Ares Management Third Quarter 2024 Earnings Analysis

 

Ares Management Corp, the leading alternative investment manager reported strong third quarter 2024 earnings results. Ares Management is undervalued, according to Wolfteam Ltd.'s projections and estimates.

Ares reported 280.653 million USDs in net income on 1.129739 billion USDs in revenue for the third quarter of 2024.

Of the 463.8 billion USDs in assets under management 124.1 billion USD are so called perpetual capital from mainly the proprietary owned Ares Management insurance business.

Like other leading private equity firms as Blackstone, KKR, Apollo, Carlyle etc. Ares Management owns an insurance business and uses the so called perpetual or long-term capital of insurance fees premiums the insurance business provides to invest in its credit, real estate and secondaries groups.

This ingenious usage of long-term capital enables Ares Management to invest hundreds of billions of USDs in long-term, otherwise called perpetual capital and earn income on it for 10 years +.

Wall Street equity research analysts, when they build models of private equity investment management firms' income statement, balance sheet and cash flow statements assume that leading private equity firms will not earn any investment income on their managed capital piles. Wall Street research analysts model that by inputting 0, zero as investment gains in their Excel investment models.

History has shown that the aforementioned assumption is by and large erroneous and leading private equity firms do return capital on their investment capital. Lately helped by the long-term nature or perpetual insurance fee premiums.

Ares is a case in point with 124.1 billion in invested perpetual capital from insurance fees is a case in point.

4
Three months ended September 30, Nine months ended September 30,
$ in thousands, except share data 2024 2023 2024 2023
Revenues
Management fees $753,597 $637,517 $2,162,970 $1,853,304
Carried interest allocation 277,651 (28,126) 194,006 541,828
Incentive fees 48,638 16,454 105,039 33,327
Principal investment income 8,036 9,339 44,547 38,985
Administrative, transaction and other fees 41,817 36,071 119,222 110,459
Total revenues 1,129,739 671,255 2,625,784 2,577,903
Expenses
Compensation and benefits 435,876 367,502 1,268,685 1,095,833
Performance related compensation 219,697 (25,448) 140,180 401,990
General, administrative and other expenses 197,019 211,842 537,379 501,340
Expenses of Consolidated Funds 2,295 7,064 11,680 28,171
Total expenses 854,887 560,960 1,957,924 2,027,334
Other income (expense)
Net realized and unrealized gains (losses) on investments (5,074) (1,770) 13,781 5,226
Interest and dividend income 7,553 4,752 19,952 11,281
Interest expense (29,733) (25,975) (105,057) (76,800)
Other income (expense), net (18,805) 5,742 (19,473) (1,068)
Net realized and unrealized gains on investments of Consolidated Funds 64,831 79,591 192,778 188,717
Interest and other income of Consolidated Funds 234,681 255,600 732,316 712,992
Interest expense of Consolidated Funds (201,199) (201,363) (626,678) (540,954)
Total other income, net 52,254 116,577 207,619 299,394
Income before taxes 327,106 226,872 875,479 849,963
Income tax expense 46,453 29,898 114,760 113,418
Net income 280,653 196,974 760,719 736,545
Less: Net income attributable to non-controlling interests in Consolidated Funds 64,241 80,289 236,446 174,663
Net income attributable to Ares Operating Group entities 216,412 116,685 524,273 561,882
Less: Net income (loss) attributable to redeemable interest in Ares Operating Group entities 1,319 758 1,005 (332)
Less: Net income attributable to non-controlling interests in Ares Operating Group entities 96,633 54,104 236,843 261,838
Net income attributable to Ares Management Corporation Class A and non-voting common
stockholders $118,460 $61,823 $286,425 $300,376
Net income per share of Class A and non-voting common stock:
Basic $0.55 $0.30 $1.31 $1.54
Diluted $0.55 $0.30 $1.31 $1.54
Weighted-average shares of Class A and non-voting common stock:
Basic 200,724,068 186,218,638 196,526,832 182,757,955
Diluted 200,724,068 186,218,638 196,526,832 182,757,955

Perpetual Capital
Perpetual Capital AUM
Perpetual Capital as of September 30, 2024 was $124.1 billion, an increase of 20% from prior year
• The increase of $20.4 billion was primarily driven by:
◦ commitments to certain funds and SMAs in our alternative credit and U.S. and European direct lending strategies;
◦ capital raised by our business development companies, AESIF and APMF; and
◦ additional managed assets from our insurance platform

Ares Management's intrinsic worth is 70 billion USD compared with Ares Management's current market capitalization of 52.98 billion USD, according to Wolfteam Ltd.'s projections and estimates.