UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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

Commission File No. 001‑36429

ARES MANAGEMENT, L.P.

(Exact name of Registrant as specified in its charter)

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

2000 Avenue of the Stars, 12th Floor, Los Angeles, CA 90067

(Address of principal executive office) (Zip Code)

(310) 201‑4100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐  No ☒

The number of common units representing limited partner interests outstanding as of November 1, 2016 was 80,802,687.

TABLE OF CONTENTS

			Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Information
			1
		Condensed Consolidated Statements of Financial Condition as of September 30, 2016 and December 31, 2015	1
		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and September 30, 2015	2
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and September 30, 2015	3
		Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2016	4
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and September 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		49
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

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.”

i

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 and to distributions made to our preferred unitholders, 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;

ii

· “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;

· “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 that we earn from our Consolidated Funds and non-consolidated funds;

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

· “SEC” refers to the 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. Amounts and percentages

iii

throughout this report may reflect rounding adjustments and consequently totals may not appear to sum.

iv

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 September 30,		As of December 31,
	2016		2015
	(unaudited)
Assets
Cash and cash equivalents	$	336,783	$	121,483
Investments (includes fair value investments of $461,717 and $446,779 at September 30, 2016 and December 31, 2015, respectively)		482,944		468,287
Performance fees receivable		654,409		534,661
Due from affiliates		163,857		144,982
Other assets		66,883		62,975
Intangible assets, net		64,191		84,971
Goodwill		143,818		144,067
Assets of Consolidated Funds:
Cash and cash equivalents		213,256		159,507
Investments, at fair value		3,127,521		2,559,783
Due from affiliates		8,816		12,923
Dividends and interest receivable		8,286		13,005
Receivable for securities sold		45,813		13,416
Other assets		2,557		1,348
Total assets	$	5,319,134	$	4,321,408
Liabilities
Accounts payable, accrued expenses and other liabilities	$	90,404	$	102,626
Accrued compensation		131,181		125,032
Due to affiliates		14,397		12,901
Performance fee compensation payable		520,586		401,715
Debt obligations		279,587		389,120
Put option liability		40,000		20,000
Deferred tax liability, net		6,256		21,288
Liabilities of Consolidated Funds:
Accounts payable, accrued expenses and other liabilities		12,243		18,951
Due to affiliates		10,001		—
Payable for securities purchased		178,011		51,778
CLO loan obligations, at fair value		2,653,580		2,174,352
Fund borrowings		34,960		11,734
Total liabilities		3,971,206		3,329,497
Commitments and contingencies
Redeemable interest in Ares Operating Group entities		—		23,505
Preferred equity (12,400,000 units issued and outstanding at September 30, 2016)		298,637		—
Non-controlling interest in Consolidated Funds:
Non-controlling interest in Consolidated Funds		349,032		320,238
Equity appropriated for Consolidated Funds		—		3,367
Non-controlling interest in Consolidated Funds		349,032		323,605
Non-controlling interest in Ares Operating Group entities		423,468		397,883
Controlling interest in Ares Management, L.P. :
Partners' Capital (80,794,582 units  and  80,679,600 units issued and outstanding at September 30, 2016 and at December 31, 2015, respectively)		286,176		251,537
Accumulated other comprehensive loss		(9,385)		(4,619)
Total controlling interest in Ares Management, L.P.		276,791		246,918
Total equity		1,347,928		968,406
Total liabilities, redeemable interest, non-controlling interests and equity	$	5,319,134	$	4,321,408

See accompanying notes to the condensed consolidated financial statements.

1

Ares Management, L.P.

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Unit Data)

(unaudited)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenues
Management fees (includes ARCC Part I Fees of $33,260, $90,884 and $31,680, $89,972 for the three and nine months ended September 30, 2016 and 2015, respectively)	$	163,609	$	158,051	$	480,563	$	473,341
Performance fees		164,482		(22,223)		337,686		160,351
Administrative and other fees		7,369		8,026		22,761		21,231
Total revenues		335,460		143,854		841,010		654,923
Expenses
Compensation and benefits		111,916		104,872		335,249		305,808
Performance fee compensation		123,173		(20,293)		253,739		112,643
General, administrative and other expenses		38,197		50,862		116,845		149,740
Consolidated Funds' expenses		10,088		945		11,014		15,227
Total expenses		283,374		136,386		716,847		583,418
Other income (expense)
Net interest and investment expense (includes interest expense of $4,136, $13,819 and $5,913, $13,251 for the three and nine months ended September 30, 2016 and 2015, respectively)		(1,681)		(4,864)		(47)		(805)
Other income (expense), net		23,042		2,769		33,956		(799)
Net realized and unrealized gain (loss) on investments		19,358		(7,684)		21,349		12,035
Net interest and investment income of the Consolidated Funds (includes interest expense of $26,413, $67,469 and $23,848, $59,992 for the three and nine months ended September 30, 2016 and 2015, respectively)		8,737		8,458		25,759		30,000
Net realized and unrealized gain (loss) on investments of Consolidated Funds		23,883		(38,232)		(5,723)		(40,020)
Total other income (expense)		73,339		(39,553)		75,294		411
Income (loss) before taxes		125,425		(32,085)		199,457		71,916
Income tax expense		7,641		5,579		7,868		15,741
Net income (loss)		117,784		(37,664)		191,589		56,175
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds		7,861		(9,219)		(3,064)		(7,705)
Less: Net income (loss) attributable to redeemable interests in Ares Operating Group entities		107		(119)		456		310
Less: Net income (loss) attributable to non-controlling interests in Ares Operating Group entities		66,511		(16,977)		116,404		44,376
Net income (loss) attributable to Ares Management, L.P.		43,305		(11,349)		77,793		19,194
Preferred equity distributions paid		6,751		—		6,751		—
Net income (loss) attributable to Ares Management, L.P. common unitholders	$	36,554	$	(11,349)	$	71,042	$	19,194
Net income (loss) attributable to Ares Management, L.P. per common unit:
Basic	$	0.45	$	(0.14)		0.87		0.23
Diluted	$	0.43	$	(0.14)		0.86		0.23
Weighted-average common units
Basic		80,793,984		80,676,232		80,741,460		80,671,786
Diluted		84,464,591		80,676,232		82,667,049		80,671,786
Distribution declared and paid per common unit	$	0.28	$	0.26	$	0.63	$	0.75

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

See accompanying notes to the condensed consolidated financial statements.

2

Ares Management, L.P.

Condensed Consolidated Statements of Comprehensive Income

(Amounts in Thousands)

(unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Net income (loss)	$	117,784	$	(37,664)	$	191,589	$	56,175
Other comprehensive income:
Foreign currency translation adjustments		(2,241)		(3,292)		(12,566)		(2,158)
Total comprehensive income (loss)		115,543		(40,956)		179,023		54,017
Less: Comprehensive income (loss) attributable to non-controlling interests in Consolidated Funds		7,861		(9,200)		(3,064)		(7,660)
Less: Comprehensive income (loss) attributable to redeemable interests in Ares Operating Group entities		105		(133)		409		303
Less: Comprehensive income (loss) attributable to non-controlling interests in Ares Operating Group entities		65,125		(19,016)		108,651		43,051
Comprehensive income (loss) attributable to Ares Management, L.P.		42,452		(12,607)		73,027		18,323

See accompanying notes to the condensed consolidated financial statements.

3

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		298,637		—		—		—		—		—		298,637
Changes in ownership interests		—		1,392		—		(2,273)		—		—		(881)
Forfeiture of equity in connection with redemption of redeemable interest		—		1,276		—		2,061		—		—		3,337
Deferred tax assets effects arising from allocation of Partners' capital		—		1,958		—		5		—		—		1,963
Contributions		—		—		—		—		—		93,128		93,128
Distributions		(6,751)		(50,882)		—		(98,881)		—		(61,270)		(217,784)
Net income (loss)		6,751		71,042		—		116,404		—		(3,064)		191,133
Currency translation adjustment		—		—		(4,766)		(7,753)		—		—		(12,519)
Equity compensation		—		9,853		—		16,022		—		—		25,875
Balance at September 30, 2016	$	298,637	$	286,176	$	(9,385)	$	423,468	$	—	$	349,032	$	1,347,928

See accompanying notes to the condensed consolidated financial statements.

4

Ares Management, L.P.

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(unaudited)

	Nine months ended September 30,
	2016		2015
Cash flows from operating activities:
Net income	$	191,589	$	56,175
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity compensation expense		27,185		24,126
Depreciation and amortization		28,622		44,156
Net realized and unrealized gain on investments		(21,349)		(12,035)
Contingent consideration		(17,486)		1,630
Other non-cash amounts		—		10
Investments purchased		(61,941)		(106,477)
Proceeds from sale of investments		69,958		40,975
Allocable to non-controlling interests in Consolidated Funds:
Receipt of non-cash interest income and dividends from investments		(6,876)		(6,177)
Net realized and unrealized loss on investments		5,723		40,020
Amortization on debt and investments		(2,404)		(577)
Investments purchased		(1,527,581)		(1,491,069)
Proceeds from sale or pay down of investments		1,024,289		853,185
Cash flows due to changes in operating assets and liabilities:
Restricted cash		—		32,180
Net performance fees receivable		(1,804)		4,358
Due to/from affiliates		(25,333)		37
Other assets		(817)		2,756
Accrued compensation and benefits		6,678		(16,151)
Accounts payable, accrued expenses and other liabilities		5,823		(24,170)
Deferred taxes		(15,032)		(1,174)
Allocable to non-controlling interest in Consolidated Funds:
Change in cash and cash equivalents held at Consolidated Funds		(53,745)		1,228,452
Cash relinquished with deconsolidation of Consolidated Funds		—		(870,390)
Change in other assets and receivables held at Consolidated Funds		(14,780)		(9,387)
Change in other liabilities and payables held at Consolidated Funds		129,922		(312,039)
Net cash used in operating activities		(259,359)		(521,586)
Cash flows from investing activities:
Acquisitions, net of cash acquired		—		(64,436)
Purchase of furniture, equipment and leasehold improvements, net		(8,167)		(8,589)
Net cash used in investing activities		(8,167)		(73,025)
Cash flows from financing activities:
Proceeds from debt issuance, net of offering costs		—		316,475
Proceeds from credit facility		147,000		75,000
Proceeds from term notes		—		35,250
Repayments of credit facility		(257,000)		(75,000)
Proceeds from the issuance of preferred equity, net of issuance costs		298,637		—
Distributions		(150,424)		(183,459)
Preferred equity distributions		(6,751)		—
Other financing activities		(701)		85
Allocable to non-controlling interest in Consolidated Funds:
Contributions from non-controlling interests in Consolidated Funds		93,128		88,139
Distributions to non-controlling interests in Consolidated Funds		(61,270)		(83,121)
Borrowings under loan obligations by Consolidated Funds		530,731		763,813
Repayments under loan obligations by Consolidated Funds		(103,648)		(101,142)
Net cash provided by financing activities		489,702		836,040
Effect of exchange rate changes		(6,876)		(2,609)
Net change in cash and cash equivalents		215,300		238,820
Cash and cash equivalents, beginning of period		121,483		148,858
Cash and cash equivalents, end of period	$	336,783	$	387,678
Supplemental information:
Ares Management, L.P. and consolidated subsidiaries:
Cash paid during the period for interest	$	9,441	$	6,722
Cash paid during the period for income taxes	$	13,562	$	11,832
Consolidated Funds:
Cash paid during the period for interest	$	38,229	$	32,985
Cash paid during the period for income taxes	$	179	$	898
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.

5

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

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 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 Offshore Holdings, Ltd., and AI Holdco LLC (“AI”). In this quarterly report, the following of the Company’s subsidiaries are collectively referred to as the “Ares Operating Group”: Ares Offshore Holdings L.P. (“Ares Offshore”), 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”) entities represent a component of equity and net income attributable to the owners of the Ares Operating Group Units (“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 AOG 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 AOG entities for each period presented.

As of September 30, 2016, the Company owned a 38.25% direct interest, or 80,794,582 AOG Units, in each of the AOG entities; Ares Owners Holding L.P. owns a 55.83% direct interest, or 117,933,313 AOG Units, in each of the AOG entities; and an affiliate of Alleghany Corporation (such affiliate, “Alleghany”) owns a 5.92% direct interest, or 12,500,000 AOG Units, in each of the AOG entities. For the nine months ended September 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 37.98%,  56.14% and 5.88%, respectively.

Preferred Equity

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 are payable quarterly at a rate per annum equal to 7.00%. The first dividend of $0.544444 per unit of approximately $6.8 million, was declared and paid on September 30, 2016. 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 $298.6 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 repayments of borrowings under the Credit Facility.

6

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

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 Ares Management LLC (“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”) 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity. 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

7

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

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 2016-09, Compensation – Stock Compensation (Topic 718).In accordance with ASU 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 its 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 fromContracts 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 does not believe this guidance will have a material impact 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 adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated

8

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323). ASU 2016-07 removes the requirement to retroactively apply the equity method of accounting for an investment that becomes eligible for the equity method due to an increase in the level of ownership interest or degree of influence. The investment should be accounted for as an equity method investment as of the date that it becomes qualified for such treatment. At this date, any unrealized holding gain (loss), if the investment was an available-for-sale equity security, should be recognized in earnings. ASU 2016-07 is effective for public entities for annual reporting periods beginning after December 15, 2016 and interim periods within those reporting periods, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The objective of the guidance in ASU 2016-08 is to provide clarity on the application of the current principal versus agent guidance. ASU 2016-08 clarifies how an entity should determine whether it is acting as a principal or an agent for each specified good or service promised to a customer and how to determine the nature of each specified good or service. The effective date and transition requirements of ASU 2016-08 are the same as that of ASU 2014-09. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

During the second quarter of 2016, two ASUs: ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients, were issued to provide clarification to previously issued revenue recognition guidance (ASU 2014-09) that has not yet been implemented. The two updates are required to be adopted with ASU 2014-09, but are not expected to change its application by the Company. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In May 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available for sale and held to maturity debt securities are also required to be held net of an allowance for credit losses. The guidance should be applied using a modified retrospective approach. ASU 2016-13 is effective for public entities for annual reporting periods beginning after December 15, 2019 and interim periods within those reporting periods. Early adoption is permitted for annual and quarterly reporting periods beginning after December 15, 2018. The Company does not believe this guidance will have a material impact on its  condensed consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.The objective of ASU 2016-15 is to reduce diversity in practice among public entities. ASU 2016-15 clarifies the appropriate cash flow classification(s) for certain cash receipts or payments made by an entity, including: debt prepayment, settlement of zero-coupon debt instruments, contingent consideration payments, proceeds from insurance claims, proceeds from corporate-owned life insurance policies, distributions from equity method investees, and beneficial interests in securitization transactions. It also confirms the proper treatment of cash receipts or payments that have aspects of more than one type of cash flow. The guidance should be applied using a retrospective approach. ASU 2016-15 is effective for public entities for annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company does not believe this guidance will have a material impact on its condensed consolidated financial statements.

9

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

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 September 30,		As of December 31,
	at September 30, 2016		2016		2015
Management contracts	2.1	years	$	111,939	$	163,469
Client relationships	11.8	years		38,600		38,600
Trade name	5.8	years		3,200		3,200
Intangible assets, gross				153,739		205,269
Foreign currency translation				(2,721)		(1,436)
Total intangible assets acquired				151,018		203,833
Less: accumulated amortization				(86,827)		(118,862)
Intangible assets, net			$	64,191	$	84,971

Amortization expense associated with intangible assets was $6.4 million and $10.1 million for the three months ended September 30, 2016 and 2015, respectively, and $20.8 million and $37.6 million for the nine months ended September 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		—		—		(249)		(249)
Balance as of  September 30, 2016	$	32,196	$	58,600	$	53,022	$	143,818

There was no impairment of goodwill during any of the periods presented.

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. 

10

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

Fair Value Investments, excluding Equity Method Investments Held at Fair Value

					Fair value as a
					percentage of total
	Fair value at				investments at
	September 30,		December 31,		September 30,		December 31,
	2016		2015		2016		2015
Private Investment Partnership Interests:
AREA Sponsor Holdings, LLC	$	34,878	$	37,275	7.8	%	8.7	%
ACE II Master Fund, L.P. (1)(2)		22,400		22,015	5.0	%	5.2	%
Ares Corporate Opportunities Fund III, L.P.		98,864		108,506	22.2	%	25.4	%
Ares Corporate Opportunities Fund IV, L.P. (2)		35,874		30,571	8.1	%	7.2	%
Resolution Life L.P.		33,410		40,703	7.5	%	9.5	%
Other private investment partnership interests (1)(3)		163,698		132,405	36.8	%	31.0	%
Total private investment partnership interests (cost: $300,068 and $297,026 at September 30, 2016 and December 31, 2015, respectively)		389,124		371,475	87.4	%	87.0	%
Collateralized Loan Obligations Interests:
Collateralized loan obligations(3)		55,937		55,752	12.6	%	13.0	%
Total collateralized loan obligations (cost: $57,150 and $59,183 at September 30, 2016 and December 31, 2015, respectively)		55,937		55,752	12.6	%	13.0	%
Common Stock:
Common stock(3)		96		81	0.0	%	0.0	%
Total common stock (cost: $122 and $116 at September 30, 2016 and December 31, 2015, respectively)		96		81	0.0	%	0.0	%
Total fair value investments (cost: $357,340 and $356,325 at September 30, 2016 and December 31, 2015, respectively)	$	445,157	$	427,308