ares_Current folio

Forward‑Looking Statements

This report contains forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward‑looking statements by the use of forward‑looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. The forward‑looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward‑looking statements are subject to various risks, and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. Some of these factors are described in this form under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the risk factors and other cautionary statements that are included in this form and in our other periodic filings. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these forward‑looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Therefore, you should not place undue reliance on these forward‑looking statements. Any forward‑looking statement speaks only as of the date on which it is made. We do not undertake any obligation to publicly update or review any forward‑looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Under generally accepted accounting principles in the United States (“GAAP”), we are required to consolidate (a) entities other than limited partnerships and entities similar to limited partnerships in which we hold a majority voting interest or have majority ownership and control over the operational, financial and investing decisions of that entity, including Ares‑affiliates and affiliated funds and co‑investment entities, for which we are presumed to have controlling financial interests, and (b) entities that we concluded are variable interest entities (“VIEs”), including limited partnerships and CLOs, for which we are deemed to be the primary beneficiary. When an entity is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the entity in our condensed consolidated financial statements on a gross basis, subject to eliminations from consolidation, including the elimination of the management fees, performance fees and other fees that we earn from the entity. However, the presentation of performance fee compensation and other expenses associated with generating such revenues is not affected by the consolidation process. In addition, as a result of the consolidation process, the net income attributable to third‑party investors in consolidated entities is presented as net income attributable to redeemable interests and non‑controlling interests in Consolidated Funds in our Condensed Consolidated Statements of Operations.

In this form, in addition to presenting our results on a consolidated basis in accordance with GAAP, we present revenues, expenses and other results on a (i) “segment basis,” which deconsolidates these entities and therefore shows the results of our reportable segments without giving effect to the consolidation of the entities and (ii) “Stand Alone basis,” which shows the results of our reportable segments on a combined segment basis together with our Operations Management Group. In addition to our three segments, we have an Operations Management Group (the “OMG”) that consists of five independent, shared resource groups to support our reportable segments by providing infrastructure and administrative support in the areas of accounting/finance, operations/information technology, business development, 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. This information constitutes non‑GAAP financial information within the meaning of Regulation G, as promulgated by the SEC. Our management uses this information to assess the performance of our reportable segments and our OMG, and we believe that this information enhances the ability of unitholders to analyze our performance. For more information, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Consolidation and Deconsolidation of Ares Funds,” “—Managing Business Performance—Non‑GAAP Financial Measures” and “—Segment Analysis—ENI and Other Measures.”

Glossary

When used in this report, unless the context otherwise requires:

“ARCC Part I Fees” refers to a quarterly performance fee on the investment income from Ares Capital Corporation (NASDAQ: ARCC) (“ARCC”)

“Ares Operating Group Unit” or an “AOG Unit” refer to, collectively, a partnership unit in each of the Ares Operating Group entities.

“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;

“CLOs” refers to “our funds” which are structured as collateralized loan obligations;

“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 condensed consolidated financial statements;

“distributable earnings” or “DE”, a non-GAAP measure, is an operating metric that assesses our performance without the effects of our consolidated funds and the impact of unrealized income and expenses, which generally fluctuate with fair value changes. Among other things, this metric also is used to assist in determining amounts potentially available for distribution. However, the declaration, payment, and determination of the amount of distributions to unitholders, if any, is at the sole discretion of our Board of Directors, which may change our distribution policy at any time. Distributable earnings is calculated as the sum of Fee Related Earnings, realized performance fees, realized performance fee compensation, realized net investment and other income, and is reduced by expenses arising from transaction costs associated with acquisitions, placement fees and underwriting costs, expenses incurred in connection with corporate reorganization and depreciation. Distributable earnings differs from income before taxes computed in accordance with GAAP as it is typically presented before giving effect to unrealized performance fees, unrealized performance fee compensation, unrealized net investment income, amortization of intangibles, and equity compensation expense. DE is presented prior to the effect of income taxes, unless otherwise noted;

“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, placement fees and underwriting costs and expenses incurred in connection with corporate reorganization;

“fee earning AUM” or “FEAUM” refers to the AUM on which we directly or indirectly earn management fees. Fee earning AUM is equal to the sum of all the individual fee bases of our funds that contribute directly or indirectly to our management fees;

“fee paying AUM” or “FPAUM” refers to the AUM on which we directly earn management fees. Fee paying AUM is equal to the sum of all the individual fee bases of our funds that directly contribute to our management fees;

“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 fees, performance fee compensation, investment income from our Consolidated Funds and non-consolidated funds and certain other items that we believe are not indicative of our performance;

“management fees” refers to fees we earn for advisory services provided to our funds, which are generally based on a defined percentage of fair value of assets, total commitments, invested capital, net asset value, net investment income, total assets or par value of the investment portfolios managed by us and also include ARCC Part I Fees that are classified as management fees as they are predictable and recurring in nature, not subject to contingent repayment and generally cash‑settled each quarter;

“net performance fees” refers to performance fees net of performance fee compensation, which is the portion of the performance fees earned from certain funds that is payable to professionals;

“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 fees” refers to fees we earn based on the performance of a fund, which are generally based on certain specific hurdle rates as defined in the fund’s investment management or partnership agreements and may be either an incentive fee or carried interest; and

“performance related earnings” or “PRE”, a non-GAAP measure, is used to assess our investment performance net of performance fee compensation. PRE differs from income (loss) before taxes computed in accordance with GAAP as it only includes performance fees, performance fee compensation and total investment and other income earned from our Consolidated Funds and non-consolidated funds;

“Credit Facility” refers to revolving credit facility of the Ares Operating Group;

“SEC” refers to Securities and Exchange Commission;

“Senior Notes” refers to senior notes of a wholly owned subsidiary of Ares Holding;

“Term Loan” refers to term loan of a wholly owned subsidiary of AM LLC;

Many of the terms used in this report, including AUM, FEAUM, FPAUM, ENI, FRE, PRE and DE, may not be comparable to similarly titled measures used by other companies. In addition, our definitions of AUM and FEAUM and FPAUM are not based on any definition of AUM, FEAUM or FPAUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM set forth in other agreements to which we are a party. Further, ENI, FRE, PRE and DE are not measures of performance calculated in accordance with GAAP. We use ENI, FRE, PRE and DE as measures of operating performance, not as measures of liquidity. ENI, FRE, PRE and DE should not be considered in isolation or as substitutes for operating income, net income, operating cash flows, or other income or cash flow statement data prepared in accordance with GAAP. The use of ENI, FRE, PRE and DE without consideration of related GAAP measures is not adequate due to the adjustments described above. Our management compensates for these limitations by using ENI, FRE, PRE and DE as supplemental measures to our GAAP results. We present these measures to provide a more complete understanding of our performance as our management measures it.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Ares Management, L.P.

Condensed Consolidated Statements of Financial Condition

(Amounts in Thousands, Except Unit Data)


	As of June 30,		As of December 31,
	2016		2015
	(unaudited)
Assets
Cash and cash equivalents	$	264,588	$	121,483
Investments (includes fair value investments of $463,530 and $446,779 at June 30, 2016 and December 31, 2015, respectively)		484,537		468,287
Performance fees receivable		626,064		534,661
Due from affiliates		166,039		144,982
Other assets		65,160		62,975
Intangible assets, net		70,568		84,971
Goodwill		143,855		144,067
Assets of Consolidated Funds:
Cash and cash equivalents		233,532		159,507
Investments, at fair value		2,529,173		2,559,783
Due from affiliates		10,125		12,923
Dividends and interest receivable		9,545		13,005
Receivable for securities sold		65,384		13,416
Other assets		3,034		1,348
Total assets	$	4,671,604	$	4,321,408
Liabilities
Accounts payable, accrued expenses and other liabilities	$	104,617	$	102,626
Accrued compensation		91,743		125,032
Due to affiliates		19,096		12,901
Performance fee compensation payable		480,979		401,715
Debt obligations		279,430		389,120
Equity compensation put option liability		20,000		20,000
Deferred tax liability, net		6,628		21,288
Liabilities of Consolidated Funds:
Accounts payable, accrued expenses and other liabilities		10,741		18,951
Payable for securities purchased		162,898		51,778
CLO loan obligations, at fair value		2,168,346		2,174,352
Fund borrowings		12,484		11,734
Total liabilities		3,356,962		3,329,497
Commitments and contingencies
Redeemable interest in Ares Operating Group entities		23,521		23,505
Preferred equity (12,400,000 units issued and outstanding at June 30, 2016)		298,971		—
Non-controlling interest in Consolidated Funds:
Non-controlling interest in Consolidated Funds		334,207		320,238
Equity appropriated for Consolidated Funds		—		3,367
Non-controlling interest in Consolidated Funds		334,207		323,605
Non-controlling interest in Ares Operating Group entities		397,640		397,883
Controlling interest in Ares Management, L.P. :
Partners' Capital (80,791,108 units and 80,697,600 units issued and outstanding at June 30, 2016 and at December 31, 2015, respectively)		268,835		251,537
Accumulated other comprehensive loss		(8,532)		(4,619)
Total controlling interest in Ares Management, L.P		260,303		246,918
Total equity		1,291,121		968,406
Total liabilities, redeemable interest, non-controlling interests and equity	$	4,671,604	$	4,321,408

See accompanying notes to the condensed consolidated financial statements.

Ares Management, L.P.

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Unit Data)

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Revenues
Management fees (includes ARCC Part I Fees of $28,999, $57,624 and $29,250, $58,292 for the three and six months ended June 30, 2016 and 2015, respectively)	$	158,521	$	156,589	$	316,954	$	315,290
Performance fees		203,151		77,649		173,204		182,574
Administrative and other fees		7,863		6,926		15,392		13,205
Total revenues		369,535		241,164		505,550		511,069
Expenses
Compensation and benefits		112,654		99,085		223,333		200,936
Performance fee compensation		151,896		56,544		130,566		132,936
General, administrative and other expenses		38,686		53,331		78,648		98,878
Consolidated Funds' expenses		699		3,609		926		14,282
Total expenses		303,935		212,569		433,473		447,032
Other income (expense)
Net interest and investment income (net of interest expense of $4,828, $9,683 and $3,654, $7,338 for the three and six months ended June 30, 2016 and 2015, respectively)		4,993		2,646		1,634		4,059
Other income (expense), net		5,673		(1,693)		10,914		(3,568)
Net realized and unrealized gain (loss) on investments		(3,151)		4,880		1,991		19,719
Net interest and investment income of the Consolidated Funds (net of interest expense of $18,607, $41,056 and $19,043, $36,144 for the three and six months ended June 30, 2016 and 2015, respectively)		9,690		12,637		17,022		21,542
Net realized and unrealized gain (loss) on investments of Consolidated Funds		201		10,486		(29,606)		(1,788)
Total other income		17,406		28,956		1,955		39,964
Income before taxes		83,006		57,551		74,032		104,001
Income tax expense (benefit)		(4,434)		6,103		231		10,162
Net income		87,440		51,448		73,801		93,839
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds		1,054		12,629		(10,925)		1,515
Less: Net income attributable to redeemable interests in Ares Operating Group entities		339		185		349		428
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		48,473		26,548		49,893		61,354
Net income attributable to Ares Management, L.P.	$	37,574	$	12,086	$	34,484	$	30,542
Net income attributable to Ares Management, L.P. per common unit:
Basic	$	0.46	$	0.15		0.42		0.37
Diluted	$	0.46	$	0.15		0.42		0.37
Weighted-average common units
Basic		80,715,723		80,671,316		80,699,387		80,669,527
Diluted		82,332,193		81,720,919		81,752,468		80,669,527
Distribution declared and paid per common unit	$	0.15	$	0.25	$	0.35	$	0.49

Substantially all revenue is earned from affiliated funds of the Company.

See accompanying notes to the condensed consolidated financial statements.

Ares Management, L.P.

Condensed Consolidated Statements of Comprehensive Income

(Amounts in Thousands)

(unaudited)


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Net income	$	87,440	$	51,448	$	73,801	$	93,839
Other comprehensive income:
Foreign currency translation adjustments		(7,628)		4,083		(10,325)		1,134
Total comprehensive income		79,812		55,531		63,476		94,973
Less: Comprehensive income (loss) attributable to non-controlling interests in Consolidated Funds		1,054		12,753		(10,925)		1,540
Less: Comprehensive income attributable to redeemable interests in Ares Operating Group entities		306		205		304		436
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities		43,768		29,008		43,526		62,067
Comprehensive income attributable to Ares Management, L.P.	$	34,684	$	13,565	$	30,571	$	30,930

See accompanying notes to the condensed consolidated financial statements.

Ares Management, L.P.

Condensed Consolidated Statements of Changes in Equity

(Amounts in Thousands)

(unaudited)


									Consolidated Funds
					Accumulated		Non-Controlling		Equity		Non-Controlling
					Other		Interest in Ares		Appropriated		Interest in
		Preferred	Partners'		Comprehensive		Operating		for Consolidated		Consolidated		Total
	Equity		Capital		Loss		Group Entities		Funds		Funds		Equity
Balance at December 31, 2015	$	—	$	251,537	$	(4,619)	$	397,883	$	3,367	$	320,238	$	968,406
Cumulative effect of accounting change due to the adoption of ASU 2014-13		—		—		—		—		(3,367)		—		(3,367)
Issuance of preferred equity		298,971		—		—		—		—		—		298,971
Changes in ownership interests		—		202		—		(949)		—		—		(747)
Deferred tax assets effects arising from allocation of Partners' capital		—		4,089		—		(26)		—		—		4,063
Contributions		—		—		—		—		—		48,122		48,122
Distributions		—		(28,259)		—		(53,840)		—		(23,228)		(105,327)
Net income (loss)		—		34,484		—		49,893		—		(10,925)		73,452
Currency translation adjustment		—		—		(3,913)		(6,367)		—		—		(10,280)
Equity compensation		—		6,782		—		11,046		—		—		17,828
Balance at June 30, 2016	$	298,971	$	268,835	$	(8,532)	$	397,640	$	—	$	334,207	$	1,291,121

See accompanying notes to the condensed consolidated financial statements.

Ares Management, L.P.

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(unaudited)


	Six months ended June 30,
	2016		2015
Cash flows from operating activities:
Net income	$	73,801	$	93,839
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity compensation expense		18,709		15,719
Depreciation and amortization		19,439		31,667
Net realized and unrealized gain on investments		(1,991)		(19,719)
Contingent consideration		204		1,587
Investments purchased		(46,811)		(51,388)
Proceeds from sale of investments		33,553		36,081
Allocable to non-controlling interests in Consolidated Funds:
Receipt of non-cash interest income and dividends from investments		(3,496)		(3,154)
Net realized and unrealized loss on investments		29,606		1,788
Amortization on debt and investments		(1,038)		(140)
Investments purchased		(595,756)		(1,146,831)
Proceeds from sale or pay down of investments		629,085		630,893
Cash flows due to changes in operating assets and liabilities:
Net performance fees receivable		(13,107)		(2,137)
Due to/from affiliates		(21,290)		8,852
Other assets		2,983		30,623
Accrued compensation and benefits		(32,158)		(48,344)
Accounts payable, accrued expenses and other liabilities		1,876		(38,292)
Deferred taxes		(14,660)		1,411
Allocable to non-controlling interest in Consolidated Funds:
Change in cash and cash equivalents held at Consolidated Funds		(74,025)		1,085,596
Cash relinquished with deconsolidation of Consolidated Funds		—		(870,390)
Change in other assets and receivables held at Consolidated Funds		(47,108)		(8,536)
Change in other liabilities and payables held at Consolidated Funds		111,209		(281,978)
Net cash provided by (used in) operating activities		69,025		(532,853)
Cash flows from investing activities:
Acquisitions, net of cash acquired		—		(64,437)
Purchase of furniture, equipment and leasehold improvements, net		(5,273)		(6,768)
Net cash used in investing activities		(5,273)		(71,205)
Cash flows from financing activities:
Other financing activities		(569)		85
Proceeds from credit facility		147,000		80,000
Repayments of credit facility		(257,000)		(30,000)
Proceeds from the issuance of preferred equity, net		298,971		—
Distributions		(82,462)		(119,335)
Allocable to non-controlling interest in Consolidated Funds:
Contributions from non-controlling interests in Consolidated Funds		48,122		107,034
Distributions to non-controlling interests in Consolidated Funds		(23,228)		(48,325)
Borrowings under loan obligations by Consolidated Funds		750		606,536
Repayments under loan obligations by Consolidated Funds		(45,612)		(39,706)
Net cash provided by financing activities		85,972		556,289
Effect of exchange rate changes		(6,619)		444
Net change in cash and cash equivalents		143,105		(47,325)
Cash and cash equivalents, beginning of period		121,483		148,858
Cash and cash equivalents, end of period	$	264,588	$	101,533
Supplemental information:
Ares Management, L.P. and consolidated subsidiaries:
Cash paid during the period for interest	$	8,612	$	5,776
Cash paid during the period for income taxes	$	6,486	$	7,691
Consolidated Funds:
Cash paid during the period for interest	$	24,829	$	15,908
Cash paid during the period for income taxes	$	126	$	284
Non-cash increase in assets and liabilities:
Issuance of AOG Units to non-controlling interest holders in connection with acquisitions	$	—	$	25,468

See accompanying notes to the condensed consolidated financial statements.

1. ORGANIZATION

Ares Management, L.P. (the “Company”), a Delaware limited partnership formed on November 15, 2013, is a leading global alternative asset management firm that operates three distinct but complementary investment groups: the Credit Group, the Private Equity Group and the Real Estate Group. Information about segments should be read together with Note 14, “Segment Reporting.” Subsidiaries of Ares Management LLC (“AM LLC”), a subsidiary of the Company, serve as the general partners and/or investment managers to various investment funds and managed accounts within each investment group (the “Ares Funds”), which are generally organized as pass‑through entities for income tax purposes. Such subsidiaries provide investment advisory services to the Ares Funds in exchange for management fees. Ares is managed and operated by its general partner, Ares Management GP LLC. Unless the context requires otherwise, references to “Ares” or the “Company” refer to Ares Management, L.P. together with its subsidiaries.

The Company is a holding partnership, and the Company’s sole assets are equity interests in Ares Holdings Inc. (“AHI”), Ares Domestic Holdings, Inc. (“Domestic Holdings”), Ares Offshore Holdings, Ltd., AI Holdco LLC (“AI”), and Ares Real Estate Holdings LLC. In this quarterly report, the following of the Company’s subsidiaries are collectively referred to as the “Ares Operating Group”: Ares Domestic Holdings L.P. (“Ares Domestic”), Ares Offshore Holdings L.P. (“Ares Offshore”), Ares Real Estate Holdings L.P. (“Ares Real Estate”), Ares Holdings L.P. (“Ares Holdings”), and Ares Investments L.P. (“Ares Investments”). The Company, indirectly through its wholly owned subsidiaries, is the general partner of each of the Ares Operating Group entities. The Company operates and controls all of the businesses and affairs of and conducts all of its material business activities through the Ares Operating Group.

Non-Controlling Interests in Ares Operating Group Entities

The non-controlling interests in Ares Operating Group (“AOG”) (collectively, the “Ares Operating Group Units” or “AOG Units”) represent a component of equity and net income attributable to the owners of AOG Units that are not held directly or indirectly by the Company. These interests are adjusted for contributions to and distributions from AOG during the reporting period and are allocated income from the Ares Operating Group entities based on their historical ownership percentage for the proportional number of days in the reporting period.

Income Allocation

Income (loss) before taxes is allocated based on each partner’s average daily ownership of the Ares Operating Group entities for each period presented.

As of June 30, 2016, the Company owned a 37.92% direct interest, or 80,791,108 AOG Units, in each of the Ares Operating Group entities; Ares Owners Holding L.P. owns a 56.21% direct interest, or 119,771,334 AOG Units, in each of the Ares Operating Group entities; and an affiliate of Alleghany Corporation (such affiliate, “Alleghany”) owns a 5.87% direct interest, or 12,500,000 AOG Units, in each of the Ares Operating Group entities. For the six months ended June 30, 2016, the daily average ownership of AOG Units in each of the AOG entities by the Company, Ares Owners Holding L.P., and Alleghany was 37.87%, 56.26% and 5.87%, respectively.

Preferred Equity Offering

In June 2016, the Company issued preferred equity consisting of 12,400,000 units designated as Series A Preferred Equity (the “Preferred Equity”), for a total offering price of $310.0 million. When, as and if declared by the Company’s board of directors, distributions on the Preferred Equity will be payable quarterly starting September 2016 at a rate per annum equal to 7.00%. The Preferred Equity may be redeemed at the Company’s option, in whole or in part, at any time on or after June 30, 2021, at a price of $25.00 per unit. The proceeds net of expenses totaling $299.0 million were temporarily used to repay the outstanding balance on the Company’s Credit Facility pending consummation of the ARCC-ACAS Transaction (see Note 9). If the ARCC-ACAS Transaction is not consummated, the Company intends to use the

net proceeds for general corporate purposes, including for acquisitions and investments and for temporary repayments of borrowings under the Credit Facility.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and instructions to the Quarterly Report on Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

The condensed consolidated financial statements include the accounts and activities of the AOG entities, their consolidated subsidiaries and certain Consolidated Funds. These Consolidated Funds include certain Ares-affiliated funds, related co-investment entities and collateralized loan obligations (“CLOs”) (collectively, the “Consolidated Funds”) managed by AM LLC and its wholly owned subsidiaries that have been consolidated pursuant to GAAP. Including the results of the Consolidated Funds significantly increases the reported amounts of the assets, liabilities, revenues, expenses and cash flows in the accompanying condensed consolidated financial statements; however, the Consolidated Funds results included herein have no direct effect on the net income attributable to controlling interests or on total controlling equity. Instead, economic ownership interests of the investors in the Consolidated Funds are reflected as non-controlling interests in Consolidated Funds in the accompanying condensed consolidated financial statements. Further, cash flows allocable to non-controlling interest in Consolidated Funds are specifically identifiable in the Condensed Consolidated Statements of Cash Flows. All intercompany balances and transactions have been eliminated upon consolidation.

The Company has reclassified certain prior period amounts to conform to the current presentation.

Equity Appropriated for Consolidated Funds and Adoption of ASU 2014-13

Effective January 1, 2016, the Company adopted FASB Accounting Standards Update (“ASU”) No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”). The Company applied the guidance using a modified retrospective approach by recording a cumulative-effect adjustment of $3.4 million to equity appropriated for Consolidated Funds as of January 1, 2016.

Prior to the adoption of ASU 2014-13, the Company elected the fair value option for eligible liabilities to mitigate the accounting mismatch between the carrying value of the assets and liabilities of its consolidated CLOs. As a result, the Company accounted for the excess of fair value of assets over liabilities as an increase in equity appropriated for Consolidated Funds.

Pursuant to the adoption of ASU 2014-13, the Company is required to determine whether the fair values of the financial assets or financial liabilities are more observable. Beginning January 1, 2016, the Company has determined that the fair value of the financial assets of the consolidated CLOs, which are mostly Level II assets within the GAAP fair value hierarchy, are more observable than the fair value of the financial liabilities of its consolidated CLOs, which are mostly Level III liabilities. As a result, the financial assets of consolidated CLOs are measured at fair value and the financial liabilities of the consolidated CLOs are measured in consolidation as: (1) the sum of the fair value of the financial assets, and the carrying value of any nonfinancial assets held temporarily, less (2) the sum of the fair value of any beneficial

interests retained by the Company (other than those that represent compensation for services), and the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company).

Equity Compensation

Forfeitures

During the quarter ended March 31, 2016, the Company adopted ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). In accordance with ASU No. 2016-09, the Company elected to recognize share-based award forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific awards forfeited during that period. Prior to the adoption of ASU 2016-09, the Company applied an estimated forfeiture rate as a reduction of current period equity compensation expense.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all ASUs issued. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of adoption. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date. ASU 2015-14 defers the effective date of ASU 2014-09 by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permits early adoption of the standard, but not before the original effective date for fiscal years beginning after December 15, 2016. In March, April and May 2016, the FASB issued additional ASUs clarifying certain aspects of ASU 2014-09. The core principle of ASU 2014-09 was not changed by the additional guidance. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The objective of the guidance in ASU 2016-01 is to enhance the reporting model for financial instruments to provide more decision-useful information. ASU 2016-01 requires an entity to carry all of its investments in equity securities at fair value, and to recognize periodic changes of that fair value in income. This guidance excludes equity method investments, investments that result in the consolidation of the investee and investments for which the entity has elected the practicability exception to the fair value measurement requirements. The guidance should be applied using a cumulative-effect adjustment to the beginning balance of retained earnings as of the beginning of the fiscal year in which the guidance becomes effective. ASU 2016-01 is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods within those reporting periods. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The objective of the guidance in ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and liabilities in the balance sheet and disclosing key information. ASU 2016-02 amends previous lease guidance, which required a lessee to categorize and account for leases as either operating leases or capital leases, and instead requires a lessee to recognize a lease liability and a right-of-use asset on the entity’s balance sheet for all leases with terms that exceed one year. The lease liability and right-of-use asset are to be carried at the present value of remaining expected future lease payments. The guidance should be applied using a modified retrospective approach. ASU 2016-02 is effective for public entities for annual reporting periods beginning after December 15, 2018 and interim periods within those reporting periods, with early

3. GOODWILL AND INTANGIBLE ASSETS

Finite‑Lived Intangible Assets, Net

The Company’s intangible assets include acquired management contracts, client relationships, a trade name, and the future benefits of managing new assets for existing clients that were recognized at fair value as of their acquisition dates.

The following table summarizes the carrying value, net of accumulated amortization, for the Company’s intangible assets:


	Weighted Average
	Amortization Period		As of June 30,		As of December 31,
	at June 30, 2016		2016		2015
Management contracts	2.3	years	$	111,939	$	163,469
Client relationships	12.0	years		38,600		38,600
Trade name	6.0	years		3,200		3,200
				153,739		205,269
Foreign currency translation				(2,529)		(1,436)
Total intangible assets acquired				151,210		203,833
Less: accumulated amortization				(80,642)		(118,862)
Intangible assets, net			$	70,568	$	84,971

Amortization expense associated with intangible assets was $7.1 million and $16.6 million for the three months ended June 30, 2016 and 2015, respectively, and $14.4 million and $27.5 million for the six months ended June 30, 2016 and 2015, respectively, and is included in general, administrative and other expenses within the Condensed Consolidated Statements of Operations. During the first quarter of 2016, the Company removed $51.5 million of intangible assets that were fully amortized.

Goodwill

The following table summarizes the carrying value of the Company's goodwill assets:


			Private		Real
	Credit		Equity		Estate		Total
Balance as of December 31, 2015	$	32,196	$	58,600	$	53,271	$	144,067
Foreign currency translation		—		—		(212)		(212)
Balance as of June 30, 2016	$	32,196	$	58,600	$	53,059	$	143,855

There was no impairment of goodwill recorded as of June 30, 2016 or December 31, 2015.

4. INVESTMENTS

The Company’s investments are comprised of investments at fair value as a result of the election of the fair value option or in accordance with investment company accounting, equity-method investments (using the equity method or fair value option) and held-to-maturity investments.

Fair Value Investments, excluding Equity-method Investments Held at Fair Value


					Fair value as a
					percentage of total
	Fair value at				investments at
	June 30,		December 31,		June 30,		December 31,
	2016		2015		2016		2015
Private Investment Partnership Interests:
AREA Sponsor Holdings, LLC	$	32,435	$	37,275	7.2	%	8.7	%
ACE II Master Fund, L.P. (1)(2)		22,537		22,015	5.0	%	5.2	%
Ares Corporate Opportunities Fund III, L.P.		101,450		108,506	22.7	%	25.4	%
Ares Corporate Opportunities Fund IV, L.P. (2)		36,972		30,571	8.3	%	7.2	%
Resolution Life L.P.		39,646		40,703	8.9	%	9.5	%
Other private investment partnership interests (1)(3)		160,576		132,405	35.8	%	31.0	%
Total private investment partnership interests (cost: $309,434 and $297,026 at June 30, 2016 and December 31, 2015, respectively)		393,616		371,475	87.9	%	87.0	%
Collateralized Loan Obligations Interests:
Collateralized loan obligations(3)		54,155		55,752	12.1	%	13.0	%
Total collateralized loan obligations (cost: $57,827 and $53,669 at June 30, 2016 and December 31, 2015, respectively)		54,155		55,752	12.1	%	13.0	%
Common Stock:
Common stock(3)		87		81	0.0	%	0.0	%
Total common stock (cost: $120 and $116 at June 30, 2016 and December 31, 2015, respectively)		87		81	0.0	%	0.0	%
Total fair value investments (cost: $367,381 and $350,811 at June 30, 2016 and December 31, 2015, respectively)	$	447,858	$	427,308

(1)

Investment or portion of the investment is denominated in foreign currency; fair value is translated into U.S. dollars at each reporting date

(2)

Represents underlying security that is held through various legal entities

(3)

No single issuer or investment had a fair value that exceeded 5% of the Company's total investments.

Equity-Method Investments

The Company’s equity-method investments include investments that are not consolidated but over which the Company exerts significant influence. The Company's equity-method investments, including those where the fair value option was elected, are summarized below:


	As of June 30, 2016		As of December 31, 2015
Equity-method investments	$	3,639	$	4,486
Equity-method investments at fair value		15,672		19,471
Total equity-method investments	$	19,311	$	23,957

The following table presents summarized financial information for an equity-method investment that the Company has determined to be significant based on the change in fair value:


		Three Months Ended				Six Months Ended
		Ended June 30,				Ended June 30,
		2016		2015		2016		2015

Revenue	$	755	$	(172)	$	1,511	$	941
Expenses		4,239		5,099		8,752		9,925
Net loss	$	(3,484)	$	(5,271)	$	(7,241)	$	(8,984)

Held-to-Maturity Investments

The Company classifies certain investments as held-to-maturity investments when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are reported as investments and are recorded at amortized cost. A summary of the cost and fair value of CLO notes classified as held-to-maturity investments is as follows:


	As of June 30, 2016		As of December 31, 2015
Amortized Cost	$	17,368	$	17,022
Unrealized loss, net		(562)		(334)
Fair value	$	16,806	$	16,688

Based on the Company’s ability and intent to hold the investments until maturity and the underlying credit performance, the Company has determined that the net unrealized losses are temporary impairments as of June 30, 2016 and December 31, 2015.

There were no sales of held-to-maturity investments during the six months ended June 30, 2016 and 2015. All contractual maturities are greater than 10 years as of June 30, 2016. Actual maturities may differ from contractual maturities because underlying collateral may have the right to call or prepay obligations with or without call or prepayment penalties.

Investments of the Consolidated Funds

Investments held in the Consolidated Funds are summarized below:


			Fair value as a
			percentage of total
Fair value at			investments at
	June 30,	December 31,	June 30,	December 31,
2016


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Large accelerated filer ☒	Accelerated filer ☐	Non‑accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐


			Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Information
	Unaudited Condensed Consolidated Financial Statements:		1
		Condensed Consolidated Statements of Financial Condition as of June 30, 2016 and December 31, 2015	1
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016 and June 30, 2015	2
		Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and June 30, 2015	3
		Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2016	4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and June 30, 2015	5
		Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		91
Item 4.	Controls and Procedures		91
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		92
Item 1A.	Risk Factors		92
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		93
Item 3.	Defaults Upon Senior Securities		93
Item 4.	Mine Safety Disclosures		93
Item 5.	Other Information		93
Item 6.	Exhibits		94
Signatures			95


Delaware (State or other jurisdiction of incorporation or organization)	80‑0962035 (I.R.S. Employer Identification Number)