What Ares Management (ARES) Said on Its Q3 Earnings Call

Key Points

• Ares Management reported broad-based growth in Q3: assets under management rose 16% year over year to $691 billion, while fee-paying AUM increased 13% to $416 billion. Fee-related earnings climbed to $524 million, with a 42.5% margin, and the company raised its quarterly dividend by more than 20%.
• Fundraising remained strong across multiple strategies. Ares raised more than $31 billion during the quarter, including commitments in direct lending, infrastructure, real estate and secondaries; management also cited $174 billion of available capital, with more than $800 million of potential incremental annual management fees.
• Deployment is shifting toward Europe, alternative credit and infrastructure as muted U.S. M&A activity temporarily slows direct lending. Credit performance remained resilient, while Ares continues to target data centers and power infrastructure as demand from artificial intelligence drives significant expected investment needs.

Ares Management NYSE: ARES reported third-quarter results marked by continued growth in assets under management, fundraising and fee-related earnings, while management said its diversified investment platform helped offset uneven transaction activity in certain markets.

The company ended the quarter with $691 billion of assets under management, up 16% from a year earlier, and $416 billion of fee-paying AUM, up 13%. Ares invested $35 billion during the quarter and raised more than $31 billion of gross capital, according to Chief Executive Officer Michael Arougheti.

Ares also declared a quarterly dividend of $1.35 per share on its Class A and non-voting common stock, an increase of more than 20% from the dividend paid for the same quarter a year earlier. The dividend is payable Dec. 31 to shareholders of record on Dec. 17.

Fee Earnings Rise as Fundraising Broadens

Management fees were nearly $1.1 billion in the third quarter, a 10% increase from the prior-year period. Chief Financial Officer Jarrod Phillips said the growth reflected deployment in European direct lending and alternative credit, fundraising in perpetual vehicles, and expansion across real assets businesses.

Fee-related earnings totaled $524 million, while the fee-related earnings margin reached 42.5%, compared with 41.4% a year earlier. For the first nine months of 2026, fee-related earnings rose 19% to $1.5 billion and the margin expanded by about 100 basis points to 42.4%.

After-tax realized income per share was $1.26 for the quarter. Through the first nine months, realized income increased 20% to $1.5 billion, and after-tax realized income per share rose 15% to $3.79.

Phillips said Ares expects full-year fee-related earnings growth to fall within its 16% to 20% annualized target range. The company expects 2026 fee-related earnings margin expansion to come in slightly above the midpoint of its 0 to 150 basis-point annual target range. A later-than-expected first close for its digital infrastructure fund reduced expected margin benefits this year, but management expects greater contributions in 2027, including catch-up fees.

Ares ended the quarter with $174 billion of available capital. Of that amount, $117 billion was not yet generating fees, including roughly $94 billion available for deployment. Phillips said deployment or stabilization of the relevant assets could generate more than $800 million in potential incremental annual management fees, subject to assumptions disclosed in the company’s earnings materials.

Direct Lending, Infrastructure and Real Estate Fundraising

Ares raised nearly $15 billion in credit during the quarter despite having no limited partner closings in its large flagship commingled credit fund families. The capital came from open-ended institutional funds, separately managed accounts and wealth vehicles.

The company recently held a first close totaling more than $8 billion of equity commitments for its latest U.S. senior direct lending institutional funds. Ares said the combined first close for its fourth closed-end U.S. senior direct lending fund and first institutional open-ended core product represented 80% of its target and was 60% larger than the prior vintage’s first close. Including anticipated fund-level leverage, the closings represent about $15 billion of total investable capital.

In real estate, Ares completed the final close of its fifth Japan Logistics Development Fund at its $4 billion hard cap. The fund was oversubscribed and nearly 50% larger than its predecessor. The company also launched its fifth U.S. opportunistic real estate equity fund and reported nearly $3 billion of year-to-date LP equity commitments for its real estate debt platform.

Infrastructure fundraising included approximately $2.7 billion of equity commitments in Ares’ open-ended core infrastructure fund during the third quarter. Arougheti said it was the largest quarterly wealth-channel fundraising amount for any Ares fund. The core infrastructure fund had about $8.5 billion of AUM at quarter-end.

In secondaries, Ares’ inaugural Global Structured Solutions fund closed with $4.2 billion of total capital, exceeding its initial $1 billion target. The firm also expects its 10th real estate secondaries fund to complete a first close by year-end at more than half of its initial $2.5 billion target.

Deployment Shifts as U.S. Direct Lending Activity Improves

Arougheti said the company’s most active deployment areas during the quarter were European direct lending, alternative credit and infrastructure equity. U.S. direct lending was slower because of muted merger-and-acquisition activity, but he said transactions had begun closing early in the fourth quarter and the pipeline remained at record levels.

“I don’t read across high rates to mean slower deployment,” Arougheti said in response to an analyst question. He pointed to the aging base of private equity-owned companies and private equity dry powder, while noting that slower primary-market activity can create opportunities in opportunistic credit, secondaries, credit secondaries and GP solutions.

Ares agreed to purchase a $1.1 billion direct lending portfolio from an institutional investor, with the transaction expected to close through the fourth quarter. Arougheti said the portfolio was largely performing rather than distressed and that the firm could see additional portfolio-acquisition opportunities as investors reposition holdings.

The company also referenced Ares Capital Corporation’s announced acquisition of MidCap Financial Investment Corporation, which is expected to close in the first half of 2027, subject to customary conditions and shareholder approval.

Credit Performance and Rate Outlook

Ares said 83% of debt assets in its credit group were floating rate at quarter-end. Arougheti said higher base rates generally support returns for credit fund investors and profitability for the firm, though they also increase borrowers’ interest expense.

The company reported interest coverage of 2.1 times in its U.S. direct lending portfolio and 2.3 times in its European direct lending portfolio. U.S. direct lending non-accruals improved to 1.8% from 1.9% in the preceding quarter. Loan-to-value ratios remained near historic lows in the mid-40% range, Phillips said.

For the quarter, Ares reported gross returns of 3.6% for its Pathfinder alternative credit series, 3.3% for U.S. senior direct lending, 2.2% for European direct lending, 5% for APAC credit and 3.7% for infrastructure equity.

Realized net performance income was $12 million in the quarter. The company now expects full-year realized performance income of $300 million to $325 million, implying $160 million to $185 million in the fourth quarter. Phillips said roughly 90% of expected fourth-quarter performance income would come from European waterfall-style funds and that much of the expected amount was based on anticipated payments from existing credit-fund portfolios rather than a substantial pickup in transaction activity.

Digital Infrastructure Focuses on Data Centers and Power

Arougheti said Ares sees more than $5 trillion of estimated capital expenditure needs through 2030 tied to digital infrastructure and artificial intelligence. He said about $2 trillion relates to physical data centers, power generation and transmission, while roughly $3 trillion concerns GPUs and chips.

The firm is concentrating its digital infrastructure strategy on data centers and related power infrastructure rather than GPU financing. Arougheti said Ares is targeting projects in major markets including Tokyo, Osaka, London, Atlanta, Amsterdam and São Paulo, with facilities pre-leased to investment-grade hyperscale counterparties under 12- to 15-year leases with no termination provisions and inflation escalators.

Blair Jacobson, co-president of Ares, said the firm’s projects are generally distinct from financings that have faced pressure in bond markets because Ares is pursuing pre-leased projects with stronger counterparties and financing needs typically in the $3 billion to $5 billion range.

About Ares Management (NYSE:ARES)

Ares Management Corporation NYSE: ARES is a global alternative investment manager that provides investment solutions across credit, private equity, real assets and secondaries. The company manages capital on behalf of institutional investors, pension funds, insurance companies, sovereign wealth funds, family offices and individual investors.

Its investment activities include direct lending and other credit strategies, control and minority investments in private companies, real estate and infrastructure investments, and secondary-market transactions involving private assets and fund interests.

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