MoIC”) is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance income. The gross MoIC is before giving effect to management fees, performance income as applicable and other expenses. 8. The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes those interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance income. The net MoIC is after giving effect to management fees, performance income as applicable and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. The net MoIC would have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. 9. The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance income. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. Gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses. 10. The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee- paying limited partners and if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or performance income. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, performance income as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. 11. ACE II is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and gross and net MoIC presented in the chart are for the U.S. dollar denominated feeder fund as that is the larger of the two feeders. The gross and net IRR for the Euro denominated feeder fund are 12.1% and 9.1%, respectively. The gross and net MoIC for the Euro denominated feeder fund are 1.5x and 1.4x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. The variance between the gross and net MoICs and the net IRRs for the U.S. dollar denominated and Euro denominated feeder funds is driven by the U.S. GAAP mark-to-market reporting of the foreign currency hedging program in the U.S. dollar denominated feeder fund. The feeder fund will be holding the foreign currency hedges until maturity, and therefore is expected to ultimately recognize a gain while mitigating the currency risk associated with the initial principal investments. 12. ACE III is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC presented in the chart are for the Euro denominated feeder fund as that is the larger of the two feeders. The gross and net IRR for the U.S. dollar denominated feeder fund are 16.0% and 12.0%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.2x and 1.2x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE III are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. Private Equity 1. Realized proceeds represent the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments. 2. Unrealized value represents the fair market value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations indicated. 3. The gross MoIC is calculated at the investment-level and is based on the interests of all partners. The gross MoIC is before giving effect to management fees, performance fees as applicable and other expenses. 4. The net MoIC for the infrastructure and power, and special opportunities funds is calculated at the fund-level. The net MoIC for the corporate private equity funds is calculated at the investment level. For all funds, the net MoIC is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or performance fees. The net MoIC is after giving effect to management fees, performance fees as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. The net MoIC would have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. 5. The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. For ASSF IV, cash flows used in the gross IRR calculation are based on the actual dates of the cash flows. For all other funds, cash flows are assumed to occur at month-end. The gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses. 30
Significant Fund Performance Metrics Endnotes (cont’d) Private Equity - Cont. 6. The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or performance fees. The cash flow dates used in the net IRR calculation are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, performance fees as applicable, and other expenses and exclude commitments by the general partner and Schedule I investors who do not pay either management fees or carried interest. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would have generally been lower had such fund called capital from its limited partners instead of utilizing the credit facility. 7. SSF IV 2.0 is a subset of SSF IV positions and is intended to provide insight into the new team’s cumulative investment performance. SSF IV 2.0 investments represent (i) existing and re-underwritten positions by the new team on January 1, 2017 and (ii) all new investments made by the new team since January 1, 2017. As part of the re-underwriting process, each liquid investment in the SSF IV portfolio was evaluated and a determination was made whether to continue to hold such investment in the SSF IV portfolio or dispose of such investment. At the same time, legacy illiquid investments have been excluded from SSF IV 2.0 track record as it was not possible to dispose of such investments in the near-term due to their private, illiquid nature. Real Estate 1. Realized proceeds include distributions of operating income, sales and financing proceeds received. 2. Unrealized value represents the fair market value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations indicated. 3. The gross MoIC is calculated at the investment level and is based on the interests of all partners. The gross MoIC for all funds is before giving effect to management fees, performance income as applicable and other expenses. 4. The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner who does not pay management fees or performance income or has such fees rebated outside of the fund. The net MoIC is after giving effect to management fees, performance income as applicable and other expenses. Net fund- level MoICs would generally likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. 5. The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. Cash flows used in the gross IRR calculation are assumed to occur at quarter-end. The gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses. 6. The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner who does not pay management fees or performance income or has such fees rebated outside of the fund. The cash flow dates used in the net IRR calculation are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, performance income as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. 7. EF IV is made up of two parallel funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC and gross and net IRRs presented in the chart are for the U.S. dollar denominated parallel fund as that is the larger of the two funds. The gross and net IRRs for the Euro denominated parallel fund are 21.3% and 14.8%, respectively. The gross and net MoIC for the Euro denominated parallel fund are 1.5x and 1.3x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of fund's closing. All other values for EF IV are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. 8. EPEP II is made up of dual currency investors and Euro currency investors. The gross and net MoIC presented in the chart are for dual currency investors as dual currency investors represent the largest group of investors in the fund. Multiples exclude foreign currency gains and losses since dual currency investors fund capital contributions and receive distributions in local deal currency (GBP or EUR) and therefore, do not realize foreign currency gains or losses. The gross and net IRRs for the euro currency investors, which include foreign currency gains and losses, are 18.9% and 16.5%, respectively. The gross and net MoIC for the Euro currency investors, which include foreign currency gains and losses, are 1.3x and 1.2x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of fund's closing. All other values for EPEP II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. 31
Weighted Average Common Share Information Q3-18 Q3-17 GAAP Shares Adjusted Common Shares(3) GAAP Shares Adjusted Common Shares(3) Ares weighted average common shares 98,706,419 98,706,419 82,166,852 82,166,852 Ares Operating Group Units exchangeable into common shares(1) 119,822,657 — 130,192,448 — Dilutive effect of unvested restricted units(2) 5,709,706 2,578,992 3,241,874 1,254,358 Dilutive effect of unvested options(2) 1,696,090 766,099 — — Total Pro Forma Common Shares 225,934,872 102,051,510 215,601,174 83,421,210 1. Represents average units exchangeable for Ares common shares on a one-for-one basis. 2. We apply the treasury stock method to determine the dilutive weighted-average common shares represented by our restricted units to be settled in common shares and options to acquire common shares. Under the treasury stock method, compensation expense attributed to future services and not yet recognized is presumed to be used to acquire outstanding common shares, thus reducing the weighted-average number of shares and the dilutive effect of these awards. 3. Represents proportional dilutive impact based upon the average percentage of Ares Operating Group owned by Ares (45.17% and 38.69% as of September 30, 2018 and 2017, respectively). 32
Additional Information Dividends/Corporate Action Targeted Net Returns(1) Investor Base as a % of AUM(1) Credit Group: Public Entity & Related: 19% l Ares declared a quarterly dividend of $0.28 per common l Syndicated Loans and High Yield Bonds: Benchmark l 700+ institutional investors(3) (2) share, payable on December 31, 2018 to common Outperformance l 200,000+ retail investors across our public funds(4) shareholders of record at the close of business on December l 17, 2018 Credit Opportunities: 8-12% l Structured Credit: 5-15% Institutional Intermediated: 12% l Direct Lending: 5-15%(5) l Ares declared a quarterly dividend of $0.4375 per Series A Institutional Direct: 69% preferred share with a payment date of December 31, 2018 Private Equity Group: l Pension: 43% to preferred shareholders of record as of the close of l Corporate Private Equity: 18-22% l SWF: 12% business on December 17, 2018 l Infrastructure and Power: 10-15% l Bank/Private Bank: 13% l Special Opportunities: 15-20% l Investment Manager: 7% l In July 2018, our Board of Directors authorized the l Energy Opportunities: 18-22% l Insurance: 15% repurchase, from time to time in open market purchases, l Endowment: 2% privately negotiated transactions or otherwise, of our Series Real Estate Group: l Other: 7% A Preferred Shares with an aggregate liquidation preference l of up to $50 million. Such purchases, if any, will depend on Real Estate Debt: 5-12% the prevailing market conditions and other factors l Real Estate Equity: 12-18% Total Direct Institutional Investors: 866 Corporate and Tax Information The Company’s conversion to a Delaware corporation has been approved by its Board of Directors and is currently expected to be completed on November 30, 2018. As part of the new structure, the Company plans to provide voting rights to common shareholders through a multi-class high-low voting structure. Since March 1, 2018, Ares Management, L.P. has been treated as a corporation for federal and state income tax purposes and ownership of our shares does not generate any unrelated business taxable income (UBTI) or income effectively connected with a U.S. trade or business (ECI). The planned legal conversion does not impact this treatment. As of March 1, 2018, dividends are reported on Form 1099 DIV and shareholders may be eligible for the favorable tax rates applicable to qualified dividend income. The planned legal conversion to a Delaware corporation does not impact this treatment.(6) New U.S. GAAP Guidance for Revenue Recognition: Effective January 1, 2018, Ares adopted ASC 606, the new GAAP guidance on revenue recognition, and implemented a change in accounting principle related to carried interest allocation. This resulted in no material change to Ares’s GAAP or non-GAAP earnings. In connection with the adoption and change in accounting principle, Ares now accounts for carried interest allocation under the GAAP guidance for equity method investments, presents carried interest allocation on the income statement as a separate line item and within investments on the balance sheet and presents incentive fee separately on the income statement. All prior periods have been modified to conform with these changes. No assurance can be made that such results will be achieved. 1. As of September 30, 2018, unless otherwise noted. 2. Ares bank loan and high yield strategies are typically benchmarked against the Credit Suisse Leveraged Loan Index (“CSLLI”) and the BofA Merrill Lynch U.S. High Yield Master II Index (“H0A0”), respectively. While the other credit strategies cited above are absolute return focused, our bank loan and high yield funds seek to outperform these respective indices over market cycles. Q3-18 returns for the CSLLI and the H0A0 were 1.9% and 2.4%, respectively. NOTE: Certain of Ares funds are not benchmarked against any particular index due to fund specific portfolio constraints. 3. Most recent data available as of October 22, 2018. 4. As of March 16, 2018 for ARCC, April 12, 2018 for ACRE and April 16, 2018 for ARDC. 5. Includes funds managed or co-managed by Ares. Also includes funds managed by IHAM, a wholly owned portfolio company of ARCC, and a registered investment adviser. 6. Investors owning our common shares between January 1, 2018 and February 28, 2018 will receive a final Schedule K-1 for this period. 33
RI, ENI and Other Measures –Financial Data(1) $ in thousands Year ended December 31, 2017 2016 (2) Credit Group $481,466 $444,664 Private Equity Group 198,498 147,790 Real Estate Group 64,861 66,997 Management fees $744,825 $659,451 Other fees $22,431 $12,351 Compensation and benefits expenses(3) (413,735) (384,715) General, administrative and other expense(4) (136,531) (114,737) Fee Related Earnings $216,990 $172,350 Realized Income $325,440 $300,328 Economic Net Income $467,707 $356,983 Net performance income $163,980 $133,624 Net investment income 86,737 51,009 Performance Related Earnings $250,717 $184,633 Other Data Total Fee Revenue $908,805 $793,075 Management Fees as % of Total Fees 82% 83% Fee Related Earnings as % of Economic Net Income 46% 48% Fee Related Earnings as % of Realized Income 67% 57% 1. Unconsolidated results represent the operating segments plus the Operations Management Group but exclude the effect of Consolidated Funds. 2. Includes ARCC Part I Fees of $105.5 million and $121.2 million for the years ended December 31, 2017 and 2016, respectively. 3. Compensation and benefits expenses are presented net of expense reimbursements of $23.9 million for the year ended December 31, 2016 that were previously presented as administrative and other fees. 4. G&A expenses are presented net of expense reimbursements of $3.0 million for the year ended December 31, 2016 that were previously presented as administrative and other fees. 34
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis $ in thousands Year ended December 31, 2017 2016 Economic Net Income and Fee Related Earnings: Income before taxes $149,859 $297,920 Adjustments: Amortization of intangibles 17,850 26,638 Depreciation expense 12,631 8,215 Equity compensation expenses 69,711 39,065 Acquisition and merger-related expenses 259,899 (16,902) Placement fees and underwriting costs 19,765 6,424 Offering costs 688 — Other expense, net (1,730) (1,728) Expense of non-controlling interest in consolidated subsidiary 1,739 — Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations (62,705) (2,649) Economic Net Income $467,707 $356,983 Unconsolidated performance income - unrealized ($325,915) ($228,472) Unconsolidated performance related compensation expense - unrealized 237,392 189,582 Unconsolidated net investment income -unrealized (53,744) (17,765) Realized Income $325,440 $300,328 Unconsolidated performance income - realized ($317,787) ($292,998) Unconsolidated performance related compensation expense - realized 242,330 198,264 Unconsolidated net investment income - realized (32,993) (33,244) Fee Related Earnings $216,990 $172,350 Performance Related Earnings Economic Net Income $467,707 $356,983 Less: Fee Related Earnings (216,990) (172,350) Performance Related Earnings $250,717 $184,633 Note: This table is a reconciliation of income before provision for income taxes on a consolidated basis to RI, ENI, FRE and PRE on unconsolidated basis, which shows the results of the reportable segments on a combined basis together with the Operations Management Group. Management believes that this presentation is more meaningful than a reconciliation to the reportable segments on a segment basis because such reconciliation would exclude the Operations Management Group. 35
GAAP to Non-GAAP Reconciliation – Unconsolidated Reporting Basis (cont.) $ in thousands Year ended December 31, 2017 2016 Performance income and net investment income reconciliation: Unconsolidated performance income - realized $317,787 $292,998 Performance income - realized earned from Consolidated Funds (8,089) — Performance income - realized reclass(1) (2,721) (7,367) Unconsolidated performance income - unrealized 325,915 228,472 Performance income - unrealized earned from Consolidated Funds 2,997 (1,139) Performance income - unrealized reclass(1) 785 4,888 Total GAAP carried interest allocation and incentive fees $636,674 $517,852 Unconsolidated net investment income $86,737 $51,009 Net investment income from Consolidated Funds 153,810 37,484 Performance income - reclass (1) 1,936 2,479 Principal investment income (89,031) (50,408) Change in value of contingent consideration 20,156 17,675 Other non-cash expense 1,730 1,728 Offering costs (688) — Other income of non-controlling interests in consolidated subsidiaries 24 — GAAP total other income $174,674 $59,967 Note: These tables tables reconciles unconsolidated performance income to our consolidated carried interest allocation and incentive fees reported in accordance with GAAP and unconsolidated other income to our consolidated GAAP other income. These reconciliations show the results of the reportable segments on a combined basis together with the Operations Management Group. Management believes that this presentation is more meaningful than a reconciliation to the reportable segments on a segment basis because such reconciliation would exclude the Operations Management Group. Differences may arise due to rounding. 1. Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations. 36
Glossary ARCC Part I Fees ARCC Part I Fees refers to a quarterly performance income on the investment income from ARCC. ARCC Part II Fees ARCC Part II Fees refers to fees based on ARCC's net capital gains, which are paid annually. Ares Operating Group Units Ares Operating Group Unit refers to, collectively, a partnership unit in each of the Ares Operating Group entities. Assets Under Management Assets Under Management (or “AUM”) refers to the assets we manage. For our funds other than CLOs, our AUM represents the sum of the net asset value of such funds, the drawn and undrawn debt (at the fund level including amounts subject to restrictions) and uncalled committed capital (including commitments to funds that have yet to commence their investment periods). For our funds that are CLOs, our AUM represents subordinated notes (equity) plus all drawn and undrawn debt tranches. AUM Not Yet Earning Fees AUM Not Yet Earning Fees, also referred to as Shadow AUM, is our AUM that is not currently generating fees and is eligible to earn management fees upon deployment. Available Capital Available Capital is comprised of uncalled committed capital and undrawn amounts under credit facilities and may include AUM that may be canceled or not otherwise available to invest (also referred to as "Dry Powder"). Consolidated Funds Consolidated Funds refers collectively to certain Ares-affiliated funds, related co-investment entities and certain CLOs that are required under GAAP to be consolidated in our consolidated financial statements. Economic Net Income Economic Net Income (or “ENI”), a non-GAAP measure, is an operating metric used by management to evaluate total operating performance, a decision tool for deployment of resources, and an assessment of the performance of our business segments. ENI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, and (e) certain other items that we believe are not indicative of our total operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers and acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to Fee Related Earnings and Realized Income for the current period. Fee Paying Assets Under Fee Paying AUM (or “FPAUM”) refers to the AUM on which we directly earn management fees. Fee Paying AUM is equal to the Management sum of all the individual fee bases of our funds that directly contribute to our management fees. Fee Related Earnings Fee Related Earnings (or “FRE”), a non-GAAP measure, refers to a component of ENI that is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it adjusts for the items included in the calculation of ENI and excludes performance income, performance related compensation, investment income from our Consolidated Funds and non-consolidated funds and certain other items that we believe are not indicative of our performance. Gross Invested Capital Gross Invested Capital refers to the aggregate amount of new capital invested by our funds during a given period, and includes investments made by our draw-down funds and permanent capital vehicles (and affiliated funds) and new capital raised and invested by our open-ended managed accounts, sub-advised accounts and CLOs, but excludes capital that is reinvested (after receiving repayments of capital) by our open-ended managed accounts, sub-advised accounts and CLOs. 37
Glossary (cont’d) Incentive Generating Assets Incentive generating AUM (or “IGAUM”) refers to the AUM of our funds that are currently generating, on a realized or unrealized Under Management basis, performance income. It generally represents the NAV or total assets of our funds, as applicable, for which we are entitled to receive performance income, excluding capital committed by us and our professionals (from which we do not earn performance income). With respect to ARCC, only ARCC Part II Fees may be generated from IGAUM. Incentive Eligible Assets Incentive eligible AUM (or “IEAUM”) refers to the AUM of our funds that are eligible to produce performance income, regardless of Under Management whether or not they are currently generating performance income. It generally represents the NAV plus uncalled equity or total assets plus uncalled debt, as applicable, of our funds for which we are entitled to receive a performance income, excluding capital committed by us and our professionals (which generally is not subject to a performance income). Net Inflows of Capital Represents net new commitments during the period, including equity and debt commitments and gross inflows into our open-ended managed accounts and sub-advised accounts, as well as equity offerings by our publicly traded vehicles minus redemptions from our open-ended funds, managed accounts and sub-advised accounts. Operations Management In addition to our three segments, we have an Operations Management Group (the “OMG”) that consists of five independent, shared Group resource groups to support our reportable segments by providing infrastructure and administrative support in the areas of accounting/ finance, operations/information technology, business development/corporate strategy, legal/compliance and human resources. The OMG’s expenses are not allocated to our three reportable segments but we consider the cost structure of the OMG when evaluating our financial performance. Our management uses this information to assess the performance of our reportable segments and OMG, and we believe that this information enhances the ability of shareholders to analyze our performance. Our Funds Our funds refers to the funds, alternative asset companies, co-investment vehicles and other entities and accounts that are managed or co-managed by the Ares Operating Group, and which are structured to pay fees. It also includes funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of ARCC, and a registered investment adviser. Performance Income Performance income refers to income we earn based on the performance of a fund, which is generally based on certain specific hurdle rates as defined in the fund’s investment management or partnership agreements and may be structured as either an incentive fee or as carried interest. Performance Related Performance related earnings (or “PRE”) , a non-GAAP measure, is used to assess our investment performance net of performance Earnings related compensation. PRE differs from income (loss) before taxes computed in accordance with GAAP as it only includes performance income, performance related compensation and total investment and other income that we earn from our Consolidated Funds and non-consolidated funds. Permanent Capital Permanent capital refers to capital of our funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law. Such funds currently consist of Ares Capital Corporation (“ARCC”), Ares Commercial Real Estate Corporation (“ACRE”), and Ares Dynamic Credit Allocation Fund, Inc. (“ARDC”); such funds may be required, or elect, to return all or a portion of capital gains and investment income. 38
Glossary (cont’d) Realized Income Realized income (or “RI”), a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that we believe are not indicative of our operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to RI for the current period. Prior to the introduction of RI, management used distributable earnings for this evaluation. Management believes RI is a more appropriate metric to evaluate the Company's current business operations. Senior Direct Lending Senior Direct Lending Program (or ‘‘SDLP’’) is a program co-managed by a subsidiary of Ares through which ARCC co-invests with Program Varagon Capital Partners. Shares or Units Effective March 1, 2018, in connection with the corporate tax status election, the company will now refer to common units and preferred units issued by Ares Management, L.P. as common shares and preferred shares, respectively. Syndicated Loans Strategy Syndicated loans strategy refers to a diversified portfolio of liquid, traded non-investment grade secured loans to corporate issuers, including an allocation to syndicated middle market loans. Total Fee Revenue Total fee revenue refers to the sum of segment management fees and net performance income. 39