UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

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 x  No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x  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 x Accelerated filer ¨ Non‑accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

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

The number of common shares representing limited partner interests outstanding as of October 26, 2018 was 101,494,220.

TABLEOFCONTENTS

			Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Information - Unaudited		7
		Condensed Consolidated Statements of Financial Condition as of September 30, 2018 and December 31, 2017	7
		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and September 30, 2017	8
		Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and September 30, 2017	9
		Condensed Consolidated Statements of Changes in Equity for the nine months ended September 30, 2018	10
		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and September 30, 2017	11
		Notes to the Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		60
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		117
Item 4.	Controls and Procedures		117
PART II—OTHER INFORMATION			118
Item 1.	Legal Proceedings		118
Item 1A.	Risk Factors		118
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		118
Item 3.	Defaults Upon Senior Securities		118
Item 4.	Mine Safety Disclosures		118
Item 5.	Other Information		118
Item 6.	Exhibits		119
Signatures			120

2

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 report and in our Annual report on Form 10-K for the year ended December 31, 2017, 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 report 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 collateralized loan obligations, 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 consolidated financial statements on a gross basis, subject to eliminations from consolidation, including the elimination of the management fees, performance income and other fees that we earn from the entity. However, the presentation of performance related 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 quarterly report on Form 10-Q, 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) “Unconsolidated Reporting 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 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/corporate strategy, legal/compliance and human resources. The OMG’s expenses are not allocated to our three reportable segments but we consider the cost structure of the OMG when evaluating our financial performance. 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 shareholders to analyze our performance. For more information, see “Notes to the Condensed Consolidated Financial Statements - Note 14. Segment Reporting.”

3

Glossary

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

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

• ARCC Part II Fees refers to fees based on ARCC's net capital gains, which are paid annually;

• “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;

• “available capital” is comprised of uncalled committed capital and undrawn amounts under credit facilities and may include AUM that may be canceled or not otherwise available to invest (also referred to as “dry powder”).

• “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 consolidated financial statements;

• “Co‑Founders” refers to Michael Arougheti, David Kaplan, John Kissick, Antony Ressler and Bennett Rosenthal;

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

• “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, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE and RI for the current period;

• “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 income, performance related compensation, investment income from our Consolidated Funds and non-consolidated funds and certain other items that we believe are not indicative of our core operating performance. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE for the current period;

• “Holdco Members” refers to Messrs. Michael Arougheti, David Kaplan, John Kissick, Antony Ressler, Bennett Rosenthal, Ryan Berry, R. Kipp deVeer and Michael McFerran;

• “Incentive generating AUM” or “IGAUM” refers to the AUM of our funds that are currently generating, on a realized or unrealized basis, Performance Income. It generally represents the NAV or total assets of our funds, as applicable, for which we are entitled to receive Performance Income, excluding capital committed by us and our professionals

4

(from which we do not earn performance income). With respect to ARCC, only ARCC Part II Fees may be generated from IGAUM;

• “Incentive eligible AUM” or “IEAUM” refers to the AUM of our funds that are eligible to produce Performance Income, regardless of whether or not they are currently generating Performance Income. It generally represents the NAV plus uncalled equity or total assets plus uncalled debt, as applicable, of our funds for which we are entitled to receive a Performance Income, excluding capital committed by us and our professionals (which generally is not subject to a performance income);

• “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 inflows of capital” refers to net new commitments during the period, including equity and debt commitments and gross inflows into our open-ended managed accounts and sub-advised accounts, as well as equity offerings by our publicly traded vehicles minus redemptions from our open-ended funds, managed accounts and sub-advised accounts;

• “net performance income” refers to performance income net of performance related compensation, which is the portion of the performance income 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;

• “permanent capital” refers to capital of our funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law, which funds currently consist of ARCC, Ares Commercial Real Estate Corporation (“ACRE”) and Ares Dynamic Credit Allocation Fund, Inc. (“ARDC”). Such funds may be required, or elect, to return all or a portion of capital gains and investment income;

• “performance income” refers to income 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 related compensation. PRE differs from income (loss) before taxes computed in accordance with GAAP as it only includes performance income, performance related compensation and total investment and other income that we earn from our Consolidated Funds and non-consolidated funds;

• “realized income” or “RI”, a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that we believe are not indicative of our operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to RI for the current period. Prior to the introduction of RI, management used distributable earnings for this evaluation. Management believes RI is a more appropriate metric to evaluate the Company's current business operations;

• “SEC” refers to the Securities and Exchange Commission;

5

• “Senior Notes” or the "AFC Notes" refers to senior notes of a wholly owned subsidiary of Ares Holdings; and

• “Term Loans” refers to term loans of a wholly owned subsidiary of AM LLC.

References in this Quarterly Report on Form 10-Q to (1) “common units” or “common shares” and “preferred units” or “preferred shares” outstanding prior to March 1, 2018 refer to our common units and preferred units, respectively, previously outstanding prior to March 1, 2018 and (2) “common unitholders” or “common shareholders” and “preferred unitholders” or “preferred shareholders” prior to March 1, 2018 refer to our common unitholders and preferred unitholders, respectively, prior to March 1, 2018. Note that the terms of our common shares and preferred shares, and the associated rights, remain unchanged.

Many of the terms used in this report, including AUM, FPAUM, ENI, FRE, PRE and RI, may not be comparable to similarly titled measures used by other companies. In addition, our definitions of AUM and FPAUM are not based on any definition of AUM or FPAUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM or FPAUM set forth in other agreements to which we are a party. Further, ENI, FRE, PRE and RI are not measures of performance calculated in accordance with GAAP. We use ENI, FRE, PRE and RI as measures of operating performance, not as measures of liquidity. ENI, FRE, PRE and RI 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 RI 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 RI 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 throughout this report may reflect rounding adjustments and consequently totals may not appear to sum.

6

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

Ares Management, L.P.

Condensed Consolidated Statements of Financial Condition 

(Amounts in Thousands, ExceptShareData)

	As of September 30,			As of December 31,
	2018			2017
	(unaudited)			As adjusted
Assets
Cash and cash equivalents	$	122,192		$	118,929
Investments (includes accrued carried interest of $947,267 and $1,077,236, at September 30, 2018 and December 31, 2017, respectively)	1,415,648			1,724,571
Due from affiliates	183,986			165,750
Deferred tax asset, net	16,240			8,326
Other assets	102,411			130,341
Intangible assets, net	32,756			40,465
Goodwill	143,827			143,895
Assets of Consolidated Funds:
Cash and cash equivalents	760,581			556,500
Investments, at fair value	7,515,383			5,582,842
Due from affiliates	14,658			15,884
Dividends and interest receivable	16,534			12,568
Receivable for securities sold	95,490			61,462
Other assets	1,894			1,989
Total assets	$	10,421,600		$	8,563,522
Liabilities
Accounts payable, accrued expenses and other liabilities	$	76,648		$	81,955
Accrued compensation	127,481			27,978
Due to affiliates	59,456			39,184
Performance related compensation payable	688,100			822,084
Debt obligations	350,789			616,176
Liabilities of Consolidated Funds:
Accounts payable, accrued expenses and other liabilities	77,752			64,316
Payable for securities purchased	531,615			350,145
CLO loan obligations, at fair value	6,884,696			4,963,194
Fund borrowings	133,744			138,198
Total liabilities	8,930,281			7,103,230
Commitments and contingencies
Preferred equity (12,400,000 shares issued and outstanding at September 30, 2018 and December 31, 2017)	298,761			298,761
Non-controlling interest in Consolidated Funds	578,420			528,488
Non-controlling interest in Ares Operating Group entities	319,820			358,186
Controlling interest in Ares Management, L.P.:
Shareholders' equity (101,489,282 shares and 82,280,033 shares issued and outstanding at September 30, 2018 and at December 31, 2017, respectively)	301,721			279,065
Accumulated other comprehensive loss, net of tax	(7,403		)	(4,208		)
Total controlling interest in Ares Management, L.P.	294,318			274,857
Total equity	1,491,319			1,460,292
Total liabilities and equity	$	10,421,600		$	8,563,522

See accompanying notes to the condensed consolidated financial statements.

7

Ares Management, L.P.

Condensed Consolidated Statements of Operations 

(Amounts in Thousands, Except Share Data)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
				As adjusted						As adjusted
Revenues
Management fees (includes ARCC Part I Fees of $33,377, $91,660 and $24,036, $76,436 for the three and nine months ended September 30, 2018 and 2017, respectively)	$	204,524		$	183,177		$	588,071		$	535,990
Carried interest allocation	31,902			82,534			72,587			468,349
Incentive fees	872			4,474			13,683			11,855
Principal investment income (loss)	(7,464		)	4,731			(684		)	45,625
Administrative, transaction and other fees	10,943			13,486			37,372			43,024
Total revenues	240,777			288,402			711,029			1,104,843
Expenses
Compensation and benefits	145,594			129,347			419,225			384,905
Performance related compensation	17,606			58,637			30,479			361,044
General, administrative and other expenses	51,155			47,104			155,523			145,193
Transaction support expense	—			—			—			275,177
Expenses of Consolidated Funds	12,833			19,039			49,261			27,472
Total expenses	227,188			254,127			654,488			1,193,791
Other income (expense)
Net realized and unrealized gain (loss) on investments	5,542			4,229			7,970			(1,471		)
Interest and dividend income	808			1,761			6,511			5,147
Interest expense	(4,143		)	(5,343		)	(17,088		)	(15,576		)
Other income (expense), net	811			(2,492		)	(1,487		)	16,826
Net realized and unrealized gain on investments of Consolidated Funds	5,437			35,940			26,839			55,263
Interest and other income of Consolidated Funds	93,062			48,181			250,117			127,999
Interest expense of Consolidated Funds	(62,763		)	(28,127		)	(163,942		)	(86,324		)
Total other income	38,754			54,149			108,920			101,864
Income before taxes	52,343			88,424			165,461			12,916
Income tax expense (benefit)	5,131			4,552			29,659			(28,459		)
Net income	47,212			83,872			135,802			41,375
Less: Net income attributable to non-controlling interests in Consolidated Funds	13,169			18,195			23,418			25,403
Less: Net income (loss) attributable to non-controlling interests in Ares Operating Group entities	18,133			37,839			67,301			(20,610		)
Net income attributable to Ares Management, L.P.	15,910			27,838			45,083			36,582
Less: Preferred equity dividend paid	5,425			5,425			16,275			16,275
Net income attributable to Ares Management, L.P. common shareholders	$	10,485		$	22,413		$	28,808		$	20,307
Net income attributable to Ares Management, L.P. per common share:
Basic	$	0.09		$	0.26		$	0.25		$	0.22
Diluted	$	0.09		$	0.26		$	0.25		$	0.22
Weighted-average common shares:
Basic	98,706,419			82,166,852			94,168,582			81,704,815
Diluted	98,706,419			82,166,852			94,168,582			81,704,815
Dividend declared and paid per common share	$	0.28		$	0.31		$	1.05		$	0.72

Substantially all revenue is earned from affiliated funds of the Company. See accompanying notes to the condensed consolidated financial statements.  

8

Ares Management, L.P.

Condensed Consolidated Statements of Comprehensive Income 

(Amounts in Thousands)

(unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
				As adjusted					As adjusted
Net income	$	47,212		$	83,872	$	135,802		$	41,375
Other comprehensive income:
Foreign currency translation adjustments	(1,919		)	6,043		(8,811		)	11,514
Total comprehensive income	45,293			89,915		126,991			52,889
Less: Comprehensive income attributable to non-controlling interests in Consolidated Funds	12,669			18,017		20,404			25,055
Less: Comprehensive income (loss) attributable to non-controlling interests in Ares Operating Group entities	17,359			41,143		64,699			(13,201		)
Comprehensive income attributable to Ares Management, L.P.	$	15,265		$	30,755	$	41,888		$	41,035

See accompanying notes to the condensed consolidated financial statements.

9

Ares Management, L.P.

Condensed Consolidated Statements of Changes in Equity 

(Amounts in Thousands)

(unaudited)

	Preferred Equity			Shareholders' Equity			Accumulated Other Comprehensive Loss			Non-controlling Interest in Ares Operating Group Entities			Non-controlling Interest in Consolidated Funds			Total Equity
Balance at December 31, 2017	$	298,761		$	279,065		$	(4,208	)	$	358,186		$	528,488		$	1,460,292
Cumulative effect of the adoption of ASC 606	—			(10,827		)	—			(17,117		)	5,333			(22,611		)
As adjusted balance at January 1, 2018	298,761			268,238			(4,208		)	341,069			533,821			1,437,681
Adoption of ASU 2018-02 (see note #2)	—			1,202			(1,202		)	—			—			—
Changes in ownership interests and related tax benefits	—			(27,213		)	—			17,598			—			(9,615		)
Contributions	—			106,283			—			1,681			70,990			178,954
Dividends/Distributions	(16,275		)	(104,410		)	—			(142,779		)	(46,795		)	(310,259		)
Net income	16,275			28,808			—			67,301			23,418			135,802
Currency translation adjustment	—			—			(1,993		)	(2,602		)	(3,014		)	(7,609		)
Equity compensation	—			28,813			—			37,552			—			66,365
Balance at September 30, 2018	$	298,761		$	301,721		$	(7,403	)	$	319,820		$	578,420		$	1,491,319

See accompanying notes to the condensed consolidated financial statements.

10

Ares Management, L.P.

Condensed Consolidated Statements of Cash Flows 

(Amounts in Thousands)

(unaudited)

	For the Nine Months Ended September 30,
	2018			2017
				As adjusted
Cash flows from operating activities:
Net income	$	135,802		$	41,375
Adjustments to reconcile net income to net cash used in operating activities	268,526			(52,314		)
Adjustments to reconcile net income to net cash used in operating activities allocable to non-controlling interests in Consolidated Funds	(2,181,999		)	(1,157,088		)
Cash flows due to changes in operating assets and liabilities	90,096			(78,593		)
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interests in Consolidated Funds	(35,683		)	54,370
Net cash used in operating activities	(1,723,258		)	(1,192,250		)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements, net	(14,437		)	(27,926		)
Net cash used in investing activities	(14,437		)	(27,926		)
Cash flows from financing activities:
Proceeds from issuance of common shares	105,333			—
Proceeds from credit facility	410,000			245,000
Proceeds from term notes	44,050			70,009
Repayments of credit facility	(515,000		)	(135,000		)
Repayments of term loans	(206,089		)	—
Distributions	(247,189		)	(169,008		)
Preferred equity distributions	(16,275		)	(16,275		)
Taxes paid in net settlement of vested common shares	(17,376		)	(13,910		)
Stock option exercise	950			1,036
Tax from share-based payment	44			81
Other financing activities	1,681			1,541
Allocable to non-controlling interests in Consolidated Funds:
Contributions from non-controlling interests in Consolidated Funds	70,990			145,717
Distributions to non-controlling interests in Consolidated Funds	(46,795		)	(49,084		)
Borrowings under loan obligations by Consolidated Funds	3,135,421			2,438,491
Repayments under loan obligations by Consolidated Funds	(986,699		)	(1,466,951		)
Net cash provided by financing activities	1,733,046			1,051,647
Effect of exchange rate changes	7,912			12,105
Net change in cash and cash equivalents	3,263			(156,424		)
Cash and cash equivalents, beginning of period	118,929			342,861
Cash and cash equivalents, end of period	$	122,192		$	186,437

See accompanying notes to the condensed consolidated financial statements.

11

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

1. ORGANIZATION 

Ares Management, L.P. ("the Company"), a Delaware limited partnership treated as a corporation for U.S. federal income tax purposes, is a leading global alternative asset management firm that operates three distinct but complementary investment groups: Credit, Private Equity and Real Estate. 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”). 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 company, and its sole assets are equity interests in Ares Holdings Inc. (“AHI”), Ares Offshore Holdings, Ltd., and Ares AI Holdings L.P., each of which is directly or indirectly wholly owned by the Company. 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. 

Change in Company Tax Status Election

Effective March 1, 2018, the Company elected to be treated as a corporation for U.S. federal income tax purposes. The Company’s legal structure remains a Delaware limited partnership. In connection with the tax election, the Company amended and restated its partnership agreement to, among other things, reflect the new tax classification and change the name of its common units and preferred units to common shares and preferred shares, respectively. The terms of such common shares and preferred shares, and the associated rights, otherwise remain unchanged. Further, other terminology has been modified to be consistent with a corporation's results. For example, distributions are now referred to as dividends, and earnings per common unit are now referred to as earnings per common share. Comparative periods conform with the current period's presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“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 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, 2017 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. 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

12

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

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 year presentation.

Adoption of ASC 606

Effective January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers. The Company adopted ASC 606 to all applicable contracts under the modified retrospective approach using the practical expedient provided for within paragraph 606-10-65-1(f)(3); therefore, the presentation of prior year periods has not been adjusted. The Company recognized the cumulative effect of initially adopting ASC 606 as an adjustment to the opening balance of components of equity as of January 1, 2018.

Pursuant to ASC 606, the Company recognizes 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 Company expects to be entitled in exchange for those goods or services. Under this standard, revenue is based on a contract with a determinable transaction price and distinct performance obligations with probable collectability. Revenues cannot be recognized until the performance obligation(s) are satisfied and control is transferred to the customer. The Company's adoption of ASC 606 impacted the timing and recognition of incentive fees in the Company’s consolidated statements of operations. The adoption of ASC 606 did not have an impact on the Company’s management fees, administrative fees, transaction fees or other fees. The details of the significant changes and quantitative impact of the adoption of ASC 606 are further discussed below.

The adoption of ASC 606 had the following impact on the Company’s revenue streams:

Revenues of the Company	Impact of ASC 606
Management fees	No impact - Management fees are recognized as revenue in the period advisory services are rendered.
Performance income - Carried interest allocation	No impact. See discussion below for change in accounting policy.
Performance income - Incentive fees	See discussion below for impact.
Administrative, transaction and other fees	No impact - Administrative, transaction and other fees are recognized as revenue in the period in which the related services are rendered.

Performance Income

Performance income consists of carried interest and incentive fees.

Carried Interest

In certain fund structures, typically private equity and real estate equity funds, carried interest is allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents. At the end of each reporting period, a fund will allocate carried interest applicable to the Company based upon an assumed liquidation of that fund's net assets on the reporting date, irrespective of whether such amounts have been realized. Carried interest is recorded to the extent such amounts have been allocated, and may be subject to reversal to the extent that the amount allocated ultimately exceeds the amount due to the Company based on a fund’s cumulative investment returns.

Carried interest is realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the specific hurdle rates as defined in the applicable governing documents. Since carried interest is subject to reversal, the Company may need to accrue for potential repayment of previously received carried interest. This accrual represents all amounts previously distributed to the Company that would need to be repaid to the funds if the funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual repayment obligations, however, generally

13

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

do not become realized until the end of a fund’s life. As of September 30, 2018, if the funds were liquidated at their fair values, there would be a $0.1 million repayment obligation, and accordingly, the Company recorded a contingent repayment liability as of September 30, 2018. As of December 31, 2017, if the funds were liquidated at their fair values, there would be no repayment obligation, and accordingly, the Company did not record a contingent repayment liability as of December 31, 2017.

Prior to January 1, 2018, the Company accounted for carried interest under Method 2 described in ASC 605-20-S99-1, which provides guidance on accounting for incentive-based performance income, including carried interest. Since Method 2 is no longer available following the adoption of ASC 606, the Company has reassessed its accounting policy for carried interest, and has determined that carried interest is within scope of ASC 323, Investments-Equity Method and Joint Ventures, andout of scope under the scoping provision of ASC 606. Therefore, following the election of ASC 323, the Company accounted for carried interest, which represents a performance-based capital allocation from an investment fund to the Company, as earnings from financial assets within the scope of ASC 323. Accordingly, the Company recognizes carried interest allocation as a separate revenue line item in the Condensed Consolidated Statements of Operations. Uncollected carried interest as of the reporting date is recorded within investments in the Condensed Consolidated Statements of Financial Condition.

The Company has applied the change in accounting principle on a full retrospective basis, and prior periods presented have been recast to conform with the current period's presentation. The change in accounting principle did not change the timing or the amount of carried interest recognized. Instead, the change in accounting principle resulted in reclassification from performance income to carried interest allocation, and therefore did not have any impact on net income. See the tables below for the impact of the change in accounting principle of carried interest.

Incentive Fees

Incentive fees earned on the performance of certain fund structures, typically in credit funds, are recognized based on the fund’s performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. Incentive fees are realized at the end of a measurement period, typically annually. Once realized, such fees are no longer subject to reversal.

Prior to January 1, 2018, the Company accounted for incentive fees under Method 2 as described above. However, the accounting for incentive fees is separate and distinct from the accounting for carried interest because the incentive fees are contractual fee arrangements and do not represent allocations of returns from partners' capital accounts. The Company now accounts for incentive fees in accordance with ASC 606. Accordingly, the Company recognizes incentive fee revenue only when the amount is realized and no longer subject to reversal. Therefore, the Company no longer recognizes unrealized incentive fees in revenues in the condensed consolidated financial statements. The adoption of ASC 606 results in the delayed recognition of unrealized incentive fees in the condensed consolidated financial statements until they become realized at the end of the measurement period, which is typically annually.

The Company adopted ASC 606 for incentive fees using the modified retrospective approach with an effective date of January 1, 2018. The cumulative effect of the adoption resulted in the reversal of $22.6 million of unrealized incentive fees and is presented as a reduction to the opening balances of components of equity as of January 1, 2018.

14

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables present the adjustments made in connection with the Company's change in accounting principle related to carried interest under ASC 323, Investments-Equity Method and Joint Ventures on the financial statement line items for the periods presented in the condensed consolidated financial statements:

Condensed Consolidated Statement of Financial Condition
	As of December 31, 2017
	As Previously Reported		Adjustments				As Adjusted
	(audited)
Assets
Investments ($1,077,236 of accrued carried interest)	$	647,335	$	1,077,236			$	1,724,571
Performance income receivable	1,099,847		(1,099,847		)		—
Other assets	107,730		22,611			(1)	130,341

(1) Unrealized incentive fees receivable balance as of December 31, 2017.

Condensed Consolidated Statement of Operations
	Three Months Ended September 30, 2017
	As Previously Reported		Adjustments			As Adjusted
Revenues
Performance fees	$	87,008	$	(87,008	)	$	—
Carried interest allocation	—		82,534			82,534
Incentive fees	—		4,474			4,474
Principal investment income	—		4,731			4,731
Total revenues	283,671		4,731			288,402
Other income (expense)
Net realized and unrealized gain on investments	7,209		(2,980		)	4,229
Interest and dividend income	3,512		(1,751		)	1,761

Condensed Consolidated Statement of Operations
	Nine Months Ended September 30, 2017
	As Previously Reported		Adjustments			As Adjusted
Revenues
Performance fees	$	480,204	$	(480,204	)	$	—
Carried interest allocation	—		468,349			468,349
Incentive fees	—		11,855			11,855
Principal investment income	—		45,625			45,625
Total revenues	1,059,218		45,625			1,104,843
Other income (expense)
Net realized and unrealized gain on investments	39,943		(41,414		)	(1,471		)
Interest and dividend income	9,358		(4,211		)	5,147

The Company's change in accounting policy related to carried interest did not impact the Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Changes in Equity or Condensed Consolidated Statements of Cash Flows for the year ended December 31, 2017.

15

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables present the impact of incentive fees on the condensed consolidated financial statements upon the adoption of ASC 606 effective January 1, 2018:

Condensed Consolidated Statement of Financial Condition 

	As of January 1, 2018
	As adjusted December 31, 2017		Adjustments				As Adjusted for ASC 606 adoption
Investments	$	1,724,571	$	—			$	1,724,571
Other assets	130,341		(22,611		)	(1)	107,730
Total assets	8,563,522		(22,611		)		8,540,911
Total liabilities	7,103,230		—				7,103,230
Cumulative effect adjustment to equity(2)	—		(22,611		)		(22,611		)
Total equity	1,460,292		(22,611		)		1,437,681
Total liabilities, non-controlling interests and equity	8,563,522		(22,611		)		8,540,911

(1) Unrealized incentive fees receivable balance as of December 31, 2017.

(2) See detail below.

Condensed Consolidated Statement of Changes in Equity 

	Preferred Equity		Shareholders' Capital			Accumulated Other Comprehensive Loss			Non-controlling interest in Ares Operating Group Entities			Non-Controlling Interest in Consolidated Funds		Total Equity
Balance at December 31, 2017	$	298,761	$	279,065		$	(4,208	)	$	358,186		$	528,488	$	1,460,292
Cumulative effect of the adoption of ASC 606	—		(10,827		)	—			(17,117		)	5,333		(22,611		)
As adjusted balance at January 1, 2018	$	298,761	$	268,238		$	(4,208	)	$	341,069		$	533,821	$	1,437,681

16

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

In accordance with the ASC 606 disclosure requirements, the following tables present the adjustments made by the Company to remove the effects of adopting ASC 606 on the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2018:

Condensed Consolidated Statement of Financial Condition
	As of September 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606
Assets
Cash and cash equivalents	$	122,192		$	—		$	122,192
Investments ($947,267 of accrued carried interest)	1,415,648						1,415,648
Due from affiliates	183,986						183,986
Deferred tax asset, net	16,240			(7,189		)	9,051
Other assets	102,411			90,071			192,482
Total assets	10,421,600			82,882			10,504,482
Commitments and contingencies
Non-controlling interest in Consolidated Funds	578,420			(5,454		)	572,966
Non-controlling interest in Ares Operating Group entities	319,820			55,356			375,176
Controlling interest in Ares Management, L.P.:
Shareholders' equity (101,489,282 shares issued and outstanding)	301,721			33,094			334,815
Accumulated other comprehensive loss, net of tax	(7,403		)	(114		)	(7,517		)
Total controlling interest in Ares Management, L.P	294,318			32,980			327,298
Total equity	1,491,319			82,882			1,574,201
Total liabilities and equity	10,421,600			82,882			10,504,482

17

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Condensed Consolidated Statement of Operations
	Three Months Ended September 30, 2018
	As Reported		Adjustments			Balances without adoption of ASC 606
Revenues
Incentive fees	$	872	$	63,938		$	64,810
Total revenues	240,777		63,938			304,715
Expenses
Expenses of Consolidated Funds	12,833		—			12,833
Total expenses	227,188		—			227,188
Other income (expense)
Other income, net	811		5			816
Total other income	38,754		5			38,759
Income before taxes	52,343		63,943			116,286
Income tax benefit	5,131		6,990			12,121
Net income	47,212		56,953			104,165
Less: Net income attributable to non-controlling interests in Consolidated Funds	13,169		(1,981		)	11,188
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	18,133		37,283			55,416
Net income attributable to Ares Management, L.P.	15,910		21,651			37,561
Less: Preferred equity dividend paid	5,425					5,425
Net income attributable to Ares Management, L.P. common shareholders	10,485		21,651			32,136

Condensed Consolidated Statement of Operations
	Nine Months Ended September 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606
Revenues
Incentive fees	$	13,683		$	67,718		$	81,401
Total revenues	711,029			67,718			778,747
Expenses
Expenses of Consolidated Funds	49,261			—			49,261
Total expenses	654,488			—			654,488
Other income (expense)
Other income (expense), net	(1,487		)	5			(1,482		)
Total other income	108,920			5			108,925
Income before taxes	165,461			67,723			233,184
Income tax benefit	29,659			7,190			36,849
Net income	135,802			60,533			196,335
Less: Net income attributable to non-controlling interests in Consolidated Funds	23,418			(121		)	23,297
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	67,301			38,387			105,688
Net income attributable to Ares Management, L.P.	45,083			22,267			67,350
Less: Preferred equity dividend paid	16,275						16,275
Net income attributable to Ares Management, L.P. common shareholders	28,808			22,267			51,075

18

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Condensed Consolidated Statement of Comprehensive Income

	Three Months Ended September 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606
Net income	$	47,212		$	56,953		$	104,165
Other comprehensive income:
Foreign currency translation adjustments	(1,919		)	(67		)	(1,986		)
Total comprehensive income	45,293			56,886			102,179
Less: Comprehensive income attributable to non-controlling interests in Consolidated Funds	12,669			(1,981		)	10,688
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities	17,359			—			17,359
Comprehensive income attributable to Ares Management, L.P.	$	15,265		$	58,867		$	74,132

Condensed Consolidated Statement of Comprehensive Income

	Nine Months Ended September 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606
Net income	$	135,802		$	60,533		$	196,335
Other comprehensive income:
Foreign currency translation adjustments	(8,811		)	(262		)	(9,073		)
Total comprehensive income	126,991			60,271			187,262
Less: Comprehensive income attributable to non-controlling interests in Consolidated Funds	20,404			(121		)	20,283
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities	64,699			38,239			102,938
Comprehensive income attributable to Ares Management, L.P.	$	41,888		$	22,153		$	64,041

Condensed Consolidated Statement of Cash Flows 

	Nine Months Ended September 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606
Cash flows from operating activities:
Net income	$	135,802		$	60,533		$	196,335
Cash flows due to changes in operating assets and liabilities	90,096			(60,654		)	29,442
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interests in Consolidated Funds	(35,683		)	121			(35,562		)

19

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Recent Accounting Pronouncements

The Company considers the applicability and impact of all FASB Accounting Standard Updates ("ASU") issued. ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on the Company's 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 compiling all leases and right–of–use terms to evaluate the impact of this guidance on its condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Public Law No. 115-97 (the “Tax Cuts and Jobs Act”). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This ASU also requires certain disclosures about stranded tax effects. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The guidance should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted ASU 2018-02 in the three months ended March 31, 2018. As a result of the adoption of ASU 2018-02, $1.2 million of stranded tax effects resulting from the Tax Cuts and Jobs Act were reclassified from accumulated other comprehensive income to shareholders' equity during the three months ended March 31, 2018.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). ASU 2018-15, amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a cloud computing arrangement that is considered a service contract. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. In addition, this ASU states that a cloud computing arrangement that is a service contract does not give rise to a recognizable intangible asset because it is an executory service contract. Consequently, any costs incurred to implement a cloud computing arrangement that is a service contract would not be capitalized as an intangible asset since they do not form part of an intangible asset but instead would be characterized in the financial statements in the same manner as other service costs and assets related to service contracts such as prepaid expense. That is, these costs would be capitalized as part of the service contract and the related amortization would be consistent with the ongoing periodic costs of the underlying cloud computing arrangement. ASU 2018-15 is effective for public entities for annual reporting periods beginning after December 15, 2019 and interim periods within those reporting periods, with early adoption permitted. The guidance may be applied either prospectively or retrospectively. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

20

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share 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, 2018	As of September 30,			As of December 31,
		2018			2017
Management contracts	2.9 years	$	42,334		$	67,306
Client relationships	9.8 years	38,600			38,600
Trade name	3.8 years	3,200			3,200
Other	Less than 1 year	242			—
Intangible assets		84,376			109,106
Less: accumulated amortization		(51,620		)	(68,641		)
Intangible assets, net		$	32,756		$	40,465

Amortization expense associated with intangible assets was $1.3 million and $3.7 million for the three months ended September 30, 2018 and 2017, respectively, and $8.0 million and $14.2 million for the nine months ended September 30, 2018 and 2017, respectively, and is presented within general, administrative and other expenses within the Condensed Consolidated Statements of Operations. During the first quarter of 2018, the Company removed $25.0 million of intangible assets that were fully amortized.

Goodwill

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

	Credit		Private Equity		Real Estate			Total
Balance as of December 31, 2017	$	32,196	$	58,600	$	53,099		$	143,895
Foreign currency translation	—		—		(68		)	(68		)
Balance as of September 30, 2018	$	32,196	$	58,600	$	53,031		$	143,827

There was no impairment of goodwill recorded during the nine months ended September 30, 2018 and 2017. The impact of foreign currency translation is reflected within other comprehensive income.

21

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

4. INVESTMENTS

The Company’s investments are comprised of: 

					Percentage of total investments
	September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
			As adjusted				As adjusted
Private Investment Interests:
Equity method private investment partnership interests - principal (1)	$	330,870	$	340,354	23.4	%	19.7	%
Equity method - carried interest (1)	947,267		1,077,236		66.9	%	62.5	%
Equity method private investment partnership interests and other	73,447		74,439		5.2	%	4.3	%
Other private investment partnership interests	39,985		35,748		2.8	%	2.1	%
Total private investment interests	1,391,569		1,527,777		98.3	%	88.6	%
Collateralized loan obligations	22,648		195,158		1.6	%	11.3	%
Common stock	1,431		1,636		0.1	%	0.1	%
Total investments	$	1,415,648	$	1,724,571

(1) Interest or portion of the interest is denominated in foreign currency and is translated into U.S. dollars at each reporting date.

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 evaluates each of its equity method investments to determine if any were significant under SEC guidance. For the three and nine months ended September 30, 2018 and 2017, no individual equity method investment held by the Company met the significance criteria.

The Company recognized a net loss related to its equity method investments of $3.8 million for the three months ended September 30, 2018. The Company recognized net gains related to its equity method investments of $8.9 million for the three months ended September 30, 2017, and $3.5 million and $50.2 million for the nine months ended September 30, 2018 and 2017, respectively. These amounts are included within both principal investment income and within net realized and unrealized gain on investments within the Consolidated Statements of Operations.

The material assets of the Company's equity method investments are expected to generate long-term capital appreciation and/or interest income; the material liabilities are debt instruments collateralized by, or related to, the financing of the assets; and net income is materially comprised of the changes in fair value of these net assets.

22

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Investments of the Consolidated Funds

Investments held in the Consolidated Funds are summarized below:

	Fair value at				Fair value as a percentage of total investments at
	September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
United States:
Fixed income securities:
Consumer discretionary	$	1,689,276	$	1,295,732	22.4	%	23.2	%
Consumer staples	77,908		55,073		1.0	%	1.0	%
Energy	180,295		176,836		2.4	%	3.2	%
Financials	411,136		270,520		5.5	%	4.8	%
Healthcare, education and childcare	688,195		449,888		9.2	%	8.1	%
Industrials	410,264		370,926		5.5	%	6.6	%
Information technology	190,492		167,089		2.5	%	3.0	%
Materials	187,049		185,170		2.5	%	3.3	%
Telecommunication services	667,489		399,617		8.9	%	7.2	%
Utilities	93,027		77,102		1.2	%	1.4	%
Total fixed income securities (cost: $4,611,837 and $3,459,318 at September 30, 2018 and December 31, 2017, respectively)	4,595,131		3,447,953		61.1	%	61.8	%
Equity securities:
Energy	45		126		0.0	%	0.0	%
Total equity securities (cost: $2,265 and $2,265 at September 30, 2018 and December 31, 2017, respectively)	45		126		0.0	%	0.0	%
Partnership and interests
Partnership and interests	269,782		232,332		3.6	%	4.2	%
Total partnership and LLC interests (cost: $215,000 and $190,000 at September 30, 2018 and December 31, 2017, respectively)	269,782		232,332		3.6	%	4.2	%

23

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

	Fair value at				Fair value as a percentage of total investments at
	September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
Europe:
Fixed income securities:
Consumer discretionary	$	971,697	$	604,608	12.9	%	10.8	%
Energy	17,474		2,413		0.2	%	0.0	%
Consumer staples	106,289		76,361		1.4	%	1.4	%
Financials	113,376		81,987		1.5	%	1.5	%
Healthcare, education and childcare	349,895		209,569		4.7	%	3.8	%
Industrials	141,738		145,706		1.9	%	2.6	%
Information technology	30,541		21,307		0.4	%	0.4	%
Materials	244,271		213,395		3.3	%	3.8	%
Telecommunication services	319,017		182,543		4.2	%	3.3	%
Total fixed income securities (cost: $2,299,415 and $1,545,297 at September 30, 2018 and December 31, 2017, respectively)	2,294,298		1,537,889		30.5	%	27.6	%
Equity securities:
Healthcare, education and childcare	49,895		63,155		0.7	%	1.1	%
Total equity securities (cost: $67,198 and $67,198 at September 30, 2018 and December 31, 2017, respectively)	49,895		63,155		0.7	%	1.1	%
Asia and other:
Fixed income securities:
Consumer discretionary	1,863		2,008		0.0	%	0.0	%
Financials	6,241		12,453		0.1	%	0.2	%
Telecommunication services	21,415		21,848		0.3	%	0.4	%
Total fixed income securities (cost: $30,115 and $36,180 at September 30, 2018 and December 31, 2017, respectively)	29,519		36,309		0.4	%	0.6	%
Equity securities:
Consumer discretionary	43,268		59,630		0.6	%	1.1	%
Consumer staples	42,424		45,098		0.6	%	0.8	%
Healthcare, education and childcare	44,637		44,637		0.6	%	0.8	%
Industrials	47,702		16,578		0.6	%	0.3	%
Total equity securities (cost: $122,418 and $122,418 at September 30, 2018 and December 31, 2017, respectively)	178,031		165,943		2.4	%	3.0	%

24

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

	Fair value at				Fair value as a percentage of total investments at
	September 30,		December 31,		September 30,		December 31,
	2018		2017		2018		2017
Canada:
Fixed income securities:
Consumer discretionary	$	7,535	$	6,757	0.1	%	0.1	%
Consumer staples	35,429		15,351		0.5	%	0.3	%
Energy	2,262		33,715		—	%	0.6	%
Industrials	29,977		18,785		0.4	%	0.3	%
Telecommunication services	12,658		6,189		0.2	%	0.1	%
Total fixed income securities (cost: $88,256 and $80,201 at September 30, 2018 and December 31, 2017, respectively)	87,861		80,797		1.2	%	1.4	%
Equity securities:
Consumer discretionary	—		5,912		—	%	0.1	%
Total equity securities (cost: $0 and $17,202 at September 30, 2018 and December 31, 2017, respectively)	—		5,912		—	%	0.1	%
Australia:
Fixed income securities:
Consumer discretionary	9,075		10,863		0.1	%	0.2	%
Energy	1,746		1,563		0.0	%	0.0	%
Total fixed income securities (cost: $10,969 and $12,714 at September 30, 2018 and December 31, 2017, respectively)	10,821		12,426		0.1	%	0.2	%
Total fixed income securities	7,017,630		5,115,374		93.3	%	91.6	%
Total equity securities	227,971		235,136		3.1	%	4.2	%
Total partnership interests	269,782		232,332		3.6	%	4.2	%
Total investments, at fair value	$	7,515,383	$	5,582,842

At September 30, 2018 and December 31, 2017, no single issuer or investment, including derivative instruments and underlying portfolio investments of the Consolidated Funds, had a fair value that exceeded 5.0% of the Company’s total assets.

25

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

5. FAIR VALUE

Fair Value Measurements

GAAP establishes a hierarchal disclosure framework that prioritizes the inputs used in measuring financial instruments at fair value into three levels based on their market price observability. Market price observability is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active market or for which fair value can be measured based on actively quoted prices generally have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.

Financial assets and liabilities measured and reported at fair value are classified as follows:

• Level I—Quoted prices in active markets for identical instruments.

• Level II—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; and model‑derived valuations with directly or indirectly observable significant inputs. Level II inputs include prices in markets with few transactions, non-current prices, prices for which little public information exists or prices that vary substantially over time or among brokered market makers. Other inputs include interest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates.

• Level III—Valuations that rely on one or more significant unobservable inputs. These inputs reflect the Company’s assessment of the assumptions that market participants would use to value the instrument based on the best information available.

In some instances, an instrument may fall into more than one level of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair value measurement. The Company’s assessment of the significance of an input requires judgment and considers factors specific to the instrument. The Company accounts for the transfer of assets into or out of each fair value hierarchy level as of the beginning of the reporting period.

Fair Value of Financial Instruments Held by the Company and Consolidated Funds

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of September 30, 2018:

Financial Instruments of the Company	Level I		Level II			Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Fixed income-collateralized loan obligations	$	—	$	—		$	22,648	$	—	$	22,648
Equity securities	397		1,034			10,397		—		11,828
Partnership interests	—		—			41,829		39,985		81,814
Total investments, at fair value	397		1,034			74,874		39,985		116,290
Derivatives—foreign exchange contracts	—		55			—		—		55
Total assets, at fair value	$	397	$	1,089		$	74,874	$	39,985	$	116,345
Liabilities, at fair value
Derivatives—foreign exchange contracts	$	—	$	(1,780	)	$	—	$	—	$	(1,780	)
Total liabilities, at fair value	$	—	$	(1,780	)	$	—	$	—	$	(1,780	)

26

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Financial Instruments of the Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	103,245		$	2,402		$	105,647
Loans	—		6,530,353			381,631			6,911,984
Collateralized loan obligations	—		—			—			—
Total fixed income investments	—		6,633,598			384,033			7,017,631
Equity securities	47,611		—			180,359			227,970
Partnership interests	—		—			269,782			269,782
Total investments, at fair value	47,611		6,633,598			834,174			7,515,383
Derivatives:
Asset swaps - other	—		—			1,454			1,454
Total assets, at fair value	$	47,611	$	6,633,598		$	835,628		$	7,516,837
Liabilities, at fair value
Asset swaps - other	$	—	$	—		$	(633	)	$	(633	)
Loan obligations of CLOs	—		(6,884,696		)	—			(6,884,696		)
Total liabilities, at fair value	$	—	$	(6,884,696	)	$	(633	)	$	(6,885,329	)

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of December 31, 2017:

Financial Instruments of the Company	Level I		Level II			Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Fixed income-collateralized loan obligations	$	—	$	—		$	195,158	$	—	$	195,158
Equity securities	520		1,116			—		—		1,636
Partnership interests	—		—			44,769		35,998		80,767
Total investments, at fair value	520		1,116			239,927		35,998		277,561
Derivatives—foreign exchange contracts	—		498			—		—		498
Total assets, at fair value	$	520	$	1,614		$	239,927	$	35,998	$	278,059
Liabilities, at fair value
Derivatives—foreign exchange contracts	$	—	$	(2,639	)	$	—	$	—	$	(2,639	)
Total liabilities, at fair value	$	—	$	(2,639	)	$	—	$	—	$	(2,639	)

27

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Financial Instruments of the Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	82,151		$	7,041		$	89,192
Loans	—		4,755,335			260,848			5,016,183
Collateralized loan obligations	—		10,000			—			10,000
Total fixed income investments	—		4,847,486			267,889			5,115,375
Equity securities	72,558		—			162,577			235,135
Partnership interests	—		—			232,332			232,332
Total investments, at fair value	72,558		4,847,486			662,798			5,582,842
Derivatives:
Asset swaps - other	—		—			1,366			1,366
Total derivative assets, at fair value	—		—			1,366			1,366
Total assets, at fair value	$	72,558	$	4,847,486		$	664,164		$	5,584,208
Liabilities, at fair value
Asset swaps - other	$	—	$	—		$	(462	)	$	(462	)
Loan obligations of CLOs	—		(4,963,194		)	—			(4,963,194		)
Total liabilities, at fair value	$	—	$	(4,963,194	)	$	(462	)	$	(4,963,656	)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended September 30, 2018:

			Level III Assets
Level III Assets and Liabilities of the Company	Equity Securities		Fixed Income			Partnership  Interests			Total
Balance, beginning of period	—		$	22,125		$	47,219		$	69,344
Transfer in	500		—			—			500
Purchases(1)	750		2,314			—			3,064
Sales/settlements(2)	—		(1,976		)	—			(1,976		)
Realized and unrealized appreciation (decrease), net	9,147		185			(5,390		)	3,942
Balance, end of period	$	10,397	$	22,648		$	41,829		$	74,874
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	9,147	$	220		$	(5,390	)	$	3,977

Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests		Derivatives, Net			Total
Balance, beginning of period	$	184,583		$	482,375		$	251,608	$	230		$	918,796
Transfer in	—			118,624			—		124			118,748
Transfer out	—			(264,659		)	—		—			(264,659		)
Purchases(1)	—			124,784			9,000		—			133,784
Sales/settlements(2)	—			(78,395		)	—		799			(77,596		)
Amortized discounts/premiums	—			(46		)	—		4			(42		)
Realized and unrealized appreciation (decrease), net	(4,224		)	1,350			9,174		(336		)	5,964
Balance, end of period	$	180,359		$	384,033		$	269,782	$	821		$	834,995
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(13,164	)	$	3,468		$	—	$	125		$	(9,571	)

(1) Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2) Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

28

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended September 30, 2017:

	Level III Assets								Level III Liabilities
Level III Assets and Liabilities of the Company	Fixed Income			Partnership  Interests		Total			Contingent Considerations
Balance, beginning of period	$	164,807		$	33,410	$	198,217		$	1,940
Purchases(1)	29,911			—		29,911			—
Sales/settlements(2)	(33,062		)	—		(33,062		)	(1,000		)
Expired contingent consideration	—			—		—			(1,000		)
Realized and unrealized appreciation, net	605			3,029		3,634			60
Balance, end of period	$	162,261		$	36,439	$	198,700		$	—
Increase in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	442		$	3,029	$	3,471		$	—

Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	146,274		$	187,579		$	217,740		$	2,809		$	554,402
Transfer in	—			86,420			—			—			86,420
Transfer out	(271		)	(60,550		)	—			(4		)	(60,825		)
Purchases(1)	—			139,903			15,000			—			154,903
Sales/settlements(2)	(3,701		)	(49,783		)	(15,000		)	(3,127		)	(71,611		)
Additions(3)	—			14,479			—			1,393			15,872
Amortized discounts/premiums	—			63			—			101			164
Realized and unrealized appreciation (depreciation), net	14,556			1,465			6,270			(45		)	22,246
Balance, end of period	$	156,858		$	319,576		$	224,010		$	1,127		$	701,571
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	12,830		$	920		$	6,270		$	(2,021	)	$	17,999

(1) Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2) Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

(3) Additions relate to a CLO that was refinanced and restructured that is now consolidated.

The following tables set forth a summary of changes in the fair value of the Level III measurements for the nine months ended September 30, 2018:

	Level III Assets
Level III Assets and Liabilities of the Company	Equity Securities		Fixed Income			Partnership  Interests			Total
Balance, beginning of period	$	—	$	195,158		$	44,769		$	239,927
Deconsolidation of fund	—		78			—			78
Transfer in	250		—			—			250
Purchases(1)	1,000		51,045			—			52,045
Sales/settlements(2)	—		(222,546		)	—			(222,546		)
Realized and unrealized appreciation (decrease), net	9,147		(1,087		)	(2,940		)	5,120
Balance, end of period	$	10,397	$	22,648		$	41,829		$	74,874
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	9,147	$	(648	)	$	(2,940	)	$	5,559

29

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Level III Assets of Consolidated Funds	Equity Securities		Fixed Income			Partnership Interests		Derivatives, Net			Total
Balance, beginning of period	$	162,577	$	267,889		$	232,332	$	904		$	663,702
Deconsolidation of fund			(233		)						(233		)
Transfer in	—		68,665			—		—			68,665
Transfer out	—		(49,463		)	—		—			(49,463		)
Purchases(1)	—		262,278			25,000		—			287,278
Sales/settlements(2)	—		(163,559		)	—		606			(162,953		)
Amortized discounts/premiums	—		(62		)	—		(10		)	(72		)
Realized and unrealized appreciation (decrease), net	17,782		(1,482		)	12,450		(679		)	28,071
Balance, end of period	$	180,359	$	384,033		$	269,782	$	821		$	834,995
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	17,782	$	593		$	12,450	$	(863	)	$	29,962

(1) Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2) Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

The following tables set forth a summary of changes in the fair value of the Level III measurements for the nine months ended September 30, 2017:

	Level III Assets								Level III Liabilities
Level III Assets and Liabilities of the Company	Fixed Income			Partnership  Interests		Total			Contingent Considerations
Balance, beginning of period	$	89,111		$	33,410	$	122,521		$	22,156
Purchases(1)	110,595			169		110,764			—
Sales/settlements(2)	(38,303		)	—		(38,303		)	(1,000		)
Expired contingent considerations	—			—		—			(1,000		)
Realized and unrealized appreciation (decrease), net	858			2,860		3,718			(20,156		)
Balance, end of period	$	162,261		$	36,439	$	198,700		$	—
Increase in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	29		$	3,029	$	3,058		$	—

Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	130,690		$	242,253		$	171,696		$	(2,708	)	$	541,931
Transfer in	—			48,646			—			—			48,646
Transfer out	(6,581		)	(100,228		)	—			(4		)	(106,813		)
Purchases(1)	6,692			224,600			88,000			—			319,292
Sales/settlements(2)	(3,701		)	(114,286		)	(45,000		)	(976		)	(163,963		)
Additions(3)	—			14,479			—			1,393			15,872
Amortized discounts/premiums	—			132			—			317			449
Realized and unrealized appreciation, net	29,758			3,980			9,314			3,105			46,157
Balance, end of period	$	156,858		$	319,576		$	224,010		$	1,127		$	701,571
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	19,175		$	(429	)	$	9,314		$	(787	)	$	27,273

(1) Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2) Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

(3) Additions relate to a CLO that was refinanced and restructured that is now consolidated.

30

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company recognizes transfers between the levels as of the beginning of the period. Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market activity during the period and thus were valued using observable inputs either from independent pricing services or multiple brokers. Transfers into Level III were generally attributable to certain investments that experienced a less significant level of market activity during the period and thus were only able to obtain one or fewer quotes from a broker or independent pricing service. For the nine months ended September 30, 2018, there were no transfers between Level I and Level II fair value measurements.

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of September 30, 2018:

	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Equity securities	$	10,397	Transaction price(1)	N/A	N/A
Partnership interests	41,829		Other	N/A	N/A
Collateralized loan obligations	22,648		Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	74,874

(1) Transaction price consists of securities recently purchased or restructured. The Company determined that there was no change to the valuation based on the underlying assumptions used at the closing of such transactions.

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of December 31, 2017:

	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Partnership interests	$	44,769	Other	N/A	N/A
Collateralized loan obligations	195,158		Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	239,927

31

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of September 30, 2018:

	Fair Value			Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	49,894		Enterprise value market multiple analysis	EBITDA multiple(1)	7.7x	7.7x
	44,637			Market approach (comparable companies)	Net income multiple	38.3x	38.3x
					Illiquidity discount	25.0%	25.0%
	45			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	85,783			Transaction price(2)	N/A	N/A	N/A
Partnership interest	269,782			Discounted cash flow	Discount rate	17.0%	17.0%
Fixed income securities
	354,818			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	29,215			Income approach	Yield	0.9% - 12.7%	11.1%
Derivative instruments	1,454			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	835,628
Liabilities
Derivatives instruments	$	(633	)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(633	)

(1) “EBITDA” in the table above is a non-GAAP financial measure and refers to earnings before interest, tax, depreciation and amortization.

(2) Transaction price consists of securities recently purchased or restructured. The Company determined that there was no change to the valuation based on the underlying assumptions used at the closing of such transactions.

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of December 31, 2017:

	Fair Value			Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	63,155		Enterprise value market multiple analysis	EBITDA multiple(1)	2.7x	2.7x
	61,215			Market approach (comparable companies)	Net income multiple Illiquidity discount	27.0x - 36.2x 25.0%	33.7x 25.0%
	126			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	38,081			Transaction price(2)	N/A	N/A	N/A
Partnership interest	232,332			Discounted cash flow	Discount rate	19.0%	19.0%
Fixed income securities
	222,413			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	45,243			Income approach	Yield	10.8% - 22.5%	12.1%
	233			Market approach (comparable companies)	EBITDA multiple(1)	6.5x	6.5x
Derivative instruments	1,366			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	664,164
Liabilities
Derivatives instruments	$	(462	)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(462	)

(1) “EBITDA” in the table above is a non-GAAP financial measure and refers to earnings before interest, tax, depreciation and amortization.

(2) Transaction price consists of securities purchased or restructured. The Company determined that there has been no change to the valuation based on the underlying assumptions used at the closing of such transactions.

32

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company's investments valued using net asset value (“NAV”) per share have terms and conditions that do not allow for redemption without certain events or approvals that are outside the Company's control. A summary of fair value by segment and the remaining unfunded commitments are presented below:

	As of September 30, 2018				As of December 31, 2017
	Fair Value		Unfunded  Commitments		Fair Value		Unfunded  Commitments
Non-core investments(1)	$	39,985	$	15,975	$	35,998	$	16,492
Total	$	39,985	$	15,975	$	35,998	$	16,492

(1) Non-core investments are reported within OMG.

6. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company and the Consolidated Funds are exposed to certain risks relating to their ongoing operations and use various types of derivative instruments primarily to mitigate against credit and foreign exchange risk. The derivative instruments are not designated as hedging instruments under the accounting standards for derivatives and hedging. The Company recognizes all of its derivative instruments at fair value as either assets or liabilities in the Condensed Consolidated Statements of Financial Condition within other assets or accounts payable, accrued expenses and other liabilities, respectively. These amounts may be offset to the extent that there is a legal right to offset and if elected by management.

The following tables identify the fair value and notional amounts of derivative contracts by major product type on a gross basis for the Company and the Consolidated Funds as of September 30, 2018 and December 31, 2017:  

	As of September 30, 2018								As of December 31, 2017
	Assets				Liabilities				Assets				Liabilities
The Company	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Foreign exchange contracts	$	9,310	$	55	$	75,533	$	1,780	$	13,724	$	498	$	51,026	$	2,639
Total derivatives, at fair value(2)	$	9,310	$	55	$	75,533	$	1,780	$	13,724	$	498	$	51,026	$	2,639

	As of September 30, 2018						As of December 31, 2017
	Assets		Liabilities				Assets		Liabilities
Consolidated Funds	Notional(1)	Fair Value	Notional(1)		Fair Value		Notional(1)	Fair Value	Notional(1)	Fair Value
Asset swap - other	5,397	1,454	(1,480	)	(633	)	5,363	1,366	1,840	462
Total derivatives, at fair value(3)	5,397	1,454	(1,480	)	(633	)	5,363	1,366	1,840	462

(1) Represents the total contractual amount of derivative assets and liabilities outstanding.

(2) As of September 30, 2018 and December 31, 2017, the Company had the right to, but elected not to, offset $0.1 million and $0.5 million of its derivative assets and liabilities, respectively.

(3) As of September 30, 2018 and December 31, 2017, the Consolidated Funds offset $0.5 million and $0.4 million of their derivative assets and liabilities, respectively.

33

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

7. DEBT

The following table summarizes the Company’s and its subsidiaries’ debt obligations:

					As of September 30, 2018			As of December 31, 2017
	Debt Origination Date	Maturity	Original Borrowing Amount		Carrying Value		Interest Rate	Carrying Value		Interest Rate
Credit Facility(1)	Revolver	2/24/2022	N/A		$	105,000	3.74%	$	210,000	3.09%
Senior Notes(2)	10/8/2014	10/8/2024	$	250,000	245,789		4.21%	245,308		4.21%
2015 Term Loan(3)	9/2/2015	7/29/2026	—		—		N/A	35,037		2.86%
2016 Term Loan(4)	12/21/2016	1/15/2029	—		—		N/A	25,948		3.08%
2017 Term Loan A(4)	3/22/2017	1/22/2028	—		—		N/A	17,407		2.90%
2017 Term Loan B(4)	5/10/2017	10/15/2029	—		—		N/A	35,062		2.90%
2017 Term Loan C(4)	6/22/2017	7/30/2029	—		—		N/A	17,078		2.88%
2017 Term Loan D(4)	11/16/2017	10/15/2030	—		—		N/A	30,336		2.77%
Total debt obligations					$	350,789		$	616,176

(1) The AOG entities are borrowers under the Credit Facility, which provides a $1.065 billion revolving line of credit. It has a variable interest rate based on LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change with the Company’s underlying credit agency rating. As of September 30, 2018, base rate loans bear interest calculated based on the base rate plus 0.50% and the LIBOR rate loans bear interest calculated based on LIBOR plus 1.50%. The unused commitment fee is 0.20% per annum. There is a base rate and LIBOR floor of zero.

(2) The Senior Notes were issued in October 2014 by Ares Finance Co. LLC, a subsidiary of the Company, at 98.268% of the face amount with interest paid semi-annually. The Company may redeem the Senior Notes prior to maturity, subject to the terms of the indenture.

(3) The 2015 Term Loan was entered into in August 2015 by a subsidiary of the Company that acted as a manager to a CLO. The 2015 Term Loan was secured by collateral in the form of CLO senior tranches owned by the Company. To the extent the assets were not sufficient to cover the Term Loan, there was no further recourse to the Company to fund or repay the remaining balance. Interest was paid quarterly, and the Company also paid a fee of 0.025% of a maximum investment amount.

(4) The 2016 and 2017 Term Loans (“Term Loans”) were entered into by a subsidiary of the Company that acted as a manager to CLOs. The Term Loans were secured by collateral in the form of CLO senior tranches and subordinated notes owned by the Company. Collateral associated with one of the Term Loans could have been used to satisfy outstanding liabilities of another Term Loan should the collateral fall short. To the extent the assets associated with these Term Loans were not sufficient to cover the Term Loans, there was no further recourse to the Company to fund or repay the remaining balance. Interest was paid quarterly, and the Company also paid a fee of 0.03% of a maximum investment amount.

As of September 30, 2018, the Company and its subsidiaries were in compliance with all covenants under the debt obligations.

The Company typically incurs and pays debt issuance costs when entering into a new debt obligation or when amending an existing debt agreement. Debt issuance costs related to the Company's Senior Notes and Term Loans are recorded as a reduction of the corresponding debt obligation and debt issuance costs related to the Credit Facility are included in other assets in the Condensed Consolidated Statements of Financial Condition. All debt issuance costs are amortized over the term of the related obligation.

Subsequent to the removal of the U.S. risk retention requirements related to open–market CLO managers, the Company sold $219.3 million of its CLO securities and used the proceeds to pay off the related 2015-2017 Term Loans and settle a repurchase agreement of $206.0 million during the nine months ended September 30, 2018. The resulting loss from the debt extinguishment was immaterial.

34

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the activity of the Company's debt issuance costs:

	Credit Facility			Senior Notes			Term Loans			Repurchase Agreement Loan
Unamortized debt issuance costs as of December 31, 2017	$	6,543		$	1,571		$	1,171		$	—
Debt issuance costs incurred	—			—			173			259
Amortization of debt issuance costs	(1,178		)	(179		)	(56		)	(7		)
Debt extinguishment expense	—			—			(1,288		)	(252		)
Unamortized debt issuance costs as of September 30, 2018	$	5,365		$	1,392		$	—		$	—

Loan Obligations of the Consolidated CLOs

Loan obligations of the Consolidated Funds that are CLOs ("Consolidated CLOs") represent amounts due to holders of debt securities issued by the Consolidated CLOs. The Company measures the loan obligations of the Consolidated CLOs using the fair value of the financial assets of its Consolidated CLOs. As of September 30, 2018 and December 31, 2017 the following loan obligations were outstanding and classified as liabilities of the Company’s Consolidated CLOs:

	As of September 30, 2018					As of December 31, 2017
	Loan Obligations		Fair Value of Loan Obligations		Weighted  Average Remaining Maturity  In Years	Loan Obligations		Fair Value of Loan Obligations		Weighted Average Remaining Maturity  In Years
Senior secured notes(1)	$	6,673,385	$	6,635,297	11.20	$	4,801,582	$	4,776,883	10.57
Subordinated notes(2)	364,110		249,399		11.44	276,169		186,311		11.25
Total loan obligations of Consolidated CLOs	$	7,037,495	$	6,884,696		$	5,077,751	$	4,963,194

(1) Original borrowings under the senior secured notes totaled $6.7 billion, with various maturity dates ranging from December 2025 to October 2031. The weighted average interest rate as of September 30, 2018 was 4.86%.

(2) Original borrowings under the subordinated notes totaled $364.1 million, with various maturity dates ranging from December 2025 to October 2031. The notes do not have contractual interest rates, instead holders of the notes receive distributions from the excess cash flows generated by each Consolidated CLO.

Loan obligations of the Consolidated CLOs are collateralized by the assets held by the Consolidated CLOs, consisting of cash and cash equivalents, corporate loans, corporate bonds and other securities. The assets of one Consolidated CLO may not be used to satisfy the liabilities of another Consolidated CLO. Loan obligations of the Consolidated CLOs include floating rate notes, deferrable floating rate notes, revolving lines of credit and subordinated notes. Amounts borrowed under the notes are repaid based on available cash flows subject to priority of payments under each Consolidated CLO’s governing documents. Based on the terms of these facilities, the creditors of the facilities have no recourse to the Company.

Credit Facilities of the Consolidated Funds

Certain Consolidated Funds maintain credit facilities to fund investments between capital drawdowns. These facilities generally are collateralized by the unfunded capital commitments of the Consolidated Funds’ limited partners, bear an annual commitment fee based on unfunded commitments and contain various affirmative and negative covenants and reporting obligations, including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments and portfolio asset dispositions. The creditors of these facilities have no recourse to the Company except to the extent the debt is guaranteed by a subsidiary or if a general partner is liable for the Consolidated Fund’s liabilities under applicable law. Credit facilities of the Consolidated Funds are reflected at cost in the Condensed Consolidated Statements of Financial Condition. As of September 30, 2018 and December 31, 2017, the Consolidated Funds were in compliance with all covenants under such credit facilities.

35

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Consolidated Funds had the following revolving bank credit facilities and term loan outstanding as of September 30, 2018 and December 31, 2017:

				As of September 30, 2018				As of December 31, 2017
Consolidated Funds' Debt Facilities	Maturity Date	Total Capacity		Outstanding Loan(1)		Effective Rate		Outstanding Loan(1)		Effective Rate
Credit Facilities:
	1/1/2023	$	18,000	$	14,535	3.88%		$	12,942	2.88%
	6/29/2019	46,456		46,456		1.55%	(2)	48,042		1.55%	(2)
	3/7/2019	71,500		71,500		3.68%		71,500		2.88%
Revolving Term Loan	1/31/2022	1,900		1,253		8.28%		—		—%
	8/19/2019	11,429		—		—%		5,714		5.86%
Total borrowings				$	133,744			$	138,198

(1) The fair values of the borrowings approximate the carrying value as the interest rate on the borrowings is a floating rate.

(2) The effective rate is based on the three month EURIBOR or zero, whichever is higher, plus an applicable margin.

8. COMMITMENTS AND CONTINGENCIES

Indemnification Arrangements

Consistent with standard business practices in the normal course of business, the Company enters into contracts that contain indemnities for affiliates of the Company, persons acting on behalf of the Company or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the Company’s maximum exposure under these arrangements cannot be determined and has not been recorded in the Condensed Consolidated Statements of Financial Condition. As of September 30, 2018, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Commitments

As of September 30, 2018 and December 31, 2017, the Company had aggregate unfunded commitments of $311.9 million and $285.7 million, respectively, including commitments to both non-consolidated funds and Consolidated Funds. Total unfunded commitments included $16.0 million and $16.5 million in commitments to funds not managed by the Company as of September 30, 2018 and December 31, 2017, respectively.

ARCC Fee Waiver

In conjunction with ARCC's acquisition of American Capital, Ltd. (“ACAS”), the Company agreed to waive up to $10 million per quarter of ARCC's Part I Fees for ten calendar quarters, which began in the second quarter of 2017. ARCC Part I Fees will only be waived to the extent they are paid. The maximum amount of fees that may be waived in a quarter is $10 million, and if ARCC Part I Fees are less than $10 million in any single quarter, the shortfall will not carryover to subsequent quarters. As of September 30, 2018, there are four remaining quarters as part of the fee waiver agreement, with a maximum of $40 million in potential waivers. ARCC Part I Fees are reported net of the fee waiver.

Performance Income

Generally, if at the termination of a fund (and increasingly at interim points in the life of a fund), the fund has not achieved investment returns that (in most cases) exceed the preferred return threshold or (in all cases) the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, the Company will be obligated to repay carried interest that was received by the Company in excess of the amounts to which the Company is entitled. This contingent obligation is normally reduced by income taxes paid by the Company related to its carried interest. 

At September 30, 2018 and December 31, 2017, if the Company assumed all existing investments were worthless, the amount of performance income subject to potential repayment, net of tax, which may differ from the recognition of revenue, would

36

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

have been approximately $468.3 million and $476.1 million, respectively, of which approximately $363.8 million and $370.0 million, respectively, is reimbursable to the Company by certain professionals who are the recipients of such performance income. Management believes the possibility of all of the investments becoming worthless is remote. As of September 30, 2018, if the funds were liquidated at their fair values, there would be $0.1 million of repayment obligations, and accordingly, the Company recorded a contingent repayment liability as of September 30, 2018. As of December 31, 2017, if the funds were liquidated at their fair values, there would be no repayment obligation, and accordingly, the Company did not record a contingent repayment liability as of December 31, 2017.

Litigation

From time to time, the Company is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, the Company does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect its results of operations, financial condition or cash flows.

9. RELATED PARTY TRANSACTIONS

Substantially all of the Company’s revenue is earned from its affiliates, including management fees, carried interest allocation, incentive fees, investment income, other fees and administrative expense reimbursements. The related accounts receivable are included within due from affiliates within the Condensed Consolidated Statements of Financial Condition, except accrued carried interest allocations and incentive fees receivable, which are presented within investments and other assets, respectively, within the Condensed Consolidated Statements of Financial Condition.

The Company has investment management agreements with various funds and accounts that it manages. In accordance with these agreements, the Consolidated Funds bear certain operating costs and expenses which are initially paid by the Company and subsequently reimbursed by the Consolidated Funds.

The Company also has entered into agreements with related parties to be reimbursed for its expenses incurred for providing administrative services to such related parties, including ARCC, ACRE, ARDC, Ivy Hill Asset Management, L.P., ACF FinCo I L.P, and CION Ares Diversified Credit Fund.

Employees and other related parties may be permitted to participate in co-investment vehicles that invest in Ares funds alongside fund investors. Participation is limited by law to individuals who qualify under applicable securities laws. These employee co-investment vehicles generally do not require the participants to pay management or incentive fees.

Performance income the Company earns from the funds can be distributed to professionals or their related entities on a current basis, subject to repayment by the subsidiary of the Company that acts as general partner of the relevant fund in the event that certain specified return thresholds are not ultimately achieved. The professionals have personally guaranteed, subject to certain limitations, the obligations of these subsidiaries in respect of this general partner obligation. Such guarantees are several, and not joint, and are limited to distributions received by the relevant recipient.

37

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company considers its professionals and non-consolidated funds to be affiliates. Amounts due from and to affiliates were composed of the following:

	As of September 30,		As of December 31,
	2018		2017
Due from affiliates:
Management fees receivable from non-consolidated funds	$	142,291	$	126,506
Payments made on behalf of and amounts due from non-consolidated funds and employees	41,695		39,244
Due from affiliates—Company	$	183,986	$	165,750
Amounts due from portfolio companies and non-consolidated funds	$	14,658	$	15,884
Due from affiliates—Consolidated Funds	$	14,658	$	15,884
Due to affiliates:
Management fee rebate payable to non-consolidated funds	$	2,824	$	5,213
Management fees received in advance	3,921		1,729
Tax receivable agreement liability	17,606		3,503
Payable to company employees(1)	22,294		24,542
Payments made by non-consolidated funds on behalf of and payable by the Company	12,811		4,197
Due to affiliates—Company	$	59,456	$	39,184

(1) Prior year amount of $24.5 million was reclassified from performance related compensation payable to due to affiliates to conform with current year presentation.

Due from Ares Funds and Portfolio Companies

In the normal course of business, the Company pays certain expenses on behalf of Consolidated Funds and non-consolidated funds for which it is reimbursed. Amounts advanced on behalf of Consolidated Funds are eliminated in consolidation. Certain expenses initially paid by the Company, primarily professional services, travel and other costs associated with particular portfolio company holdings are subject to reimbursement by the portfolio companies. The Company reimbursed ARCC approximately $0.6 million for certain recurring rent and utilities incurred by ARCC during the first quarter of 2018. In addition, in the second quarter ended June 30, 2018, the Company reimbursed ARCC approximately $2.2 million, $3.0 million, $3.2 million and $2.9 million of rent and utilities for the years ended 2017, 2016, 2015 and 2014, respectively, for an aggregate reimbursement to ARCC of $11.8 million. Beginning April 1, 2018, the Company directly incurs these expenses.

ARCC Investment Advisory and Management Agreement

In connection with ARCC's board approval of the modification of the asset coverage requirement applicable to senior securities from 200% to 150% effective on June 21, 2019, (unless ARCC receives earlier stockholder approval), the investment advisory and management agreement will be amended prior to June 21, 2019 (or such earlier date), to reduce the annual base management fee paid to the Company from 1.5% to 1.0% on all assets financed using leverage over 1.0 times debt to equity.

10. INCOME TAXES

Effective March 1, 2018, the Company elected to be treated as a corporation for U.S. federal income tax purposes, while remaining a limited partnership under state law. A portion of the Company’s operations was and continues to be held through AHI and corporate subsidiaries of Ares Investments. AHI and such corporate subsidiaries are U.S. corporations and subject to U.S. corporate tax on earnings that flow through from subsidiary entities. The income of such corporations has historically been subject to U.S. federal, state and local income taxes, and certain of its foreign subsidiaries continue to be subject to foreign income taxes (for which a foreign tax credit can generally offset U.S. corporate taxes imposed on the same income). Prior to March 1, 2018, a substantial portion of the Company’s earnings flowed through to owners of the Company without being subject to entity level income taxes. Consequently, a significant portion of the Company’s earnings did not reflect a provision for income taxes except those for foreign, state, city and local income taxes incurred at the entity level. Beginning March 1, 2018, this portion of the Company’s earnings was subject to U.S. corporate tax.

38

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company’s income tax provision includes corporate income taxes and other entity level income taxes, as well as income taxes incurred by certain affiliated funds that are consolidated in these financial statements. The Company recorded an income tax expense of $5.1 million and $29.7 million for the three and nine months ended September 30, 2018, respectively. In connection with its election to be taxed as a corporation effective March 1, 2018, the Company recorded a significant one-time deferred tax liability arising from the embedded net unrealized gains of both carried interest and the investment portfolio that were not previously subject to corporate taxes. Cash taxes will only be paid on unrealized gains to the extent realized. The Company had an income tax expense of $4.6 million for the three months ended September 30, 2017. For the nine months ended September 30, 2017, the Company had an income tax benefit of $28.5 million primarily driven by the one-time ARCC-ACAS transaction support payment.

Supplemental information on an unaudited pro forma basis, as if the Company's election to be treated as a corporation for U.S. federal income tax purposes was effective for the three and nine months ended September 30, 2017 is as follows:

	Three Months Ended September 30,
					2017
	2018		2017		Pro forma
Provision for Income Taxes - The Company
Income tax expense of the Company	$	5,118	$	3,354	$	11,565
Provision for Income Taxes - Consolidated Funds
Income tax expense of the Consolidated Funds	13		1,198		1,198
Total provision for income taxes	$	5,131	$	4,552	$	12,763

	Nine Months Ended September 30,
						2017
	2018		2017			Pro forma
Provision for Income Taxes - The Company
Income tax expense (benefit) of the Company	$	29,577	$	(30,521	)	$	2,037
Provision for Income Taxes - Consolidated Funds
Income tax expense of the Consolidated Funds	82		2,062			2,062
Total provision (benefit) for income taxes	$	29,659	$	(28,459	)	$	4,099

The 2017 pro forma tax information was calculated as if the Company's election to be treated as a corporation for U.S. federal income tax purposes was effective for the three and nine months ended September 30, 2017.

The Company’s effective income tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues and expenses between U.S. corporate entities that are subject to income taxes and those subsidiaries that are not. For the three and nine months ended September 30, 2018 and 2017, the Company has utilized the discrete effective tax rate method to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. Additionally, the Company’s effective tax rate is influenced by the amount of income tax provision recorded for any affiliated funds that are consolidated in these financial statements. Consequently, the effective income tax rate is subject to significant variation from period to period.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign tax regulators. As of September 30, 2018, the Company’s U.S. federal income tax returns for the years 2014 through 2018 are open under the normal statute of limitations and therefore subject to examination. State and local tax returns are generally subject to audit from 2014 to 2018. Foreign tax returns are generally subject to audit from 2013 to 2018. Although the outcome of tax audits is always uncertain, the Company

39

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

does not believe the outcome of any future audit will have a material adverse effect on the Company’s condensed consolidated financial statements.

11. EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing income available to common shareholders by the weighted‑average number of common shares outstanding during the period. Diluted earnings per common share are computed using the more dilutive method of either the two-class method or the treasury stock method.

For the three and nine months ended September 30, 2018 and 2017, the two-class method was the more dilutive method for the unvested restricted units. No participating securities had rights to undistributed earnings during any period presented.

The computation of diluted earnings per common share for the three and nine months ended September 30, 2018 and 2017 excludes the following options, restricted units and AOG Units, as their effect would have been anti-dilutive:

	For the Three Months Ended   September 30,		For the Nine Months Ended   September 30,
	2018	2017	2018	2017
Options	19,102,583	21,022,924	19,345,651	21,170,880
Restricted units	15,635,997	13,742,856	15,874,847	14,223,345
AOG Units	119,822,657	130,192,448	122,732,149	130,280,878

The following table presents the computation of basic and diluted earnings per common share:

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Net income attributable to Ares Management, L.P. common shareholders	$	10,485		$	22,413		$	28,808		$	20,307
Earnings distributed to participating securities (restricted units)	(1,567		)	(1,003		)	(5,667		)	(2,248		)
Net income available to common shareholders	$	8,918		$	21,410		$	23,141		$	18,059
Basic weighted-average common shares	98,706,419			82,166,852			94,168,582			81,704,815
Basic earnings per common share	$	0.09		$	0.26		$	0.25		$	0.22
Diluted weighted-average common shares	98,706,419			82,166,852			94,168,582			81,704,815
Diluted earnings per common share	$	0.09		$	0.26		$	0.25		$	0.22

40

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

12. EQUITY COMPENSATION

Equity Incentive Plan

In 2014, the Company adopted the Ares Management, L.P. 2014 Equity Incentive Plan (the “Equity Incentive Plan”). Based on a formula as defined in the Equity Incentive Plan, the total number of shares available to be issued under the Equity Incentive Plan resets and may increase on January 1 each year.  Accordingly, on January 1, 2018, the total number of shares available for issuance under the Equity Incentive Plan increased to 31,853,504 shares, and as of September 30, 2018, 27,332,417 shares remain available for issuance.

Generally, unvested phantom units, restricted units and options are forfeited upon termination of employment in accordance with the Equity Incentive Plan. The Company recognizes forfeitures as a reversal of previously recognized compensation expense in the period the forfeiture occurs.

Equity-based compensation expense, net of forfeitures is included in the following table:

	For the Three Months Ended   September 30,				For the Nine Months Ended   September 30,
	2018		2017		2018		2017
Restricted units	$	19,251	$	14,555	$	55,798	$	40,375
Restricted units with a market condition	614		—		614		—
Options	3,660		3,224		9,953		10,637
Phantom units	415		312		1,169		1,085
Equity-based compensation expense	$	23,940	$	18,091	$	67,534	$	52,097

Restricted Units

During July 2018, the Company granted 2,000,000 restricted units to an executive composed of 1,333,334 units that are subject to contingent vesting based on the Company’s future stock price and 666,666 service-based restricted units with terms similar to those described below.

Each restricted unit represents an unfunded, unsecured right of the holder to receive a common share on a specific date. The restricted units generally vest and are settled in common shares either (i) at a rate of one-third per year, beginning on the third anniversary of the grant date, (ii) in their entirety on the fifth anniversary of the grant date, or (iii) at a rate of one quarter per year, beginning on either the first or second anniversary of the grant date or the holder’s employment commencement date, in each case generally subject to the holder’s continued employment as of the applicable vesting date (subject to accelerated vesting upon certain qualifying terminations of employment). Compensation expense associated with restricted units is recognized on a straight-line basis over the requisite service period of the award.

The holders of restricted units generally have the right to receive as current compensation an amount in cash equal to (i) the amount of any distribution paid with respect to a common share multiplied by (ii) the number of restricted units held at the time such distributions are declared (“Dividend Equivalent”). For the three and nine months ended September 30, 2018, Dividend Equivalents were made to the holders of restricted units in the aggregate amount of $4.5 million and $16.9 million, respectively, which are presented as dividends within the Condensed Consolidated Statements of Changes in Equity. When restricted units are forfeited, the cumulative amount of dividend equivalents previously paid is reclassified to compensation and benefits expense in the Condensed Consolidated Statements of Operations.

41

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents unvested restricted units' activity during the nine months ended September 30, 2018:

	Restricted Units		Weighted Average Grant Date Fair Value Per Unit
Balance - January 1, 2018	13,751,888		$	17.58
Granted	4,457,869		23.12
Vested	(1,917,705	)	16.95
Forfeited	(291,439	)	19.42
Balance - September 30, 2018	16,000,613		$	19.16

The total compensation expense expected to be recognized in all future periods associated with the restricted units is approximately $211.5 million as of September 30, 2018 and is expected to be recognized over the remaining weighted average period of 3.37 years.

Restricted Unit Awards with a Market Condition

During July 2018, the Company issued certain restricted units with a vesting condition contingent upon the volume-weighted, average closing price of the Company’s common shares meeting or exceeding a stated price for 30 consecutive calendar days on or prior to January 1, 2028, referred to as the market condition. 666,667 restricted units with a market condition of $35.00 per share (“Tranche I”) and 666,667 restricted units with a market condition of $45.00 per share (“Tranche II”) were issued. Vesting is also generally subject to continued employment at the time such market condition is achieved subject to continued vesting upon certain qualifying terminations of employment. Under the terms of the awards, if the price target is not achieved by the close of business on January 1, 2028, the unvested market condition awards will be automatically canceled and forfeited. Restricted units subject to a market condition are not eligible to receive a Dividend Equivalent.

The grant date fair values for Tranche I and Tranche II awards were $10.92 and $7.68 per unit, respectively, based on a probability distributed Monte-Carlo simulation. Due to the existence of the market condition, the vesting period for the awards is not explicit, and as such, compensation expense is recognized on a straight-line basis over the median vesting period derived from the positive iterations of the Monte Carlo simulation where the market condition was achieved. The median vesting period is 3.0 years and 4.3 years for Tranche I and Tranche II, respectively.

Below is a summary of the significant assumptions used to estimate the grant date fair value of the market condition awards:

Closing price of the Company's common shares as of valuation date	$	20.95
Risk-free interest rate	2.95		%
Volatility	30.0		%
Dividend yield	5.0		%
Cost of equity	10.0		%

The following table presents the unvested market condition awards' activity during the nine months ended September 30, 2018:

	Market Condition Awards Units	Weighted Average Grant Date Fair Value Per Unit
Balance - January 1, 2018	—	$	—
Granted	1,333,334	9.30
Vested	—	—
Forfeited	—	—
Balance - September 30, 2018	1,333,334	$	9.30

42

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The total compensation expense expected to be recognized in all future periods associated with the market condition awards is approximately $11.8 million as of September 30, 2018 and is expected to be recognized over the remaining weighted average period of 3.38 years.

Options

A summary of options activity during the nine months ended September 30, 2018 is presented below:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)	Aggregate Intrinsic Value
Balance - January 1, 2018	20,495,025		$	18.99	6.09	$	20,611
Granted	—				—
Exercised	(50,000	)	19.00		—	90
Expired	(907,046	)	19.00		—
Forfeited	(444,203	)	19.00		—
Balance - September 30, 2018	19,093,776		$	18.99	5.56	$	80,359
Exercisable at September 30, 2018	12,698,194		$	19.00	5.53	$	53,388

As of September 30, 2018, there was $8.5 million of total unrecognized compensation expense that is expected to be recognized over the remaining weighted average period of 0.61 years. Net cash proceeds from the exercises of stock options was $1.0 million for the nine months ended September 30, 2018. The Company realized an immaterial amount of tax benefits from those exercises.

Phantom Units

A summary of unvested phantom unit activity during the nine months ended September 30, 2018 is presented below:

	Phantom Units		Weighted Average Grant Date Fair Value Per Share
Balance - January 1, 2018	156,153		$	19.00
Vested	(70,352	)	19.00
Forfeited	(18,830	)	19.00
Balance - September 30, 2018	66,971		$	19.00

The fair value of the phantom unit awards is remeasured at each reporting period and was $23.20 per unit as of September 30, 2018. Based on the fair value of the awards at September 30, 2018, $0.9 million of unrecognized compensation expense in connection with phantom units outstanding is expected to be recognized over a weighted average period of 0.61 years. During the nine months ended September 30, 2018, the Company paid $1.6 million to settle vested phantom units.

43

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

13. EQUITY

Ares Management, L.P.

Common Shares

Common shares represent limited partnership interests in the Company. The holders of common shares are entitled to participate pro rata in distributions from the Company and to exercise the rights or privileges that are available to common shareholders under the Company’s partnership agreement. The common shareholders have limited voting rights and have no right to remove the Company’s general partner, Ares Management GP LLC, or, except in limited circumstances, to elect the directors of the general partner. During the quarter ended March 31, 2018, an affiliate of Alleghany Corporation (“Alleghany”) exchanged 9,750,000 of its AOG Units into 9,750,000 common shares. During the quarter ended September 30, 2018, Alleghany exchanged its remaining 2,750,000 of AOG Units into 2,750,000 common shares.

Common Share Offering

On March 12, 2018, AREC Holdings Ltd., a wholly owned subsidiary of Abu Dhabi Investment Authority (collectively, “ADIA”), and the Company completed a public offering of 15,000,000 common shares. In connection with this offering, ADIA sold 10,000,000 of its previously issued and outstanding common shares from which the Company received no proceeds. Additionally, the Company issued 5,000,000 common shares from which it received $105.9 million in gross proceeds. The Company incurred approximately $0.5 million of expenses in connection with this offering transaction. The expenses have been treated as a reduction of the proceeds received from the offering and are presented on a net basis together with the proceeds from the offering in shareholders' equity in the Condensed Consolidated Statements of Changes in Equity.

In April 2018, the underwriters in the offering exercised a portion of their option to purchase 1,130,000 additional common shares from ADIA. The Company did not receive any of the proceeds from the underwriters' exercise. The expenses incurred by the Company related to the option exercise have been included in other income (expense), net in the Condensed Consolidated Statements of Operations. ADIA paid the underwriting discounts and commissions and/or similar charges incurred for the sale of the common shares.

The following table presents each partner's AOG Units and corresponding ownership interest in each of the Ares Operating Group entities as of September 30, 2018 and December 31, 2017, as well as its daily average ownership of AOG Units in each of the Ares Operating Group entities for the nine months ended September 30, 2018 and 2017.

							Daily Average Ownership
	As of September 30, 2018			As of December 31, 2017			For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	AOG Units	Direct Ownership Interest		AOG Units	Direct Ownership Interest		2018		2017		2018		2017
Ares Management, L.P.	101,489,282	46.44	%	82,280,033	38.75	%	45.17	%	38.69	%	43.42	%	38.54	%
Ares Owners Holding L.P.	117,047,394	53.56	%	117,576,663	55.36	%	53.67	%	55.42	%	54.14	%	55.56	%
Affiliate of Alleghany Corporation	—	—		12,500,000	5.89	%	1.16	%	5.89	%	2.44	%	5.90	%
Total	218,536,676	100.00	%	212,356,696	100.00	%

Preferred Equity

As of September 30, 2018 and December 31, 2017, the Company had 12,400,000 shares of Series A Preferred Equity (the “Preferred Equity”) outstanding. 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 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 share.

In July 2018, the board of directors of the Company's general partner authorized the repurchase, from time to time in open market purchases or privately negotiated transactions of the Company's Preferred Equity with an aggregate liquidation preference of up to $50.0 million. Such repurchases, if any, will depend on the prevailing market conditions and other factors.

44

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

14. SEGMENT REPORTING

The Company operates through its three distinct operating segments. During the nine months ended September 30, 2018, the Company reclassified certain expenses from OMG to its operating segments. Historical results have been modified to conform to the current period presentation.

The Company’s three operating segments are:

Credit Group: The Company’s Credit Group is a leading manager of credit strategies across the non-investment grade credit universe in the U.S. and Europe, with approximately $91.5 billion of AUM and 155 funds as of September 30, 2018. The Credit Group offers a range of credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, credit opportunities, structured credit investments and U.S. and European direct lending. The Credit Group provides solutions for traditional fixed income investors seeking to access the syndicated loans and high yield bond markets and capitalizes on opportunities across traded corporate credit. It additionally provides investors access to directly originated fixed and floating rate credit assets and the ability to capitalize on illiquidity premiums across the credit spectrum. The Credit Group’s syndicated loans strategy focuses on liquid, traded non-investment grade secured loans to corporate issuers. The high yield bond strategy seeks to deliver a diversified portfolio of liquid, traded non-investment grade corporate bonds, including secured, unsecured and subordinated debt instruments. Credit opportunities is a “go anywhere” strategy seeking to capitalize on market inefficiencies and relative value opportunities across the capital structure. The structured credit strategy invests across the capital structures of syndicated collateralized loan obligation vehicles (CLOs) and in directly-originated asset-backed instruments composed of diversified portfolios of consumer and commercial assets. The Company has one of the largest self-originating direct lending platforms in the U.S. and European middle markets, providing one-stop financing solutions for small-to-medium sized companies, which the Company believes are increasingly underserved by traditional lenders. The Company provides investors access to these capabilities through several vehicles, including commingled funds, separately managed accounts and a publicly traded vehicle. The Credit Group conducts its U.S. direct lending activities primarily through ARCC, the largest business development company as of September 30, 2018, by both market capitalization and total assets. In addition, the Credit Group manages a commercial finance business that provides asset-based and cash flow loans to small and middle-market companies, as well as asset-based facilities to specialty finance companies. The Credit Group’s European direct lending platform is one of the most significant participants in the European middle-market, focusing on self-originated investments in illiquid middle-market credits.

Private Equity Group:  The Company’s Private Equity Group has approximately $23.0 billion of AUM as of September 30, 2018, broadly categorizing its investment strategies as corporate private equity, infrastructure and power and special opportunities. As of September 30, 2018 the group managed five corporate private equity commingled funds focused on North America and Europe and three focused on greater China, six commingled funds and six related co-investment vehicles focused on infrastructure and power and two special opportunities funds. In its North American and European flexible capital strategy, the Company targets opportunistic majority or shared-control investments in businesses with strong franchises and attractive growth opportunities in North America and Europe. The infrastructure and power strategy targets infrastructure-related assets across the power generation, transmission and midstream sectors, seeking attractive risk-adjusted equity returns with current cash flow and capital appreciation. The special opportunities strategy seeks to invest opportunistically across a broad spectrum of distressed or mispriced investments, including corporate debt, rescue capital, private asset-backed investments, post-reorganization securities and non-performing portfolios.

Real Estate Group:  The Company’s Real Estate Group manages public and private equity and debt strategies, with approximately $10.6 billion of AUM across 42 funds as of September 30, 2018. Real Estate equity strategies focus on applying hands-on value creation initiatives to mismanaged and capital-starved assets, as well as new development, ultimately selling stabilized assets back into the market. The Real Estate Group manages both a value-add strategy and an opportunistic strategy.  The value-add strategy seeks to create value by buying assets at attractive valuations and through active asset management of income-producing properties across the U.S. and Western Europe. The opportunistic strategy focuses on manufacturing core assets through development, redevelopment and fixing distressed capital structures across major properties in the U.S. and Europe.  The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and manage commercial mortgage investments on properties that range from stabilized to requiring hands-on value creation.  In addition to managing private debt funds, the Real Estate Group makes debt investments through a publicly traded commercial mortgage real estate investment trust, ACRE. 

45

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company has an OMG that consists of shared resource groups to support the Company’s operating segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, business development/corporate strategy, legal/compliance and human resources. Additionally, the OMG provides services to certain of the Company’s investment companies and partnerships, which reimburse the OMG for expenses equal to the costs of services provided. The OMG’s expenses are not allocated to the Company’s three reportable segments but the Company does consider the cost structure of the OMG when evaluating its financial performance.

Non-GAAP Measures: These measures supplement and should be considered in addition to, and not in lieu of, the Consolidated Statements of Operations prepared in accordance with GAAP.

Fee related earnings (“FRE”), a non-GAAP measure, refers to a component of ENI that is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it adjusts for the items included in the calculation of ENI and excludes performance income, performance related compensation, investment income from the Consolidated Funds and non-consolidated funds and certain other items that the Company believes are not indicative of its core operating performance.

Realized income (“RI”), a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that we believe are not indicative of our operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE and RI for the current period. Prior to the introduction of RI, management used distributable earnings for this evaluation. Management believes RI is a more appropriate metric to evaluate the Company's current business operations.

Economic net income (“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 the Company’s business segments. ENI differs from net income by excluding (a) income tax expense, (b) operating results of the Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, and (e) certain other items that the Company believes are not indicative of its total operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers and acquisitions and capital transactions, underwriting costs, and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE and RI for the current period.

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

Management makes operating decisions and assesses the performance of each of the Company’s business segments based on financial and operating metrics and other data that is presented before giving effect to the consolidation of any of the Consolidated Funds. Consequently, all segment data excludes the assets, liabilities and operating results related to the Consolidated Funds and non‑consolidated funds.

46

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended September 30, 2018:

	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $33,377)	$	145,414		$	48,287		$	19,961		$	213,662		$	—		$	213,662
Other fees	3,656			206			10			3,872			—			3,872
Compensation and benefits	(54,994		)	(17,443		)	(10,733		)	(83,170		)	(32,202		)	(115,372		)
General, administrative and other expenses	(10,731		)	(5,866		)	(2,856		)	(19,453		)	(18,292		)	(37,745		)
Fee related earnings	83,345			25,184			6,382			114,911			(50,494		)	64,417
Performance income—realized	1,729			52,729			17,110			71,568			—			71,568
Performance related compensation—realized	(1,113		)	(42,045		)	(16,865		)	(60,023		)	—			(60,023		)
Investment income—realized	1,063			8,104			6,846			16,013			22			16,035
Interest and other investment income—realized	1,604			1,032			486			3,122			442			3,564
Interest expense	(1,527		)	(1,577		)	(417		)	(3,521		)	(622		)	(4,143		)
Realized income	85,101			43,427			13,542			142,070			(50,652		)	91,418
Performance income—unrealized	26,867			(109,024		)	44,158			(37,999		)	—			(37,999		)
Performance related compensation—unrealized	(17,997		)	87,086			(26,672		)	42,417			—			42,417
Investment income (loss)—unrealized	2,524			(25,725		)	(2,920		)	(26,121		)	5,247			(20,874		)
Interest and other investment income—unrealized	770			40			(45		)	765			(10		)	755
Economic net income	$	97,265		$	(4,196	)	$	28,063		$	121,132		$	(45,415	)	$	75,717
Performance related earnings	$	13,920		$	(29,380	)	$	21,681		$	6,221		5,079			$	11,300

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended September 30, 2017:

	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $24,036)	$	120,178		$	51,313		$	17,137		$	188,628		$	—		$	188,628
Other fees	5,668			449			27			6,144			—			6,144
Compensation and benefits	(46,822		)	(19,256		)	(11,398		)	(77,476		)	(27,306		)	(104,782		)
General, administrative and other expenses	(6,925		)	(4,655		)	(2,125		)	(13,705		)	(18,306		)	(32,011		)
Fee related earnings	72,099			27,851			3,641			103,591			(45,612		)	57,979
Performance income—realized	3,296			173,304			2,389			178,989			—			178,989
Performance related compensation—realized	(1,466		)	(138,657		)	(856		)	(140,979		)	—			(140,979		)
Investment income—realized	6,206			14,268			1,997			22,471			18			22,489
Interest and other investment income—realized	2,435			1,080			76			3,591			119			3,710
Interest expense	(3,277		)	(1,229		)	(396		)	(4,902		)	(441		)	(5,343		)
Realized income	79,293			76,617			6,851			162,761			(45,916		)	116,845
Performance income—unrealized	33,033			(142,822		)	20,366			(89,423		)	—			(89,423		)
Performance related compensation—unrealized	(19,820		)	114,395			(12,233		)	82,342			—			82,342
Investment income (loss)—unrealized	(1,123		)	(8,421		)	(767		)	(10,311		)	4,357			(5,954		)
Interest and other investment income—unrealized	(2,975		)	49			640			(2,286		)	(93		)	(2,379		)
Economic net income	88,408			39,818			14,857			143,083			(41,652		)	101,431
Performance related earnings	$	16,309		$	11,967		$	11,216		$	39,492		$	3,960		$	43,452

47

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the nine months ended September 30, 2018:

	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $91,660)	$	413,028		$	147,492		$	52,272		$	612,792		$	—		$	612,792
Other fees	16,263			883			20			17,166			—			17,166
Compensation and benefits	(157,166		)	(55,314		)	(27,140		)	(239,620		)	(93,867		)	(333,487		)
General, administrative and other expenses	(31,401		)	(14,082		)	(7,679		)	(53,162		)	(56,397		)	(109,559		)
Fee related earnings	240,724			78,979			17,473			337,176			(150,264		)	186,912
Performance income—realized	48,472			137,542			31,269			217,283			—			217,283
Performance related compensation—realized	(27,778		)	(109,916		)	(25,079		)	(162,773		)	—			(162,773		)
Investment income—realized	2,429			17,791			9,946			30,166			1,658			31,824
Interest and other investment income—realized	7,828			4,011			1,370			13,209			2,178			15,387
Interest expense	(9,796		)	(4,245		)	(1,289		)	(15,330		)	(1,758		)	(17,088		)
Realized income	261,879			124,162			33,690			419,731			(148,186		)	271,545
Performance income—unrealized	38,391			(221,563		)	55,948			(127,224		)	—			(127,224		)
Performance related compensation—unrealized	(8,062		)	175,304			(34,948		)	132,294			—			132,294
Investment income (loss)—unrealized	3,872			(29,585		)	(4,677		)	(30,390		)	9,344			(21,046		)
Interest and other investment income—unrealized	170			429			(1,130		)	(531		)	124			(407		)
Economic net income	296,250			48,747			48,883			393,880			(138,718		)	255,162
Performance related earnings	$	55,526		$	(30,232	)	$	31,410		$	56,704		$	11,546		$	68,250

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the nine months ended September 30, 2017:

	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $76,436)	$	354,179		$	147,559		$	49,231		$	550,969		$	—		$	550,969
Other fees	15,834			1,127			37			16,998			—			16,998
Compensation and benefits	(143,685		)	(50,862		)	(30,848		)	(225,395		)	(83,843		)	(309,238		)
General, administrative and other expenses	(23,014		)	(13,198		)	(7,947		)	(44,159		)	(56,481		)	(100,640		)
Fee related earnings	203,314			84,626			10,473			298,413			(140,324		)	158,089
Performance income—realized	19,957			238,084			3,883			261,924			—			261,924
Performance related compensation—realized	(8,649		)	(189,571		)	(1,033		)	(199,253		)	—			(199,253		)
Investment income—realized	9,049			17,564			4,153			30,766			3,217			33,983
Interest and other investment income—realized	7,548			2,549			401			10,498			1,020			11,518
Interest expense	(8,800		)	(4,139		)	(1,257		)	(14,196		)	(1,380		)	(15,576		)
Realized income	222,419			149,113			16,620			388,152			(137,467		)	250,685
Performance income—unrealized	41,062			118,162			64,243			223,467			—			223,467
Performance related compensation—unrealized	(27,357		)	(95,131		)	(39,303		)	(161,791		)	—			(161,791		)
Investment income (loss)—unrealized	16			25,479			(77		)	25,418			222			25,640
Interest and other investment income—unrealized	(5,149		)	715			1,668			(2,766		)	105			(2,661		)
Economic net income	230,991			198,338			43,151			472,480			(137,140		)	335,340
Performance related earnings	$	27,677		$	113,712		$	32,678		$	174,067		$	3,184		$	177,251

48

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the components of the Company’s operating segments’ revenue, expenses and net investment income (loss):

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Segment Revenues
Management fees (includes ARCC Part I Fees of $33,377, $91,660 and $24,036, $76,436 for the three and nine months ended September 30, 2018 and 2017, respectively)	$	213,662		$	188,628		$	612,792		$	550,969
Other fees	3,872			6,144			17,166			16,998
Performance income—realized	71,568			178,989			217,283			261,924
Performance income—unrealized	(37,999		)	(89,423		)	(127,224		)	223,467
Total segment revenues	$	251,103		$	284,338		$	720,017		$	1,053,358
Segment Expenses
Compensation and benefits	$	83,170		$	77,476		$	239,620		$	225,395
General, administrative and other expenses	19,453			13,705			53,162			44,159
Performance related compensation—realized	60,023			140,979			162,773			199,253
Performance related compensation—unrealized	(42,417		)	(82,342		)	(132,294		)	161,791
Total segment expenses	$	120,229		$	149,818		$	323,261		$	630,598
Segment net investment income (loss)
Investment income—realized	$	16,013		$	22,471		$	30,166		$	30,766
Investment income (loss)—unrealized	(26,121		)	(10,311		)	(30,390		)	25,418
Interest and other investment income	3,887			1,305			12,678			7,732
Interest expense	(3,521		)	(4,902		)	(15,330		)	(14,196		)
Total segment net investment income (loss)	$	(9,742	)	$	8,563		$	(2,876	)	$	49,720

The following table reconciles segment revenue to Ares consolidated revenues:

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Total segment revenue	$	251,103		$	284,338		$	720,017		$	1,053,358
Revenue of Consolidated Funds eliminated in consolidation	(8,716		)	(16,465		)	(38,949		)	(34,822		)
Administrative fees(1)	7,084			7,352			20,266			26,090
Performance income reclass(2)	(795		)	(1,187		)	211			(1,428		)
Principal investment income	(7,886		)	14,374			9,544			61,709
Revenue of non-controlling interests in consolidated subsidiaries(3)	(13		)	(10		)	(60		)	(64		)
Total consolidated adjustments and reconciling items	(10,326		)	4,064			(8,988		)	51,485
Total consolidated revenue	$	240,777		$	288,402		$	711,029		$	1,104,843

(1) Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Condensed Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.

(2) Related to performance income for AREA Sponsor Holdings LLC, an investment pool. Changes in value of this investment are reflected within other income (expense) in the Company’s Condensed Consolidated Statements of Operations.

(3) Adjustments for administrative fees reimbursed attributable to certain of our joint venture partners.

49

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table reconciles segment expenses to Ares consolidated expenses:

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Total segment expenses	$	120,229		$	149,818		$	323,261		$	630,598
Expenses of Consolidated Funds added in consolidation	21,971			25,862			77,982			45,196
Expenses of Consolidated Funds eliminated in consolidation	(9,138		)	(6,823		)	(28,721		)	(17,724		)
Administrative fees(1)	7,084			7,352			20,266			26,090
OMG expenses	50,494			45,612			150,264			140,324
Acquisition and merger-related expenses	253			2,818			(19		)	278,878
Equity compensation expense	23,940			18,091			67,534			52,097
Placement fees and underwriting costs	6,194			4,495			9,710			14,317
Amortization of intangibles	1,245			3,651			7,817			14,200
Depreciation expense	4,102			3,468			12,417			9,458
Other expenses(2)	—			—			11,836			—
Expenses of non-controlling interests in consolidated subsidiaries(3)	814			(217		)	2,141			357
Total consolidation adjustments and reconciling items	106,959			104,309			331,227			563,193
Total consolidated expenses	$	227,188		$	254,127		$	654,488		$	1,193,791

(1) Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Condensed Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.

(2) Nine months ended September 30, 2018 includes an $11.8 million payment made to ARCC during the second quarter of 2018 for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

(3) Costs being borne by certain of our joint venture partners.

The following table reconciles segment net investment income (loss) to Ares consolidated other income:

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Total segment net investment income (loss)(1)	$	(9,742	)	$	8,563		$	(2,876	)	$	49,720
Other income from Consolidated Funds added in consolidation, net	34,645			55,227			111,090			90,522
Other expense from Consolidated Funds eliminated in consolidation, net	86			(330		)	620			(763		)
Other income of non-controlling interests in consolidated subsidiaries	8			9			23			14
OMG other income	5,079			3,960			11,546			3,184
Performance income reclass(2)	795			1,187			(211		)	1,428
Principal investment income (loss)	7,886			(14,374		)	(9,544		)	(61,709		)
Changes in value of contingent consideration	—			(60		)	—			20,156
Other non-cash expense	(3		)	—			(1,725		)	—
Offering costs	—			(33		)	(3		)	(688		)
Total consolidation adjustments and reconciling items	48,496			45,586			111,796			52,144
Total consolidated other income	$	38,754		$	54,149		$	108,920		$	101,864

(1) Comprised of investment income (loss), interest and other investment income, and interest expense.

(2) Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations.

50

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the reconciliation of income before taxes as reported in the Condensed Consolidated Statements of Operations to segment results of ENI, RI, FRE and PRE:

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Economic net income
Income before taxes	$	52,343		$	88,424		$	165,461		$	12,916
Adjustments:
Amortization of intangibles	1,245			3,651			7,817			14,200
Depreciation expense	4,102			3,468			12,417			9,458
Equity compensation expenses	23,940			18,091			67,534			52,097
Acquisition and merger-related expenses	253			2,878			(19		)	258,722
Placement fees and underwriting costs	6,194			4,495			9,710			14,317
OMG expenses, net	45,415			41,652			138,718			137,140
Offering costs	—			33			3			688
Other expense(1)	3			—			13,561			—
Expense of non-controlling interests in consolidated subsidiaries(2)	819			(216		)	2,178			407
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(13,182		)	(19,393		)	(23,500		)	(27,465		)
Total consolidation adjustments and reconciling items	68,789			54,659			228,419			459,564
Economic net income	121,132			143,083			393,880			472,480
Total performance income - unrealized	37,999			89,423			127,224			(223,467		)
Total performance related compensation - unrealized	(42,417		)	(82,342		)	(132,294		)	161,791
Total investment (income) loss - unrealized	25,356			12,597			30,921			(22,652		)
Realized income	142,070			162,761			419,731			388,152
Total performance income - realized	(71,568		)	(178,989		)	(217,283		)	(261,924		)
Total performance related compensation - realized	60,023			140,979			162,773			199,253
Total investment income - realized	(15,614		)	(21,160		)	(28,045		)	(27,068		)
Fee related earnings	114,911			103,591			337,176			298,413
Performance related earnings
Economic net income	$	121,132		$	143,083		$	393,880		$	472,480
Less: fee related earnings	(114,911		)	(103,591		)	(337,176		)	(298,413		)
Performance related earnings	$	6,221		$	39,492		$	56,704		$	174,067

(1) Nine months ended September 30, 2018 includes an $11.8 million payment made to ARCC during the second quarter of 2018 for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

(2) Adjustments for administrative fees reimbursed and other revenue items attributable to certain of our joint venture partners.

51

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

15. CONSOLIDATION

Investments in Consolidated Variable Interest Entities

The Company consolidates entities in which the Company has a variable interest and, as the general partner or investment manager, has both the power to direct the most significant activities and a potentially significant economic interest. Investments in the consolidated VIEs are reported at their carrying value, which approximates fair value, and represents the Company’s maximum exposure to loss.

Investments in Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated as the Company is not the primary beneficiary. The Company's interest in such entities generally is in the form of direct equity interests, fixed fee arrangements or both. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities. Investments in the non-consolidated VIEs are carried at fair value.

The Company's interests and the Consolidated Funds' interests in consolidated and non-consolidated VIEs, as presented in the Condensed Consolidated Statements of Financial Condition, and their respective maximum exposure to loss relating to non-consolidated VIEs are as follows:

	As of September 30,		As of December 31,
	2018		2017
Maximum exposure to loss attributable to the Company's investment in non-consolidated VIEs	$	206,850	$	251,376
Maximum exposure to loss attributable to the Company's investment in consolidated VIEs	190,316		175,620
Assets of consolidated VIEs	8,404,540		6,231,245
Liabilities of consolidated VIEs	7,649,028		5,538,054

	For the Three Months Ended   September 30,				For the Nine Months Ended   September 30,
	2018		2017		2018		2017
Net income attributable to non-controlling interests related to consolidated VIEs	$	13,169	$	18,195	$	23,418	$	25,403

52

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

CONSOLIDATING SCHEDULES

The following supplemental financial information illustrates the consolidating effects of the Consolidated Funds on the Company's financial condition as of September 30, 2018 and December 31, 2017 and results from operations for the three and nine months ended September 30, 2018 and 2017.  

	As of September 30, 2018
	Consolidated Company  Entities			Consolidated Funds		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	122,192		$	—	$	—		$	122,192
Investments ($947,267 of accrued carried interest)	1,605,964			—		(190,316		)	1,415,648
Due from affiliates	191,983			—		(7,997		)	183,986
Deferred tax asset, net	16,240			—		—			16,240
Other assets	102,411			—		—			102,411
Intangible assets, net	32,756			—		—			32,756
Goodwill	143,827			—		—			143,827
Assets of Consolidated Funds
Cash and cash equivalents	—			760,581		—			760,581
Investments, at fair value	—			7,515,383		—			7,515,383
Due from affiliates	—			14,658		—			14,658
Dividends and interest receivable	—			16,534		—			16,534
Receivable for securities sold	—			95,490		—			95,490
Other assets	—			1,894		—			1,894
Total assets	$	2,215,373		$	8,404,540	$	(198,313	)	$	10,421,600
Liabilities
Accounts payable, accrued expenses and other liabilities	$	76,648		$	—	$	—		$	76,648
Accrued compensation	127,481			—		—			127,481
Due to affiliates	59,456			—		—			59,456
Performance related compensation payable	688,100			—		—			688,100
Debt obligations	350,789			—		—			350,789
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—			77,752		—			77,752
Due to affiliates	—			7,997		(7,997		)	—
Payable for securities purchased	—			531,615		—			531,615
CLO loan obligations, at fair value	—			6,897,920		(13,224		)	6,884,696
Fund borrowings	—			133,744		—			133,744
Total liabilities	1,302,474			7,649,028		(21,221		)	8,930,281
Commitments and contingencies
Preferred equity (12,400,000 shares issued and outstanding)	298,761			—		—			298,761
Non-controlling interest in Consolidated Funds	—			755,512		(177,092		)	578,420
Non-controlling interest in Ares Operating Group entities	319,820			—		—			319,820
Controlling interest in Ares Management, L.P.:
Shareholders' equity (101,489,282 shares issued and outstanding)	301,721			—		—			301,721
Accumulated other comprehensive loss, net of tax	(7,403		)	—		—			(7,403		)
Total controlling interest in Ares Management, L.P.	294,318			—		—			294,318
Total equity	912,899			755,512		(177,092		)	1,491,319
Total liabilities and equity	$	2,215,373		$	8,404,540	$	(198,313	)	$	10,421,600

53

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

	As of December 31, 2017
	As adjusted
	Consolidated Company  Entities			Consolidated Funds		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	118,929		$	—	$	—		$	118,929
Investments ($1,077,236 of accrued carried interest)	1,900,191			—		(175,620		)	1,724,571
Due from affiliates	171,701			—		(5,951		)	165,750
Deferred tax asset, net	8,326			—		—			8,326
Other assets	135,674			—		(5,333		)	130,341
Intangible assets, net	40,465			—		—			40,465
Goodwill	143,895			—		—			143,895
Assets of Consolidated Funds
Cash and cash equivalents	—			556,500		—			556,500
Investments, at fair value	—			5,582,842		—			5,582,842
Due from affiliates	—			15,884		—			15,884
Dividends and interest receivable	—			12,568		—			12,568
Receivable for securities sold	—			61,462		—			61,462
Other assets	—			1,989		—			1,989
Total assets	$	2,519,181		$	6,231,245	$	(186,904	)	$	8,563,522
Liabilities
Accounts payable, accrued expenses and other liabilities	$	81,955		$	—	$	—		$	81,955
Accrued compensation	27,978			—		—			27,978
Due to affiliates	39,184			—		—			39,184
Performance related compensation payable	822,084			—		—			822,084
Debt obligations	616,176			—		—			616,176
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—			64,316		—			64,316
Due to affiliates	—			11,285		(11,285		)	—
Payable for securities purchased	—			350,145		—			350,145
CLO loan obligations, at fair value	—			4,974,110		(10,916		)	4,963,194
Fund borrowings	—			138,198		—			138,198
Total liabilities	1,587,377			5,538,054		(22,201		)	7,103,230
Commitments and contingencies
Preferred equity (12,400,000 shares issued and outstanding)	298,761			—		—			298,761
Non-controlling interest in Consolidated Funds	—			693,191		(164,703		)	528,488
Non-controlling interest in Ares Operating Group entities	358,186			—		—			358,186
Controlling interest in Ares Management, L.P.:
Shareholders' equity (82,280,033 shares issued and outstanding)	279,065			—		—			279,065
Accumulated other comprehensive loss, net of tax	(4,208		)	—		—			(4,208		)
Total controlling interest in Ares Management, L.P.	274,857			—		—			274,857
Total equity	931,804			693,191		(164,703		)	1,460,292
Total liabilities and equity	$	2,519,181		$	6,231,245	$	(186,904	)	$	8,563,522

54

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

	For the Three Months Ended September 30, 2018
	Consolidated Company  Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $33,377)	$	213,662		$	—		$	(9,138	)	$	204,524
Carried interest allocation	31,902						—			31,902
Incentive fees	872						—			872
Principal investment income	(7,886		)	—			422			(7,464		)
Administrative, transaction and other fees	10,943			—			—			10,943
Total revenues	249,493			—			(8,716		)	240,777
Expenses
Compensation and benefits	145,594			—			—			145,594
Performance related compensation	17,606			—			—			17,606
General, administrative and other expense	51,155			—			—			51,155
Expenses of the Consolidated Funds	—			21,971			(9,138		)	12,833
Total expenses	214,355			21,971			(9,138		)	227,188
Other income (expense)
Net realized and unrealized gain on investments	6,540			—			(998		)	5,542
Interest and dividend income	901			—			(93		)	808
Interest expense	(4,143		)	—			—			(4,143		)
Other income, net	725			—			86			811
Net realized and unrealized gain on investments of the Consolidated Funds	—			4,686			751			5,437
Interest and other income of the Consolidated Funds	—			93,062			—			93,062
Interest expense of the Consolidated Funds	—			(63,103		)	340			(62,763		)
Total other income	4,023			34,645			86			38,754
Income before taxes	39,161			12,674			508			52,343
Income tax expense	5,118			13			—			5,131
Net income	34,043			12,661			508			47,212
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			12,661			508			13,169
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	18,133			—			—			18,133
Net income attributable to Ares Management, L.P.	15,910			—			—			15,910
Less: Preferred equity dividend paid	5,425			—			—			5,425
Net income attributable to Ares Management, L.P. common shareholders	$	10,485		$	—		$	—		$	10,485

55

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

	For the Three Months Ended September 30, 2017
	As adjusted
	Consolidated Company  Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $24,036)	$	188,628		$	—		$	(5,451	)	$	183,177
Carried interest allocation	82,534			—			—			82,534
Incentive fees	5,845			—			(1,371		)	4,474
Principal investment income	14,374			—			(9,643		)	4,731
Administrative, transaction and other fees	13,486			—			—			13,486
Total revenues	304,867			—			(16,465		)	288,402
Expenses
Compensation and benefits	129,347			—			—			129,347
Performance related compensation	58,637			—			—			58,637
General, administrative and other expense	47,104			—			—			47,104
Expenses of the Consolidated Funds	—			25,862			(6,823		)	19,039
Total expenses	235,088			25,862			(6,823		)	254,127
Other income (expense)
Net realized and unrealized gain on investments	5,101			—			(872		)	4,229
Interest and dividend income	1,986			—			(225		)	1,761
Interest expense	(5,343		)	—			—			(5,343		)
Other expense, net	(2,492		)	—			—			(2,492		)
Net realized and unrealized gain on investments of the Consolidated Funds	—			48,058			(12,118		)	35,940
Interest and other income of the Consolidated Funds	—			48,181			—			48,181
Interest expense of Consolidated Funds	—			(41,012		)	12,885			(28,127		)
Total other income (expense)	(748		)	55,227			(330		)	54,149
Income before taxes	69,031			29,365			(9,972		)	88,424
Income tax expense	3,354			1,198			—			4,552
Net income	65,677			28,167			(9,972		)	83,872
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			28,167			(9,972		)	18,195
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	37,839			—			—			37,839
Net income attributable to Ares Management, L.P.	27,838			—			—			27,838
Less: Preferred equity dividend paid	5,425			—			—			5,425
Net income attributable to Ares Management, L.P. common shareholders	$	22,413		$	—		$	—		$	22,413

56

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

	For the Nine Months Ended September 30, 2018
	Consolidated Company  Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $91,660)	$	612,792		$	—		$	(24,721	)	$	588,071
Carried interest allocation	72,587			—			—			72,587
Incentive fees	17,683			—			(4,000		)	13,683
Principal investment income	9,544			—			(10,228		)	(684		)
Administrative, transaction and other fees	37,372			—			—			37,372
Total revenues	749,978			—			(38,949		)	711,029
Expenses
Compensation and benefits	419,225			—			—			419,225
Performance related compensation	30,479			—			—			30,479
General, administrative and other expense	155,523			—			—			155,523
Expenses of the Consolidated Funds	—			77,982			(28,721		)	49,261
Total expenses	605,227			77,982			(28,721		)	654,488
Other income (expense)
Net realized and unrealized gain on investments	9,800			—			(1,830		)	7,970
Interest and dividend income	6,604			—			(93		)	6,511
Interest expense	(17,088		)	—			—			(17,088		)
Other expense, net	(2,106		)	—			619			(1,487		)
Net realized and unrealized gain on investments of the Consolidated Funds	—			26,053			786			26,839
Interest and other income of the Consolidated Funds	—			250,117			—			250,117
Interest expense of consolidated Funds	—			(165,080		)	1,138			(163,942		)
Total other income (expense)	(2,790		)	111,090			620			108,920
Income before taxes	141,961			33,108			(9,608		)	165,461
Income tax expense	29,577			82			—			29,659
Net income	112,384			33,026			(9,608		)	135,802
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			33,026			(9,608		)	23,418
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	67,301			—			—			67,301
Net income attributable to Ares Management, L.P.	45,083			—			—			45,083
Less: Preferred equity dividend paid	16,275			—			—			16,275
Net income attributable to Ares Management, L.P. common shareholders	$	28,808		$	—		$	—		$	28,808

57

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

	For the Nine Months Ended September 30, 2017
	As Adjusted
	Consolidated Company  Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $76,436)	$	550,969		$	—		$	(14,979	)	$	535,990
Carried interest allocation	469,363			—			(1,014		)	468,349
Incentive fees	14,600			—			(2,745		)	11,855
Principal investment income	61,709			—			(16,084		)	45,625
Administrative, transaction and other fees	43,024			—			—			43,024
Total revenues	1,139,665			—			(34,822		)	1,104,843
Expenses
Compensation and benefits	384,905			—			—			384,905
Performance related compensation	361,044			—			—			361,044
General, administrative and other expense	145,193			—			—			145,193
Transaction support expense	275,177			—			—			275,177
Expenses of the Consolidated Funds	—			45,196			(17,724		)	27,472
Total expenses	1,166,319			45,196			(17,724		)	1,193,791
Other income (expense)
Net realized and unrealized gain (loss) on investments	3,810			—			(5,281		)	(1,471		)
Interest and dividend income	7,045			—			(1,898		)	5,147
Interest expense	(15,576		)	—			—			(15,576		)
Other income, net	16,826			—			—			16,826
Net realized and unrealized gain on investments of the Consolidated Funds	—			79,450			(24,187		)	55,263
Interest and other income of the Consolidated Funds	—			127,999			—			127,999
Interest expense of Consolidated Funds	—			(116,927		)	30,603			(86,324		)
Total other income	12,105			90,522			(763		)	101,864
Income (loss) before taxes	(14,549		)	45,326			(17,861		)	12,916
Income tax expense (benefit)	(30,521		)	2,062			—			(28,459		)
Net income	15,972			43,264			(17,861		)	41,375
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			43,264			(17,861		)	25,403
Less: Net loss attributable to non-controlling interests in Ares Operating Group entities	(20,610		)	—			—			(20,610		)
Net income attributable to Ares Management, L.P.	36,582			—			—			36,582
Less: Preferred equity dividend paid	16,275			—			—			16,275
Net income attributable to Ares Management, L.P. common shareholders	$	20,307		$	—		$	—		$	20,307

58

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

16. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after September 30, 2018 through the date the condensed consolidated financial statements were issued. During this period the Company had the following material subsequent events that require disclosure:

In October 2018, the board of directors of the Company's general partner declared a quarterly dividend of $0.28 per common share to common shareholders of record at the close of business on December 17, 2018, with a payment date of December 31, 2018.

In October 2018, the board of directors of the Company's general partner declared a quarterly dividend of $0.4375 per preferred equity share to preferred equity shareholders of record at the close of business on December 17, 2018, with a payment date of December 31, 2018.

59

Item 2.  Management’s Discussion And AnalysisOf Financial Condition And Results Of Operations

Ares Management, L.P. is a Delaware limited partnershiptreated as a corporation for U.S. federal income tax purposes, formed on November 15, 2013. Unless the context otherwise requires, references to “we,” “us,” “our,” “the Partnership” and “the Company” are intended to mean the business and operations of Ares Management, L.P. and its consolidated subsidiaries. The following discussion analyzes the financial condition and results of operations of the Partnership. “Consolidated Funds” refers collectively to certain Ares‑affiliated funds, related co‑ investment entities and certain CLOs that are required under generally accepted accounting principles in the United States (“GAAP”) to be consolidated in our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q. Additional terms used by the Company are defined in the Glossary and throughout the Management's Discussion and Analysis in this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10‑Q and the audited consolidated financial statements and the related notes included in the 2017 Annual Report on Form 10-K of Ares Management, L.P.

Amounts and percentages presented throughout our discussion and analysis of financial condition and results of operations may reflect rounded results in thousands (unless otherwise indicated) and consequently, totals may not appear to sum.

Our Business

We are a leading global alternative asset manager that operates through three distinct but complementary investment groups, which are our reportable segments. Our reportable segments are Credit Group, Private Equity Group and Real Estate Group. For a detailed description of our reportable segments, see Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2018, we reclassified certain expenses from OMG to our operating segments. Historical results have been modified to conform to the current period presentation.

The focus of our business model is to provide our investment management capabilities through various funds and products that meet the needs of a wide range of institutional and retail investors. Our revenues primarily consist of management fees, carried interest allocation, incentive fees, as well as principal investment income and administrative expense reimbursements and transaction fees. Management fees are generally based on a defined percentage of average fair value of assets, total commitments, invested capital, net asset value, net investment income or par value of the investment portfolios we manage. Carried interest allocation and incentive fees are based on certain specific hurdle rates as defined in the funds' applicable investment management or partnership agreements. Carried interest allocation and incentive fees are collectively referred to as performance income in our segment results and non-GAAP measures. Principal investment income consists of interest and dividend income and net realized and unrealized gain (loss) from the equity method investments that we manage. Other income (expense) typically represents investment income, realized gains (losses) and unrealized appreciation (depreciation) resulting from equity method investments that we do not mange, investments in CLOs and common stock as well as investments of the Consolidated Funds. Interest expense is a component of other income (expense). We provide administrative services to certain of our affiliated funds that are presented within administrative, transaction and other fees for GAAP reporting, but are presented net of respective expenses for segment reporting purposes. We also receive transaction fees from certain funds for activities related to fund transactions, such as loan originations. In accordance with GAAP, we are required to consolidate funds where we have a significant economic interest and substantive control rights. However, for segment reporting purposes, we present revenues and expenses on a combined segment basis, which shows the results of our reportable segments without giving effect to the consolidation of the funds. Accordingly, our segment revenues consist of management fees, other income, realized and unrealized performance income, and net investment income. Our segment expenses consist of compensation and benefits, general, administrative and other expenses, net of administrative fees, as well as realized and unrealized performance related compensation.

Trends Affecting Our Business

We believe that our disciplined investment philosophy across our three distinct but complementary investment groups contributes to the stability of our performance throughout market cycles. As of September 30, 2018, approximately 72% of our assets under management were in funds with a contractual life of three years or more and approximately 77% were in funds with an initial duration greater than seven years at time of closing. Our funds have a stable base of committed capital enabling us to invest in assets with a long-term focus over different points in a market cycle and to take advantage of market volatility. However, our results of operations, including the fair value of our AUM, are affected by a variety of factors, including conditions in the global financial markets and the economic and political environments, particularly in the United States and Western Europe.

60

U.S. markets were positive in the third quarter of 2018 as a healthy economic and corporate fundamental backdrop offset global trade concerns. The U.S. economy remained fundamentally sound with indicators signaling continued economic expansion, a robust labor market and a high consumer confidence. The Institute for Supply Management PMI, an indicator of manufacturing sector strength, increased during the quarter and reached 61.3 in August, a 14-year high. The labor market remained strong as the unemployment rate maintained record lows while the Bureau of Labor Statistics reported an increase in average hourly earnings in September. Continued labor market strength, combined with previously implemented tax cuts, contributed to a high consumer confidence as the Commerce Department announced a month-over-month increase in retail sales of 0.5% in July, exceeding economists’ forecasts. Consumer confidence reached its highest level since October 2000. Corporate earnings were better than expected as approximately 80% of the companies in the S&P 500 beat estimates according to data compiled by FactSet. Capital markets rallied behind the strength in corporate fundamentals as U.S. equity markets reached all-time highs in early September. Against this sound backdrop, the CSLLI, a leveraged loan index, returned 1.9% while ICE BAML High Yield Master II Index, a high yield bonds index, returned 2.4%. Gains were consistent throughout the quarter as a strong technical environment was supportive for asset prices, in addition to elevated and relatively stable interest rates.

European markets were characterized by similar trends with their U.S. counterparts in the third quarter of 2018 as a mixed economic backdrop and geopolitical environment was offset by a healthy corporate fundamental environment. Growth and inflation slowed during the third quarter and exacerbated the contagion of sovereign risk and global trade tensions. Following three months of accelerated growth, inflation declined to 2.0% in August according to EuroStat while GDP estimates signaled a modest deceleration of the Eurozone economy. Italian sovereign risk gained particular attention as its populist government proposed an expansionary budget for 2019, raising concerns with respect to Italy's significant debt to GDP ratio in the Eurozone. Trade tensions remained at the forefront during the quarter and cause business confidence to decline to its lowest level in the last five years in July. U.S. trade policy factored into investor sentiment in August as developments with Turkey led to a plunge in investor confidence in August and triggered a sell off of European bank shares amidst concerns of overexposure to the emerging market currency. Despite the mixed economic and geopolitical environment, corporate fundamentals remained healthy as leverage and default rates remained well-below pre-eurozone crisis levels while earnings were positive for large, seasoned non-investment grade credit issuers. Investor sentiment appeared focused on the corporate fundamental picture during the third quarter, as the Credit Suisse Western European Leveraged Loan Index and ICE BAML European Currency High Yield Index returned 1.5%, and 1.6%, respectively. Gains were consistent for leveraged loans throughout the third quarter while a strong July and September offset declines in August for high yield bonds.

In the U.S., the S&P 500 Index continued to perform strongly rising 7.7% during the third quarter of 2018 after rising 3.4% the previous quarter. The index increased 10.6% year-to-date through September 30, 2018. Outside the U.S., global equity markets increased during the third quarter of 2018 with the MSCI All Country World ex USA Index increasing 0.7% reversing the trend from the second quarter and reducing its year to date decline to 3.1%.

These markets and economies have created opportunities, particularly for the Credit Group’s direct lending and liquid alternative credit strategies, which utilize flexible investment mandates to manage portfolios through market cycles. As market conditions shift and default risk and interest rate risk come under greater focus, having the ability to move up and down the capital structure enables the Credit Group to reduce risk and enhance returns. Similarly, given our broad capabilities in leveraged loans, such flexibility enables our Credit Group to reduce sensitivities to changing interest rates by increasing allocations to floating rate leveraged loans. On a market value basis, approximately 78% of the debt assets within our Credit Group are floating rate instruments, which we believe helps mitigate volatility associated with changes in interest rates.

In the U.S., the intermediated private equity auction market remains highly competitive and leveraged buy out purchase price multiples remained near historical highs during the third of 2018. Amid a significant expansion in the size of the corporate debt market, leverage levels continue to increase and are even higher when EBITDA-adjustments are taken into account. These dynamics have led to a significant compression in private equity risk premiums. We continue to believe careful company selection, a focus on high-quality assets and a differentiated view to drive value creation is of paramount importance in the current market environment.

In the U.S., commercial real estate transaction volumes year-to-date through September 30, 2018 increased 17% over the same period in 2017 amidst continued strong demand for US commercial property from investors, particularly in secondary markets. Fundamentals remain balanced in the major property sectors of multifamily, office, and retail and are favorable in the industrial sector, even as supply begins to catch up to the robust demand for modern bulk logistics space from both users and investors. In Europe, buoyed by sustained economic growth and the low cost of financing, real estate is in a cyclical upswing with transaction volumes near peak; despite yield compression, real estate offers an attractive relative yield spread to other asset classes. In some market segments, particularly core assets in prime locations, pricing has reached or exceeded peak 2008 levels. Secondary assets, or those that suffer impairments that render them unsuitable for institutional ownership, remain at a discount to historical

61

prices and to core assets. Across our targeted markets, we continue to find opportunity to capitalize on our deep understanding of local market and overall industry dynamics to acquire and lend to commercial real estate.

Notwithstanding the potential opportunities represented by market volatility, future earnings, cash flows, dividend payments and distributions are affected by a range of factors, including realizations of our funds’ investments, which are subject to significant fluctuations from period to period.

Change in Our Tax Status Election and Conversion to a Delaware Corporation

Effective March 1, 2018, we filed an election with the Internal Revenue Service (“IRS”) to be treated as a corporation for U.S. federal income tax purposes (collectively, the “Tax Election”). Although we are treated as a corporation for U.S. federal income tax purposes, we remain a limited partnership under state law. In connection with the Tax Election, we amended and restated our partnership agreement to, among other things, reflect our new tax classification and change the name of our common units and preferred units to common shares and preferred shares, respectively. The terms of such common shares and preferred shares, and the associated rights, otherwise remain unchanged.

Asset managers structured as pass-through entities for income tax purposes have historically traded at substantial discounts to asset managers taxed as corporations. Further, we believe that our pass-through tax structure has historically limited our investor universe due to complexities related to this structure. The Tax Election is intended to simplify our tax structure and expand our eligible investor universe and, in turn, enhance our liquidity and trading volume, which may, among other things, provide us with a more liquid and attractive currency for potential strategic transactions to further long-term growth. Moreover, we historically have paid corporate level taxes on our fee related earnings, which has averaged over 80% of total fee income since our initial public offering. This fact, combined with a reduction in the statutory federal corporate tax rate from 35% to 21%, also presented compelling reasons to make the Tax Election. The impact of the Tax Election on our reported results is limited to increased tax expense on performance related earnings, which was previously classified as pass-through income. Taxes on performance related earnings consist of current taxes on realized performance income and deferred taxes on unrealized performance related earnings that may change in subsequent periods until such income is realized.

In October 2018, our Board of Directors approved our conversion to a corporation under Delaware state law, which is currently expected to be completed on November 30, 2018. We plan to provide voting rights to common shareholders through a multi-class high-low voting structure. Since March 1, 2018, we have been treated as a corporation for federal and state income tax purposes and ownership of our shares does not generate any unrelated business taxable income (UBTI) or income effectively connected with a U.S. trade or business (ECI). The planned legal conversion does not impact this treatment. As of March 1, 2018, dividends are reported on Form 1099 DIV and shareholders may be eligible for the favorable tax rates applicable to qualified dividend income. The planned legal conversion to a Delaware corporation does not impact this treatment.    

Consolidation and Deconsolidation of Ares Funds

Consolidated funds represented approximately 7.1% of our AUM as of September 30, 2018, 4.0% of our management fees and 4.4% of our performance income for the nine months ended September 30, 2018. As of September 30, 2018, we consolidated 13 CLOs and 10 private funds, and as of September 30, 2017, we consolidated nine CLOs and 11 private funds.

The consolidation of these funds significantly impacted interest and other income of Consolidated Funds, interest and other expenses of Consolidated Funds, net investment gains (losses) of Consolidated Funds and non-controlling interests in Consolidated Funds, among others, for the three and nine months ended September 30, 2018 and 2017. Further, the consolidation of these funds may impact our management fees, incentive fees and carried interest allocation reported under GAAP to the extent these are eliminated upon consolidation.  For the actual impact that consolidation had on our results, see the Consolidating Schedules within Note 15, “Consolidation”, to our condensed consolidated financial statements included herein.

The assets and liabilities of our Consolidated Funds are held within separate legal entities and, as a result, the liabilities of our Consolidated Funds are typically non-recourse to us. Generally, the consolidation of our Consolidated Funds has a significant gross-up effect on our assets, liabilities and cash flows but has no direct net effect on our attributed net income. The net economic ownership interests of our Consolidated Funds, to which we have no economic rights, are reflected as non-controlling interests in the Consolidated Funds in our condensed consolidated financial statements.

62

We generally deconsolidate funds and CLOs when we are no longer deemed to have a controlling interest in the entity. During the nine months ended September 30, 2018, one entity was liquidated/dissolved, and no entities experienced a significant change in ownership or control that resulted in deconsolidation during the period.

The performance of our Consolidated Funds is not necessarily consistent with, or representative of, the combined performance trends of all of our funds.

63

Managing Business Performance

Non‑GAAP Financial Measures

We use the following non-GAAP measures to assess and track our performance:

• Fee Related Earnings (FRE)

• Realized Income (RI)

• Performance Related Earnings (PRE)

• Economic Net Income (ENI)

The specific components and calculations of these non‑GAAP measures are discussed in greater detail in Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q. These non‑GAAP financial measures supplement, and should be considered in addition to and not in lieu of, the results of operations, presented and discussed further under “Results of Operations—Consolidated Results of Operations,” which are prepared in accordance with GAAP. For a reconciliation of these measures to the most comparable measure in accordance with GAAP, see Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Operating Metrics

We monitor certain operating metrics that are common to the alternative asset management industry, which are discussed below.

Assets Under Management

AUM refers to the assets we manage. We view AUM as a metric to measure our investment and fundraising performance as it generally reflects assets at fair value plus available uncalled capital. For our funds other than CLOs, our AUM equals the sum of the following:

• net asset value (“NAV”) 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).

NAV refers to the fair value of all the assets of a fund less the fair value of all liabilities of the fund.

For CLOs, our AUM is equal to subordinated notes (equity) plus all drawn and undrawn debt tranches.

The tables below provide the period-to-period rollforwards of our total AUM by segment for the three months ended September 30, 2018 and 2017 (in millions):

	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 6/30/2018	$	86,858		$	23,602		$	10,910		$	121,370
Net new par/equity commitments	3,618			—			370			3,988
Net new debt commitments	1,904			100			—			2,004
Distributions	(1,534		)	(523		)	(866		)	(2,923		)
Change in fund value	655			(188		)	173			640
Balance at 9/30/2018	$	91,501		$	22,991		$	10,587		$	125,079
Average AUM(1)	$	89,181		$	23,298		$	10,749		$	123,228

64

	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 6/30/2017	$	67,447		$	25,770		$	10,792		$	104,009
Net new par/equity commitments	2,624			—			246			2,870
Net new debt commitments	2,603			—			—			2,603
Distributions	(3,312		)	(1,373		)	(642		)	(5,327		)
Change in fund value	1,115			178			197			1,490
Balance at 9/30/2017	$	70,477		$	24,575		$	10,593		$	105,645
Average AUM(1)	$	68,963		$	25,173		$	10,693		$	104,829

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period-to-period rollforwards of our total AUM by segment for the nine months ended September 30, 2018 and 2017 (in millions):

	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 12/31/2017	$	71,732		$	24,530		$	10,229		$	106,491
Net new par/equity commitments	16,077			363			1,533			17,973
Net new debt commitments	6,649			100			—			6,749
Distributions	(4,670		)	(1,843		)	(1,397		)	(7,910		)
Change in fund value	1,713			(159		)	222			1,776
Balance at 9/30/2018	$	91,501		$	22,991		$	10,587		$	125,079
Average AUM(1)	$	81,851		$	23,857		$	10,656		$	116,364

	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 12/31/2016	$	60,466		$	25,041		$	9,752		$	95,259
Acquisitions	3,605			—			—			3,605
Net new par/equity commitments	6,981			323			767			8,071
Net new debt commitments	5,338			—			509			5,847
Distributions	(8,967		)	(2,676		)	(1,017		)	(12,660		)
Change in fund value	3,054			1,887			582			5,523
Balance at 9/30/2017	$	70,477		$	24,575		$	10,593		$	105,645
Average AUM(1)	$	65,906		$	25,011		$	10,270		$	101,187

(1) Represents the quarterly average of beginning and ending balances.

Please refer to “— Results of Operations by Segment” for a more detailed presentation of AUM by segment for each of the periods presented.

65

The graphs below present our Incentive Generating AUM and Incentive Eligible AUM by segment as of September 30, 2018 and 2017 (in millions):

Credit Private Equity Real Estate

As of September 30, 2018 and 2017, our available capital, which we refer to as dry powder, was $34.4 billion and $25.8 billion, respectively, primarily attributable to our funds in the Credit Group and the Private Equity Group.

Fee Paying Assets Under Management

The following components generally comprise our FPAUM:

• The amount of limited partner, third party capital commitments and debt commitments eligible to pay management fees for certain closed-end funds within the reinvestment period in the Credit Group, funds in the Private Equity Group and certain private funds in the Real Estate Group;

• The amount of limited partner invested capital for the aforementioned closed-end funds beyond the reinvestment period as well as the structured assets funds in the Credit Group, certain managed accounts within their reinvestment period, the mezzanine fund in the Credit Group, European commingled funds in the Credit Group and co-invest vehicles in the Real Estate Group;

• The gross amount of aggregate collateral balance, for CLOs, at par, adjusted for defaulted or discounted collateral; and

• The portfolio value, gross asset value or NAV, adjusted in certain instances for cash or certain accrued expenses, for the remaining funds in the Credit Group, ARCC, certain managed accounts in the Credit Group and certain debt funds in the Real Estate Group.

66

The tables below provide the period‑to‑period rollforwards of our total FPAUM by segment for the three months ended September 30, 2018 and 2017 (in millions):

	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 6/30/2018	$	53,336		$	16,589		$	6,963		$	76,888
Commitments	1,267			—			369			1,636
Subscriptions/deployment/increase in leverage	2,810			215			24			3,049
Redemptions/distributions/decrease in leverage	(1,604		)	(70		)	(460		)	(2,134		)
Change in fund value	97			(4		)	4			97
Change in fee basis	—			(106		)	(66		)	(172		)
FPAUM Balance at 9/30/2018	$	55,906		$	16,624		$	6,834		$	79,364
Average FPAUM(1)	$	54,623		$	16,608		$	6,900		$	78,131

	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 6/30/2017	$	46,509		$	17,292		$	6,654		$	70,455
Commitments	2,434			—			245			2,679
Subscriptions/deployment/increase in leverage	1,229			86			249			1,564
Redemptions/distributions/decrease in leverage	(2,354		)	(502		)	(216		)	(3,072		)
Change in fund value	816			(67		)	60			809
Change in fee basis	(12		)	(25		)	—			(37		)
FPAUM Balance at 9/30/2017	$	48,622		$	16,784		$	6,992		$	72,398
Average FPAUM(1)	$	47,567		$	17,039		$	6,824		$	71,430

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period-to-period rollforwards of our total FPAUM by segment for the nine months ended September 30, 2018 and 2017 (in millions):

	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 12/31/2017	$	49,450		$	16,858		$	6,189		$	72,497
Commitments	4,082			363			1,232			5,677
Subscriptions/deployment/increase in leverage	6,726			589			440			7,755
Redemptions/distributions/decrease in leverage	(4,938		)	(1,086		)	(758		)	(6,782		)
Change in fund value	593			6			—			599
Change in fee basis	(7		)	(106		)	(269		)	(382		)
FPAUM Balance at 9/30/2018	$	55,906		$	16,624		$	6,834		$	79,364
Average FPAUM(1)	$	52,559		$	16,685		$	6,684		$	75,928

	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 12/31/2016	$	42,709		$	11,314		$	6,540		$	60,563
Acquisitions	2,789			—			—			2,789
Commitments	4,219			7,922			635			12,776
Subscriptions/deployment/increase in leverage	3,511			923			459			4,893
Redemptions/distributions/decrease in leverage	(6,856		)	(1,420		)	(487		)	(8,763		)
Change in fund value	2,037			(403		)	130			1,764
Change in fee basis	213			(1,552		)	(285		)	(1,624		)
FPAUM Balance at 9/30/2017	$	48,622		$	16,784		$	6,992		$	72,398
Average FPAUM(1)	$	45,884		$	15,644		$	6,636		$	68,164

(1) Represents the quarterly average of beginning and ending balances.

67

The components of our AUM, including the portion that is FPAUM, are presented below as of September 30, 2018 and 2017 (in millions):

AUM: $125,079 AUM: $105,645

(1) Includes $6.7 billion and $5.7 billion of AUM of funds from which we indirectly earn management fees as of September 30, 2018 and 2017, respectively.

Please refer to “— Results of Operations by Segment” for detailed information by segment of the activity affecting total FPAUM for each of the periods presented.

The charts below present FPAUM by its fee basis as of September 30, 2018 and 2017 (in millions):

FPAUM: $79,364 FPAUM: $72,398

68

Fund Performance Metrics

Fund performance information for our investment funds considered to be “significant funds” is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. Our significant funds include those that contributed at least 1% of our total management fees for the nine months ended September 30, 2018 or composed of at least 1% of the Company’s total FPAUM as of September 30, 2018, and for which we have sole discretion for investment decisions within the fund. In addition to management fees, each of our significant funds may generate performance income upon the achievement of performance hurdles. The fund performance information reflected in this discussion and analysis is not indicative of our overall performance. An investment in the Company is not an investment in any of our funds. Past performance is not indicative of future results. As with any investment there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these funds or our other existing and future funds will achieve similar returns.

69

Adoption of New Revenue Guidance and Change in Accounting Principle

Effective January 1, 2018, we adopted the Financial Accounting Standards Board (“FASB") Topic 606 (“ASC 606”) Revenue from Contracts with Customers and implemented a change in accounting principle related to carried interest allocation.

Our adoption of ASC 606 resulted in a change to the recognition of contractual incentive fees and the presentation of these fees within our results. Incentive fees are now presented on the Condensed Consolidated Statements of Operations as a separate line item, and we now only recognize incentive fee revenue when the amount is realized and no longer subject to reversal at the end of the measurement period, which is typically annually. Therefore, we no longer recognize unrealized incentive fees in revenues in the Condensed Consolidated Statements of Operations. We adopted ASC 606 on a modified retrospective basis, as such prior periods have not been adjusted. We recognized the cumulative effect of initially adopting ASC 606 as an adjustment to the opening balances of components of equity as of January 1, 2018. The cumulative effect of the adoption resulted in the reversal of $22.6 million of unrealized incentive fees and is presented as a reduction to the opening balances of components of equity as of January 1, 2018.

Carried interest allocations are now accounted for under the GAAP guidance for equity method investments and presented as a separate line item on the Condensed Consolidated Statements of Operations and within investments on the Condensed Consolidated Statements of Financial Condition. We implemented this change in accounting principle on a full retrospective basis and all prior periods have been modified to conform. The implementation of the change in accounting principle resulted in no change to either our previously reported GAAP or non-GAAP results. Performance income in our results of operations by segment and non-GAAP measures collectively refers to carried interest allocation and incentive fees.

For further detail on our adoption of ASC 606 and change in accounting principles, see Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Components of Consolidated Results of Operations - Post Adoption of New Revenue Guidance and Change in Accounting Principle

As a result of our adoption of new revenue guidance and change in accounting principle described above, the following financial statement captions have been updated in the Consolidated Results of Operations. For descriptions of financial statement line items not included below, see “— Components of Consolidated Results of Operations” within Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations in the 2017 Annual Report on Form 10-K of Ares Management, L.P.

Carried Interest Allocation. In certain fund structures, typically in private equity and real estate equity funds, carried interest is allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents. At the end of each reporting period, a fund will allocate carried interest applicable to the Company based upon an assumed liquidation of that fund's net assets on the reporting date, irrespective of whether such amounts have been realized. Carried interest is recorded to the extent such amounts have been allocated and may be subject to reversal to the extent that the amount allocated ultimately exceeds the amount due to the Company based on a fund’s cumulative investment returns.

Carried interest is realized when an underlying investment is profitably disposed and the fund’s cumulative returns are in excess of the specific hurdle rates as defined in the applicable governing documents. Since carried interest is subject to reversal, the Company may need to accrue for potential repayment of previously received carried interest. This accrual represents all amounts previously distributed to the Company that would need to be repaid to the funds if the funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual repayment obligations, however, generally do not become realized until the end of a fund’s life.

Incentive Fees. Incentive fees earned on the performance of certain fund structures, typically in credit funds, are recognized based on the fund’s performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. Incentive fees are realized at the end of a measurement period, typically annually. Once realized, such fees are no longer subject to reversal.

Principal Investment Income (Loss). Principal investment income (loss) consists of interest and dividend income and net realized and unrealized gain (loss) on equity method investments that we manage. Interest and dividend income are recognized on an accrual basis to the extent that such amounts are expected to be collected. Net gain (loss) from investment activities include realized and unrealized gains and losses from our equity method investment portfolio. A realized gain (loss) is recognized when

70

we redeem all or a portion of our investment or when we receive a distribution of capital. Unrealized gains (losses) on investments result from appreciation (depreciation) in the fair value of our investments, as well as reversals of previously recorded unrealized appreciation (depreciation) at the time the gain (loss) on an investment becomes realized.

Performance Related Compensation. Performance related compensation includes compensation directly related to segment performance income, which generally consists of percentage interests of carried interest and incentive fees that we grant to our professionals. Depending on the nature of each fund, the performance income participation is generally structured as a fixed percentage or as an annual award. The liability is calculated based upon the changes to performance income but is not payable until the performance income is realized. We have an obligation to pay our professionals a portion of the performance income earned from certain funds, including performance income from Consolidated Funds that are eliminated in consolidation.

Although changes in performance related compensation are typically directly correlated with changes in performance income reported within our segment results, this correlation does not always exist when our results are reported on a fully consolidated basis in accordance with GAAP. This discrepancy is caused by the fact that incentive fees and carried interest allocation earned from our Consolidated Funds are eliminated upon consolidation while performance related compensation is not eliminated.

71

Results of Operations

Consolidated Results of Operations

The following table and discussion sets forth information regarding our consolidated results of operations for the three and nine months ended September 30, 2018 and 2017. We consolidate funds where we are deemed to hold a controlling financial interest. The Consolidated Funds are not necessarily the same entities in each year presented due to changes in ownership, changes in limited partners' rights, and the creation and termination of funds. The consolidation of these funds had no effect on net income attributable to common and preferred shareholders for the periods presented.

	Three Months Ended   September 30,						Favorable (Unfavorable)					Nine Months Ended   September 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Revenues
Management fees (includes ARCC Part I Fees of $33,377, $91,660 and $24,036, $76,436 for the three and nine months ended September 30, 2018 and 2017, respectively)	$	204,524		$	183,177		$	21,347		12	%	$	588,071		$	535,990		$	52,081		10	%
Carried interest allocation	31,902			82,534			(50,632		)	(61	)%	72,587			468,349			(395,762		)	(85	)%
Incentive fees	872			4,474			(3,602		)	(81	)%	13,683			11,855			1,828			15	%
Principal investment income (loss)	(7,464		)	4,731			(12,195		)	NM		(684		)	45,625			(46,309		)	NM
Administrative, transaction and other fees	10,943			13,486			(2,543		)	(19	)%	37,372			43,024			(5,652		)	(13	)%
Total revenues	240,777			288,402			(47,625		)	(17	)%	711,029			1,104,843			(393,814		)	(36	)%
Expenses
Compensation and benefits	145,594			129,347			(16,247		)	(13	)%	419,225			384,905			(34,320		)	(9	)%
Performance related compensation	17,606			58,637			41,031			70	%	30,479			361,044			330,565			92	%
General, administrative and other expenses	51,155			47,104			(4,051		)	(9	)%	155,523			145,193			(10,330		)	(7	)%
Transaction support expense	—			—			—			—		—			275,177			275,177			NM
Expenses of the Consolidated Funds	12,833			19,039			6,206			33	%	49,261			27,472			(21,789		)	(79	)%
Total expenses	227,188			254,127			26,939			11	%	654,488			1,193,791			539,303			45	%
Other income (expense)
Net realized and unrealized gain (loss) on investments	5,542			4,229			1,313			31	%	7,970			(1,471		)	9,441			NM
Interest and dividend income	808			1,761			(953		)	(54	)%	6,511			5,147			1,364			27	%
Interest expense	(4,143		)	(5,343		)	1,200			22	%	(17,088		)	(15,576		)	(1,512		)	(10	)%
Other income (expense), net	811			(2,492		)	3,303			NM		(1,487		)	16,826			(18,313		)	NM
Net realized and unrealized gain on investments of Consolidated Funds	5,437			35,940			(30,503		)	(85	)%	26,839			55,263			(28,424		)	(51	)%
Interest and other income of the Consolidated Funds	93,062			48,181			44,881			93	%	250,117			127,999			122,118			95	%
Interest expense of Consolidated Funds	(62,763		)	(28,127		)	(34,636		)	(123	)%	(163,942		)	(86,324		)	(77,618		)	(90	)%
Total other income	38,754			54,149			(15,395		)	(28	)%	108,920			101,864			7,056			7	%
Income before taxes	52,343			88,424			(36,081		)	(41	)%	165,461			12,916			152,545			NM
Income tax expense (benefit)	5,131			4,552			(579		)	(13	)%	29,659			(28,459		)	(58,118		)	NM
Net income	47,212			83,872			(36,660		)	(44	)%	135,802			41,375			94,427			228	%
Less: Net income attributable to non-controlling interests in Consolidated Funds	13,169			18,195			(5,026		)	(28	)%	23,418			25,403			(1,985		)	(8	)%
Less: Net income (loss) attributable to non-controlling interests in Ares Operating Group entities	18,133			37,839			(19,706		)	(52	)%	67,301			(20,610		)	87,911			NM
Net income attributable to Ares Management, L.P.	15,910			27,838			(11,928		)	(43	)%	45,083			36,582			8,501			23	%
Less: Preferred equity dividend paid	5,425			5,425			—			—	%	16,275			16,275			—			—	%
Net income attributable to Ares Management, L.P. common shareholders	$	10,485		$	22,413		(11,928		)	(53	)%	$	28,808		$	20,307		8,501			42	%

NM - Not Meaningful

72

The following section discusses the period-over-period fluctuations of our consolidated results of operations for the three and nine months ended September 30, 2018 compared to 2017. Additional details behind the fluctuations attributable to a particular segment are included in “—Results of Operations by Segment” for each of the segments.

Three and Nine Months Ended September 30, 2018Compared to Three and Nine Months Ended September 30, 2017

Revenues

Management Fees. Total management fees increased by $21.3 million, or 12%, to $204.5 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Total management fees increased by $52.1 million, or 10%, to $588.1 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases in total management fees were primarily driven by higher FPAUM for the comparative periods primarily due to capital deployments during the current year periods. For detail regarding the fluctuations of management fees within each of our segments see “—Results of Operations by Segment.”

Carried Interest Allocation. Carried interest allocation decreased by $50.6 million, or 61%, to $31.9 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $395.8 million, or 85%, to $72.6 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.

Carried interest allocation for the three and nine months ended September 30, 2018 were principally composed of the following (in millions):

	Three Months Ended September 30, 2018			Primary Drivers	Nine Months Ended September 30, 2018			Primary Drivers
Credit funds	$	28.3		Certain European direct lending funds generating returns in excess of their hurdle rates	$	69.8		Certain European direct lending funds generating returns in excess of their hurdle rates
Private equity funds	(56.3		)	Market depreciation of an Ares Corporate Opportunities Fund III, L.P.'s (“ACOF III”) publicly traded retail portfolio company; offset by market appreciation across multiple Ares Corporate Opportunities Fund IV, L.P. (“ACOF IV”) portfolio companies	(84.0		)	(i) Market depreciation of an ACOF III publicly traded retail portfolio company; (ii) reduction in fair value in an Ares Energy Investors Fund V, L.P. (“EIF V”) portfolio company; (iii) offset by market appreciation across multiple ACOF IV portfolio companies
Real estate funds	59.9			Net market appreciation from properties within certain of our U.S. and E.U. real estate funds	86.8			Net market appreciation from properties within certain of our U.S. and E.U. real estate funds
Carried interest allocation	$	31.9			$	72.6

Carried interest allocation for the three and nine months ended September 30, 2017 were principally composed of the following (in millions):

	Three Months Ended September 30, 2017		Primary Drivers	Nine Months Ended September 30, 2017		Primary Drivers
Credit funds	$	30.6	Certain European direct lending funds generating returns in excess of their hurdle rates	$	47.0	Certain European direct lending funds generating returns in excess of their hurdle rates
Private equity funds	30.5		Significant market appreciation in one of ACOF III's publicly traded retail portfolio companies following its initial public offering during the period; Increased fair value in an ACOF IV veterinary portfolio company following a minority sale of the company	355.2		Significant market appreciation in one of ACOF III's publicly traded retail portfolio companies following its initial public offering during the period; Increased fair value in an ACOF IV veterinary portfolio company following a minority sale of the company
Real estate funds	21.4		Net market appreciation from properties within certain of our U.S. and E.U. real estate funds	66.1		Net market appreciation from properties within certain of our U.S. and E.U. real estate funds
Carried interest allocation	$	82.5		$	468.3

73

Incentive Fees. Incentive feesdecreased by $3.6 million, or 81%, to $0.9 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and increased by $1.8 million, or 15%, to $13.7 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. As a result of our adoption of ASC 606, using the modified retrospective approach, we now recognize incentive fee revenue only when the amount is realized and no longer subject to reversal and no longer recognize unrealized incentive fees in revenues subsequent to January 1, 2018. This adoption results in the delayed recognition of unrealized incentive fees until they become realized at the end of the measurement period, which is typically annually. During the three and nine months ended September 30, 2018, incentive fees were realized across our direct lending and credit opportunities funds.

Principal Investment Income (Loss). Principal investment income (loss)decreased by $12.2 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $46.3 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decreases were primarily attributable to significant market appreciation in one of ACOF III's publicly traded retail portfolio companies following its initial public offering during the prior year periods followed by decreases in the portfolio company's stock price during the current year periods primarily caused by changes in macroeconomic factors.

Administrative, Transaction and Other Fees. Administrative fees and other fees decreased by $2.5 million, or 19%, to $10.9 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $5.7 million, or 13%, to $37.4 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease for the three month comparative periods was primarily driven by fewer transaction-based fees based on loan originations within certain funds in our Credit Group during the current year period. The decrease for the nine month comparative period was primarily due to lower administrative service fees resulting from temporary employees assisting with the integration of ACAS into ARCC during the prior year.

Expenses

Compensation and Benefits.  Compensation and benefits expenses increased by $16.2 million, or 13%, to $145.6 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $34.3 million, or 9%, to $419.2 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases were primarily driven by merit increases, headcount growth and equity compensation increases for the comparative periods. Equity compensation expense increased by $5.8 million and $15.4 million for the three and nine month comparative periods, respectively. The increases in equity compensation expense were primarily due to additional restricted units awarded as part of bonus and retention programs and new restricted units with a market condition granted during the three months ended September 30, 2018. The new market condition awards were granted to our Chief Executive Officer that will vest only if our stock price achieves certain sustained price levels on or prior to January 1, 2028.

Performance Related Compensation.  Performance related compensation decreased by $41.0 million, or 70%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $330.6 million, or 92%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decreases in performance related compensation is largely correlated with the decreases in carried interest allocation and incentive fees before giving effect to the carried interest allocation and incentive fees earned from our Consolidated Funds eliminated upon consolidation.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $4.1 million, or 9%, to $51.2 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $10.3 million, or 7%, to $155.5 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The nine months ended September 30, 2018 included an $11.8 million one-time reimbursement to ARCC for certain rent and utilities for the first quarter of 2018 and the years ended 2017, 2016, 2015 and 2014. Beginning April 1, 2018, we assumed these expenses going forward, resulting in a $1.4 million and $2.9 million increases in occupancy expense for the three and nine month comparative periods, respectively. Professional service fees increased by $2.5 million and $3.6 million for the three and nine month comparative periods, respectively. The increases were primarily driven by our election to change our tax classification from a partnership to a corporation for U.S. income tax purposes, by an increase in operating expenses from a joint venture distribution platform and by an increase in recruiting fees to support our expanding business. Conversely, placement fees decreased by $4.4 million for the nine month comparative periods due to the launch of certain funds within our Credit Group during the prior year periods. Additionally, we made a $2.5 million one-time non-income tax payment during the first quarter of 2017.

74

Transaction Support Expense. Transaction support expense was a one–time payment of $275.2 million that we made, through our subsidiary Ares Capital Management LLC, to ACAS shareholders during the first quarter of 2017 upon the closing of ARCC’s acquisition of ACAS.

Expenses of the Consolidated Funds. Expenses of the Consolidated Funds decreased by $6.2 million, or 33%, to $12.8 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease for the three month comparative periods was primarily driven by lower fees related to the issuance of CLO debt that are expensed as incurred by certain of our Consolidated Funds. These fees were expensed in the period incurred, as CLO debt is recorded at fair value on our Consolidated Statements of Financial Condition. We launched one new consolidated CLO during the three months ended September 30, 2018 compared to the launch of two new consolidated CLOs during the three months ended September 30, 2017.

Expenses of the Consolidated Funds increased by $21.8 million, or 79%, to $49.3 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase for the nine month comparative period was primarily driven by $37.4 million of expenses from five funds we began consolidating subsequent to September 30, 2017 offset by a reduction in expenses of $15.5 million related to the launch of two new consolidated CLOs during the nine months ended September 30, 2017.

Other Income (Expense)

When evaluating the changes in other income (expense), we separately analyze the other income generated by the Company from the investment returns generated by our Consolidated Funds.

Net Realized and Unrealized Gain (Loss) on Investments. Net realized and unrealized gain on investments of the Company increased by $1.3 million to $5.5 million for the three months ended September 30, 2018. Net realized and unrealized gain (loss) on investments of the Company increased by $9.4 million from a loss of $1.5 million for the nine months ended September 30, 2017 to a gain of $8.0 million for the nine months ended September 30, 2018. The increases were primarily attributable to higher net gains on our non-core investments for the comparative periods.

Interest and Dividend Income. Interest and dividend income of the Company decreased by $1.0 million, or 54%, to $0.8 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Interest and dividend income of the Company increased by $1.4 million, or 27%, to $6.5 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. During the second quarter of 2018, we sold $219.3 million of our investments in our CLO securities resulting in a decrease in interest income attributable to CLO securities for the three and nine month comparative periods. This decrease was offset by increases in income generated by our non-core investments for the three and nine month comparative periods.

Interest Expense. Interest expense of the Company decreased by $1.2 million, or 22%, to $4.1 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and increased by $1.5 million, or 10%, to $17.1 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The fluctuations for the comparative periods were primarily driven by borrowings from term loans we entered into subsequent to September 30, 2017 to finance certain investments in CLOs that were subsequently paid off during the second quarter of 2018.

Other Income (Expense), Net. Other income (expense), net changed by $3.3 million from other expense, net of $2.5 million for the three months ended September 30, 2017 to other income, net of $0.8 million for the three months ended September 30, 2018. The change was primarily driven by a $3.1 million increase in transaction gains from the revaluation of certain assets and liabilities denominated in foreign currencies. These losses in the prior year period were predominately due to the British pounds sterling and the Euro strengthening against the U.S. dollar partially mitigated by reductions in liabilities denominated in foreign currencies during 2017.

Other income (expense), net changed by $18.3 million from other income, net of $16.8 million for the nine months ended September 30, 2017 to other expense, net of $1.5 million for the nine months ended September 30, 2018.Other expense for the nine months ended September 30, 2018 was primarily composed of$1.7 million of debt extinguishment costs recorded during the second quarter of 2018. Other income for the nine months ended September 30, 2017 was primarily composed of a $20.3 million reversal of a contingent consideration related to the Energy Investors Funds (“EIF”) acquisition that was recorded as a gain during the first quarter of 2017.

75

Net Realized and Unrealized Gain on Investments of the Consolidated Funds. Net realized and unrealized gain on investments of the Consolidated Funds decreased by $30.5 million, or 85%, to $5.4 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $28.4 million, or 51%, to $26.8 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The net gain for the three months ended September 30, 2018 included the following: (i) $7.9 million in net gains primarily attributable to increased market value of certain investments in a commercial finance fund; (ii) $2.4 million in net gains from widely traded bank loans held within our consolidated CLOs primarily driven by market appreciation; offset by (iii) $4.9 million in net losses primarily attributable to lower valuations on certain investments in an Asian corporate private equity fund.

The net gains for the three months ended September 30, 2017 included the following: (i) $15.3 million of net gains from a European direct lending fund primarily due to a strengthened Euro against the U.S. dollar; (ii) $9.9 million of net gains from increased market value of certain investments in an Asian corporate private equity fund; (iii) $4.1 million of net gains from widely traded bank loans held within our consolidated CLOs primarily driven by market appreciation; and (iv) $6.6 million of net gains from increased market value of certain investments in a commercial finance fund.

The net gain for the nine months ended September 30, 2018 included the following: (i) $12.4 million in net gains primarily attributable to increased market value of certain investments in a commercial finance fund; (ii) $10.9 million in net gains primarily attributable to higher valuations on certain investments in an Asian corporate private equity fund; (iii) $18.3 million in net gains from widely traded bank loans held within our consolidated CLOs primarily driven by market appreciation; offset by (iv) $14.8 million net loss in net losses attributable to a European direct lending fund driven by a change in market value of the fund's sole remaining investment.

The net gain for the nine months ended September 30, 2017 included the following: (i) $24.6 million of net gains from a European direct lending fund primarily due to a strengthened Euro against the U.S. dollar; (ii) $12.8 million of net gains from increased market value of certain investments in an Asian corporate private equity fund; (iii) $9.7 million of net gains from increased market value of certain investments in a commercial finance fund; (iv) $6.4 million of net gains from increased market value of certain investments within a certain special opportunities fund; and (v) $1.7 million of net gains from widely traded bank loans held within our consolidated CLOs primarily driven by market appreciation.

Interest and Other Income of the Consolidated Funds. Interest and other income of the Consolidated Funds increased by $44.9 million, or 93%, to $93.1 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $122.1 million, or 95%, to $250.1 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017.The increases were primarily driven by additional interest paying assets from three U.S. CLOs and two European CLOs that we began consolidating subsequent to September 30, 2017 resulting in increases in interest income for the comparative periods.

Interest Expense of the Consolidated Funds. Interest expense of the consolidated funds increased by $34.6 million, or 123%, to $62.8 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $77.6 million, or 90%, to $163.9 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases were primarily the result of interest expense from the debt issued for three U.S. CLOs and two European CLOs we began consolidating subsequent to September 30, 2017 resulting in increases in interest expense for the comparative periods.

Income Tax Expense (Benefit). Income tax expense increased by $0.6 million to $5.1 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Income tax expense (benefit) changed by $58.1 million from a tax benefit of $28.5 million for the nine months ended September 30, 2017 to tax expense of $29.7 million for the nine months ended September 30, 2018. Income tax expense for the nine months ended September 30, 2018 was primarily driven by a deferred tax liability arising from the embedded net unrealized gains of both carried interest and the investment portfolio that were not previously subject to corporate taxes prior to our election to be taxed as a corporation for U.S. federal income tax purposes effective March 1, 2018. Income tax benefit for the nine months ended September 30, 2017 was primarily driven by pre-tax losses recognized by AHI, a U.S. taxable entity, resulting from the $275.2 million transaction support payment made in connection with ARCC's acquisition of ACAS.

76

Non-Controlling Interests.  Net income (loss) attributable to non-controlling interests in Ares Operating Group entities represents results attributable to the owners of AOG Units that are not held by Ares Management, L.P. and is allocated based on the weighted average daily ownership of the AOG unitholders.

Net income attributable to non-controlling interests in Ares Operating Group entities decreased by $19.7 million to $18.1 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Net income (loss) attributable to non-controlling interests in Ares Operating Group entities increased from a net loss of $20.6 million for the nine months ended September 30, 2017 to net income of $67.3 million for the nine months ended September 30, 2018. The weighted average daily ownership for non-controlling AOG unitholders was 54.8% and 56.6% for the three and nine months ended September 30, 2018, respectively, compared to 61.3% and 61.5% for the three and nine months ended September 30, 2017, respectively. The decreases in non–controlling ownership were primarily driven by our common share offering of 5,000,000 shares and by an affiliate of Alleghany Corporation's exchange of 12,500,000 of its AOG Units into common shares during the nine months ended September 30, 2018.

77

Segment Analysis

For segment reporting purposes, revenues and expenses are presented excluding the results of our Consolidated Funds. As a result, segment revenues from management fees, performance income and investment income are different than those presented on a consolidated basis in accordance with GAAP because revenues recognized from Consolidated Funds are eliminated in consolidation. Furthermore, expenses and the effects of other income (expense) are different than related amounts presented on a consolidated basis in accordance with GAAP due to the exclusion of the results of Consolidated Funds.

In addition to the three segments, we separately discuss the OMG. This information is used by our management to make operating decisions, assess performance and allocate resources. The results of operations for each of our reportable segments are discussed below.

FRE, RI and Other Measures

The following table sets forth FRE, RI, ENI and PRE by segment for the three and nine months ended September 30, 2018 and 2017. FRE, RI, ENI and PRE are non‑GAAP financial measures our management uses when making resource deployment decisions and in assessing performance of our segments (For definitions of each of these non-GAAP financial measures and how they are being used by management, see the Glossary).

	Three Months Ended						Favorable (Unfavorable)					Nine Months Ended						Favorable (Unfavorable)
	September 30,											September 30,
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Fee related earnings:
Credit Group	$	83,345		$	72,099		$	11,246		16	%	$	240,724		$	203,314		$	37,410		18	%
Private Equity Group	25,184			27,851			(2,667		)	(10	)%	78,979			84,626			(5,647		)	(7	)%
Real Estate Group	6,382			3,641			2,741			75	%	17,473			10,473			7,000			67	%
Operations Management Group	(50,494		)	(45,612		)	(4,882		)	(11	)%	(150,264		)	(140,324		)	(9,940		)	(7	)%
Fee related earnings	$	64,417		$	57,979		6,438			11	%	$	186,912		$	158,089		28,823			18	%
Realized income:
Credit Group	$	85,101		$	79,293		5,808			7	%	$	261,879		$	222,419		39,460			18	%
Private Equity Group	43,427			76,617			(33,190		)	(43	)%	124,162			149,113			(24,951		)	(17	)%
Real Estate Group	13,542			6,851			6,691			98	%	33,690			16,620			17,070			103	%
Operations Management Group	(50,652		)	(45,916		)	(4,736		)	(10	)%	(148,186		)	(137,467		)	(10,719		)	(8	)%
Realized income	$	91,418		$	116,845		(25,427		)	(22	)%	$	271,545		$	250,685		20,860			8	%
Economic net income:
Credit Group	$	97,265		$	88,408		8,857			10	%	$	296,250		$	230,991		65,259			28	%
Private Equity Group	(4,196		)	39,818			(44,014		)	NM		48,747			198,338			(149,591		)	(75	)%
Real Estate Group	28,063			14,857			13,206			89	%	48,883			43,151			5,732			13	%
Operations Management Group	(45,415		)	(41,652		)	(3,763		)	(9	)%	(138,718		)	(137,140		)	(1,578		)	(1	)%
Economic net income	$	75,717		$	101,431		(25,714		)	(25	)%	$	255,162		$	335,340		(80,178		)	(24	)%
Performance related earnings:
Credit Group	$	13,920		$	16,309		(2,389		)	(15	)%	$	55,526		$	27,677		27,849			101	%
Private Equity Group	(29,380		)	11,967			(41,347		)	NM		(30,232		)	113,712			(143,944		)	NM
Real Estate Group	21,681			11,216			10,465			93	%	31,410			32,678			(1,268		)	(4	)%
Operations Management Group	5,079			3,960			1,119			28	%	11,546			3,184			8,362			NM
Performance related earnings	$	11,300		$	43,452		(32,152		)	(74	)%	$	68,250		$	177,251		(109,001		)	(61	)%

NM - Not Meaningful

78

Reconciliation of Certain Non-GAAP Measures to Consolidated GAAP Financial Measures

Income before provision for income taxes is the GAAP financial measure most comparable to ENI, RI, FRE and PRE.The following table presents the reconciliation of income before taxes as reported in the Condensed Consolidated Statements of Operations to ENI, RI, FRE, and PRE (in thousands):

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Economic net income
Income before taxes	$	52,343		$	88,424		$	165,461		$	12,916
Adjustments:
Amortization of intangibles	1,245			3,651			7,817			14,200
Depreciation expense	4,102			3,468			12,417			9,458
Equity compensation expenses	23,940			18,091			67,534			52,097
Acquisition and merger-related expenses	253			2,878			(19		)	258,722
Placement fees and underwriting costs	6,194			4,495			9,710			14,317
Offering costs	—			33			3			688
Other expense(1)	3			—			13,561			—
Expense of non-controlling interests in consolidated subsidiaries	819			(216		)	2,178			407
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(13,182		)	(19,393		)	(23,500		)	(27,465		)
Economic net income	75,717			101,431			255,162			335,340
Unconsolidated performance income - unrealized	37,999			89,423			127,224			(223,467		)
Unconsolidated performance related compensation - unrealized	(42,417		)	(82,342		)	(132,294		)	161,791
Unconsolidated net investment income	20,119			8,333			21,453			(22,979		)
Realized income	91,418			116,845			271,545			250,685
Unconsolidated performance income - realized	(71,568		)	(178,989		)	(217,283		)	(261,924		)
Unconsolidated performance related compensation - realized	60,023			140,979			162,773			199,253
Unconsolidated net investment income	(15,456		)	(20,856		)	(30,123		)	(29,925		)
Fee related earnings	$	64,417		$	57,979		186,912			158,089
Performance related earnings
Economic net income	$	75,717		$	101,431		$	255,162		$	335,340
Less: fee related earnings	(64,417		)	(57,979		)	(186,912		)	(158,089		)
Performance related earnings	$	11,300		$	43,452		$	68,250		$	177,251

(1) Nine months ended September 30, 2018 includes an $11.8 million payment made to ARCC during the second quarter of 2018 for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

79

The following table reconciles unconsolidated performance income to our consolidated carried interest allocation and incentive fees reported in accordance with GAAP (in thousands):

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Unconsolidated performance income - realized	$	71,568		$	178,989		$	217,283		$	261,924
Performance income - realized earned from Consolidated Funds	—			—			(4,000		)	(8,086		)
Performance income - realized reclass(1)	—			(981		)	(521		)	(2,181		)
Performance income - realized	71,568			178,008			212,762			251,657
Unconsolidated performance income - unrealized	(37,999		)	(89,423		)	(127,224		)	223,467
Performance income - unrealized earned from Consolidated Funds	—			(1,371		)	—			4,327
Performance income - unrealized reclass(1)	(795		)	(206		)	732			753
Performance income - unrealized	(38,794		)	(91,000		)	(126,492		)	228,547
Total GAAP carried interest allocation and incentive fees	$	32,774		$	87,008		$	86,270		$	480,204

(1) Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations.

The following table reconciles unconsolidated net investment income (loss) to our consolidated GAAP other income (in thousands):

	For the Three Months Ended   September 30,						For the Nine Months Ended   September 30,
	2018			2017			2018			2017
Unconsolidated net investment income (loss)(1)	$	(4,663	)	$	12,523		$	8,670		$	52,904
Net investment income from Consolidated Funds	34,731			54,897			111,710			89,759
Performance income - reclass(2)	795			1,187			(211		)	1,428
Principal investment income	7,886			(14,374		)	(9,544		)	(61,709		)
Change in value of contingent consideration	—			(60		)	—			20,156
Other non-cash expense	(3		)	—			(1,725		)	—
Offering costs	—			(33		)	(3		)	(688		)
Other income of non-controlling interests in consolidated subsidiaries	8			9			23			14
Total GAAP other income	$	38,754		$	54,149		$	108,920		$	101,864

(1) Comprised of investment income (loss), interest and other investment income, and interest expense.

(2) Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations.

80

Results of Operations by Segment

Credit Group

The following table sets forth certain statement of operations data and certain other data of our Credit Group segment for the periods presented.

	Three Months Ended						Favorable (Unfavorable)					Nine Months Ended						Favorable (Unfavorable)
	September 30,											September 30,
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Management fees (includes ARCC Part I Fees of $33,377, $91,660 and $24,036, $76,436 for the three and nine months ended September 30, 2018 and 2017, respectively)	$	145,414		$	120,178		$	25,236		21	%	$	413,028		$	354,179		$	58,849		17	%
Other fees	3,656			5,668			(2,012		)	(35	)%	16,263			15,834			429			3	%
Compensation and benefits	(54,994		)	(46,822		)	(8,172		)	(17	)%	(157,166		)	(143,685		)	(13,481		)	(9	)%
General, administrative and other expenses	(10,731		)	(6,925		)	(3,806		)	(55	)%	(31,401		)	(23,014		)	(8,387		)	(36	)%
Fee Related Earnings	83,345			72,099			11,246			16	%	240,724			203,314			37,410			18	%
Performance income—realized	1,729			3,296			(1,567		)	(48	)%	48,472			19,957			28,515			143	%
Performance related compensation—realized	(1,113		)	(1,466		)	353			24	%	(27,778		)	(8,649		)	(19,129		)	(221	)%
Investment income—realized	1,063			6,206			(5,143		)	(83	)%	2,429			9,049			(6,620		)	(73	)%
Interest and other investment income—realized	1,604			2,435			(831		)	(34	)%	7,828			7,548			280			4	%
Interest expense	(1,527		)	(3,277		)	1,750			53	%	(9,796		)	(8,800		)	(996		)	(11	)%
Realized income	85,101			79,293			5,808			7	%	261,879			222,419			39,460			18	%
Performance income—unrealized	26,867			$	33,033		(6,166		)	(19	)%	38,391			41,062			(2,671		)	(7	)%
Performance related compensation—unrealized	(17,997		)	$	(19,820	)	1,823			9	%	(8,062		)	(27,357		)	19,295			71	%
Investment income (loss)—unrealized	2,524			$	(1,123	)	3,647			NM		3,872			16			3,856			NM
Interest and other investment income—unrealized	770			$	(2,975	)	3,745			NM		170			(5,149		)	5,319			NM
Economic net income	$	97,265		$	88,408		8,857			10	%	$	296,250		$	230,991		65,259			28	%
Performance related earnings	$	13,920		$	16,309		(2,389		)	(15	)%	$	55,526		$	27,677		27,849			101	%

NM - Not meaningful

Accrued carried interest and incentive fee receivable for the Credit Group include the following:

	As of September 30,		As of December 31,
	2018		2017
	(Dollars in thousands)
CLOs	$	—	$	451
CSF	19,912		28,158
ACE II	29,016		24,090
ACE III	59,322		43,595
Other credit funds	68,181		72,210
Total Credit Group	$	176,431	$	168,504

81

The following tables present the components of performance income for the Credit Group. The three and nine month periods ended September 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.

	Three Months Ended September 30, 2018								Three Months Ended September 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
CLOs	$	—	$	—		$	—		$	1,602	$	(2,409	)	$	(807	)
CSF	—		(907		)	(907		)	—		10,104			10,104
ACE II	—		2,994			2,994			—		2,745			2,745
ACE III	—		9,777			9,777			—		9,621			9,621
Other credit funds	1,729		15,003			16,732			1,694		12,972			14,666
Total Credit Group	$	1,729	$	26,867		$	28,596		$	3,296	$	33,033		$	36,329

	Nine Months Ended September 30, 2018								Nine Months Ended September 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
CLOs	$	70	$	3		$	73		$	6,485	$	(6,896	)	$	(411	)
CSF	—		(8,246		)	(8,246		)	—		2,686			2,686
ACE II	4,071		5,323			9,394			3,201		5,303			8,504
ACE III	15,361		17,246			32,607			—		21,163			21,163
Other credit funds	28,970		24,065			53,035			10,271		18,806			29,077
Total Credit Group	$	48,472	$	38,391		$	86,863		$	19,957	$	41,062		$	61,019

The following tables present the components of the change in performance income - unrealized for the Credit Group. The three and nine month periods ended September 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.

	Three Months Ended September 30, 2018											Three Months Ended September 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
CLOs	$	—		$	—	$	—		$	—		$	(1,602	)	$	—	$	(807	)	$	(2,409	)
CSF	—			—		(907		)	(907		)	—			10,104		—			10,104
ACE II	—			2,994		—			2,994			—			2,745		—			2,745
ACE III	—			9,777		—			9,777			—			9,621		—			9,621
Other credit funds	(1,467		)	16,488		(18		)	15,003			(1,694		)	15,701		(1,035		)	12,972
Total Credit Group	$	(1,467	)	$	29,259	$	(925	)	$	26,867		$	(3,296	)	$	38,171	$	(1,842	)	$	33,033

	Nine Months Ended September 30, 2018											Nine Months Ended September 30, 2017
	Performance income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
CLOs	$	—		$	3	$	—		$	3		$	(6,485	)	$	316	$	(727	)	$	(6,896	)
CSF	—			—		(8,246		)	(8,246		)	—			2,686		—			2,686
ACE II	(4,071		)	9,394		—			5,323			(3,201		)	8,504		—			5,303
ACE III	(15,361		)	32,607		—			17,246			—			21,163		—			21,163
Other credit funds	(11,968		)	36,044		(11		)	24,065			(10,271		)	29,177		(100		)	18,806
Total Credit Group	$	(31,400	)	$	78,048	$	(8,257	)	$	38,391		$	(19,957	)	$	61,846	$	(827	)	$	41,062

82

Credit Group—Three and Nine Months Ended September 30, 2018Compared to Three and Nine Months Ended September 30, 2017

Fee Related Earnings:

Fee related earnings increased by $11.2 million, or 16%, to $83.3 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $37.4 million, or 18%, to $240.7 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Fee related earnings were impacted by fluctuations of the following components:

Management Fees

The charts below present Credit Group management fees and effective management fee rates for the three and nine months ended September 30, 2018 and 2017 (dollars in millions):

The increases in management fees attributable to additional capital deployment was $8.3 million and $41.7 million for the three and nine month comparative periods, respectively. The formation of 28 new funds with FPAUM of $8.7 billion subsequent to September 30, 2017 increased management fees by $10.8 million and $19.0 million for the three and nine month comparative periods, respectively. ARCC Part I Fees increased by $9.3 million to $33.4 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $15.2 million to $91.7 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases in ARCC Part I fees were primarily due to increased interest income from the growth in the size of its portfolio combined with higher yields from recent increases in LIBOR as well as an increase in capital structuring fees from a greater number of new investment commitments. The increase for the nine month comparative periods was partially offset by a $10 million quarterly ARCC Part I Fee waiver that commenced in the second quarter of 2017. The increases were also offset by the liquidation of 18 funds with FPAUM of $3.0 billion subsequent to September 30, 2017 decreasing management fees by $3.2 million and $17.1 million for the three and nine month comparative periods, respectively.

The effective management fee rate increased from 0.97% and 1.01% for the three and nine months ended September 30, 2017, respectively, to 1.05% and 1.04% for the three and nine months ended September 30, 2018. ARCC Part I Fees' contribution towards the total effective management fee rate of the Credit Group increased from 0.19% and 0.22% for the three and nine months ended September 30, 2017, respectively, to 0.24% and 0.23% for the three and nine months ended September 30, 2018, respectively. The increases in the effective management fee rate for the comparative periods were primarily due to increased ARCC Part I fees and new direct lending funds with higher effective fee rates.

Other Fees. Other fees decreased by $2.0 million, or 35%, to $3.7 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Other fees increased by $0.4 million, or 3%, to $16.3 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decrease for the three month comparative periods was primarily driven by fewer transaction-based fees based on loan originations within certain funds. These fees remained consistent for the nine month comparative periods.

Compensation and Benefits.  Compensation and benefits expenses increased by $8.2 million, or 17%, to $55.0 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $13.5 million, or 9%, to $157.2 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases were primarily driven by higher compensation expense related to ARCC Part I Fees. Compensation and benefits

83

expenses represented 37.8% and 38.1% of management fees for both the three and nine months ended September 30, 2018, respectively, compared to 39.0% and 40.6% for the three and nine months ended September 30, 2017, respectively.

General, Administrative and Other Expenses.  General, administrative and other expenses increased by $3.8 million, or 55%, to $10.7 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $8.4 million, or 36%, to $31.4 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases were primarily driven by marketing expenses to support expanding distribution and fundraising efforts, including our joint venture distribution platform. Additionally, occupancy costs increased by $0.9 million and $1.4 million related to costs previously paid by ARCC for certain rent and utilities for the three and nine months ended September 30, 2018, respectively, that we expect to continue.

Realized Income:

The table below provides the components of realized income for the Credit Group for the three and nine months ended September 30, 2018 and 2017 (Dollars in millions):

	Three Months Ended				Favorable (Unfavorable)					Nine Months Ended				Favorable (Unfavorable)
	September 30,									September 30,
	2018		2017		$ Change			% Change		2018		2017		$ Change			% Change
FRE	$	83.3	$	72.1	$	11.2		16	%	$	240.7	$	203.3	$	37.4		18	%
Net performance income—realized	0.6		1.8		(1.2		)	(66	)%	20.7		11.3		9.4			83	%
Net investment income—realized	1.1		5.4		(4.3		)	(79	)%	0.5		7.8		(7.3		)	(94	)%
Realized income	$	85.0	$	79.3	5.7			7	%	$	261.9	$	222.4	39.5			18	%

Realized income for the three and nine months ended September 30, 2018 and 2017 was primarily attributable to FRE for the respective periods as a result of the activity described above. Net realized performance income for the three and nine months ended September 30, 2018 and 2017 was primarily attributable to distributions generated within certain direct lending funds that are generating returns in excess of their hurdle rates. Net realized investment income for the three and nine months ended September 30, 2018 and 2017 was primarily attributable to realized gains from our syndicated loan funds.

Performance Related Earnings:

Performance related earnings decreased by $2.4 million, or 15%, to $13.9 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and increased by $27.8 million, or 101%, to $55.5 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Performance related earnings were impacted by fluctuations of the following components:

Net Performance Income. Net performance income includes realized and unrealized performance income, net of realized and unrealized performance related compensation. The impact of reversals of previously recognized performance income and the corresponding performance related compensation expense is reflected as a reduction in unrealized performance income and unrealized performance related compensation.  

Net performance income decreased by $5.6 million to $9.5 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. $4.4 million of the decrease in net performance income was attributable to a certain diversified credit fund, in which the underlying assets recognized higher accretion in the prior year period. An additional $2.1 million of the decrease was primarily driven by the difference in timing of recognizing incentive fees in the comparative periods as result of our adoption of ASC 606. We now recognize incentive fee revenue only when the amount is realized and no longer subject to reversal and no longer recognize unrealized incentive fees in revenues subsequent to January 1, 2018. This adoption results in the delayed recognition of unrealized incentive fees until they become realized at the end of the measurement period, which is typically annually. These decreases were offset by $1.8 million of net performance income attributable to a certain new European direct lending fund generating returns in excess its hurdle rate.

Net performance income increased by $26.0 million to $51.0 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase was primarily driven by an increased capital base of certain direct lending funds generating returns in excess of their hurdle rates for the comparative periods. Net performance income for the nine month period ended September 30, 2018 included a $13.7 million expense reduction from the reversal of unrealized performance related compensation payable balance at December 31, 2017. During the first quarter of 2018 we determined that

84

the liability balance as of December 31, 2017 was no longer probable of payment based on the terms of the payment arrangement as payment is not required until revenue is realized.

Net Investment Income (Loss). Net investment income (loss) includes realized and unrealized investment income (loss) and realized and unrealized interest and other investment income (loss), net of interest expense.

Net investment incomeincreased by $3.2 million to $4.4 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $1.8 million to $4.5 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases were primarily due to higher market appreciation across our credit portfolio for both comparative periods.

Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income increased by $8.9 million, or 10%, to $97.3 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $65.3 million, or 28%, to $296.3 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 as a result of the fluctuations described above.

85

Credit Group—Assets Under Management

The tables below provide the period‑to‑period rollforwards of AUM for the Credit Group for the three months ended September 30, 2018 and 2017 (in millions):

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
Balance at 6/30/2018	$	17,627		$	4,381		$	2,931		$	5,753		$	36,838		$	19,328		$	86,858
Net new par/ equity commitments	65			68			1			(626		)	2,284			1,826			3,618
Net new debt commitments	1,082			—			—			—			532			290			1,904
Distributions	(126		)	(76		)	(132		)	(75		)	(775		)	(350		)	(1,534		)
Change in fund value	39			76			42			46			352			100			655
Balance at 9/30/2018	$	18,687		$	4,449		$	2,842		$	5,098		$	39,231		$	21,194		$	91,501
Average AUM(1)	$	18,157		$	4,415		$	2,887		$	5,426		$	38,035		$	20,261		$	89,181

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
Balance at 6/30/2017	$	16,589		$	4,502		$	3,351		$	4,511		$	27,727		$	10,767		$	67,447
Net new par/ equity commitments	165			359			12			55			1,383			650			2,624
Net new debt commitments	1,668			—			—			—			935			—			2,603
Distributions	(1,382		)	(349		)	(73		)	(54		)	(1,257		)	(197		)	(3,312		)
Change in fund value	125			108			69			81			228			504			1,115
Balance at 9/30/2017	$	17,165		$	4,620		$	3,359		$	4,593		$	29,016		$	11,724		$	70,477
Average AUM(1)	$	16,877		$	4,561		$	3,355		$	4,552		$	28,372		$	11,246		$	68,963

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of AUM for the Credit Group for the nine months ended September 30, 2018 and 2017 (in millions):

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending(2)			Total Credit Group
Balance at 12/31/2017	$	16,530		$	4,630		$	3,333		$	4,791		$	30,640		$	11,808		$	71,732
Net new par/ equity commitments	195			268			40			348			6,065			9,161			16,077
Net new debt commitments	2,656			—			—			—			3,457			536			6,649
Distributions	(706		)	(530		)	(604		)	(152		)	(2,105		)	(573		)	(4,670		)
Change in fund value	12			81			73			111			1,174			262			1,713
Balance at 9/30/2018	$	18,687		$	4,449		$	2,842		$	5,098		$	39,231		$	21,194		$	91,501
Average AUM(1)	$	17,564		$	4,511		$	3,067		$	5,137		$	35,317		$	16,255		$	81,851

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
Balance at 12/31/2016	$	17,260		$	4,978		$	3,304		$	4,254		$	21,110		$	9,560		$	60,466
Acquisitions	—			—			—			—			3,605			—			3,605
Net new par/ equity commitments	685			470			(16		)	224			4,754			864			6,981
Net new debt commitments	2,958			—			—			—			1,809			571			5,338
Distributions	(4,098		)	(1,115		)	(102		)	(167		)	(2,816		)	(669		)	(8,967		)
Change in fund value	360			287			173			282			554			1,398			3,054
Balance at 9/30/2017	$	17,165		$	4,620		$	3,359		$	4,593		$	29,016		$	11,724		$	70,477
Average AUM(1)	$	16,944		$	4,698		$	3,345		$	4,405		$	26,037		$	10,477		$	65,906

(1) Represents the quarterly average of beginning and ending balances.

(2) Includes $7.6 billion related to ACE IV which had its final close in July 2018.

86

Credit Group—Fee Paying AUM

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Credit Group for the three months ended September 30, 2018 and 2017 (in millions):

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 6/30/2018	$	17,144		$	4,380		$	2,369		$	3,432		$	18,633		$	7,378		$	53,336
Commitments	1,177			68			1			—			21			—			1,267
Subscriptions/deployment/increase in leverage	—			—			16			283			739			1,772			2,810
Redemptions/distributions/decrease in leverage	(121		)	(76		)	(55		)	(175		)	(615		)	(562		)	(1,604		)
Change in fund value	51			76			38			35			(162		)	59			97
FPAUM Balance at 9/30/2018	$	18,251		$	4,448		$	2,369		$	3,575		$	18,616		$	8,647		$	55,906
Average FPAUM(1)	$	17,698		$	4,414		$	2,369		$	3,504		$	18,625		$	8,013		$	54,623

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 6/30/2017	$	15,062		$	4,503		$	2,797		$	3,414		$	15,045		$	5,688		$	46,509
Commitments	2,022			321			—			60			31			—			2,434
Subscriptions/deployment/increase in leverage	—			38			13			131			665			382			1,229
Redemptions/distributions/decrease in leverage	(1,336		)	(349		)	(31		)	(244		)	(279		)	(115		)	(2,354		)
Change in fund value	129			108			64			66			192			257			816
Change in fee basis	—			—			—			—			—			(12		)	(12		)
FPAUM Balance at 9/30/2017	$	15,877		$	4,621		$	2,843		$	3,427		$	15,654		$	6,200		$	48,622
Average FPAUM(1)	$	15,470		$	4,562		$	2,820		$	3,421		$	15,350		$	5,944		$	47,567

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Credit Group for the nine months ended September 30, 2018 and 2017 (in millions):

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 12/31/2017	$	15,251		$	4,629		$	2,809		$	3,434		$	16,869		$	6,458		$	49,450
Commitments	3,602			256			4			95			95			30			4,082
Subscriptions/deployment/increase in leverage	—			12			41			432			3,113			3,128			6,726
Redemptions/distributions/decrease in leverage	(687		)	(527		)	(554		)	(464		)	(1,751		)	(955		)	(4,938		)
Change in fund value	89			81			69			78			290			(14		)	593
Change in fee basis	(4		)	(3		)	—			—			—			—			(7		)
FPAUM Balance at 9/30/2018	$	18,251		$	4,448		$	2,369		$	3,575		$	18,616		$	8,647		$	55,906
Average FPAUM(1)	$	16,560		$	4,509		$	2,542		$	3,489		$	18,069		$	7,390		$	52,559

	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 12/31/2016	$	15,998		$	4,978		$	2,705		$	3,128		$	11,292		$	4,608		$	42,709
Acquisitions	—			—			—			—			2,789			—			2,789
Commitments	3,545			418			4			140			112			—			4,219
Subscriptions/deployment/increase in leverage	—			52			55			278			1,830			1,296			3,511
Redemptions/distributions/decrease in leverage	(3,966		)	(1,115		)	(80		)	(375		)	(890		)	(430		)	(6,856		)
Change in fund value	300			288			159			256			521			513			2,037
Change in fee basis	—			—			—			—			—			213			213
FPAUM Balance at 9/30/2017	$	15,877		$	4,621		$	2,843		$	3,427		$	15,654		$	6,200		$	48,622
Average FPAUM(1)	$	15,625		$	4,699		$	2,782		$	3,286		$	14,066		$	5,426		$	45,884

(1) Represents the quarterly average of beginning and ending balances.

87

The components of our AUM, including the portion that is FPAUM, for the Credit Group are presented below as of September 30, 2018 and 2017 (in millions):

AUM: $91,501 AUM: $70,477

(1) Includes $6.7 billion and $5.7 billion of AUM of funds for which we indirectly earn management fees as of September 30, 2018 and 2017, respectively.

The charts below present FPAUM for the Credit Group by its fee basis as of September 30, 2018 and 2017 (in millions):

FPAUM: $55,906 FPAUM: $48,622

88

Credit Group—Fund Performance Metrics as of September 30, 2018

The Credit Group managed 155 funds as of September 30, 2018 across the liquid and illiquid credit strategies. ARCC contributed approximately 53% of the Credit Group’s total management fees for the nine months ended September 30, 2018. In addition to ARCC, four significant funds contributed approximately 8% of the Credit Group’s management fees for the nine months ended September 30, 2018. Our significant non-drawdown funds are ARCC; one sub-advised fund; and one separately managed account over which we exercise sole investment discretion. Our significant drawdown funds are Ares Capital Europe II, L.P. (“ACE II”), a 2013 vintage commingled fund; and Ares Capital Europe III, L.P. (“ACE III”), a 2015 vintage commingled fund, both of which focus on direct lending to European middle market companies.

The following table presents the performance data for our significant non-drawdown funds in the Credit Group:

		As of September 30, 2018
				Returns(%)(1)
	Year of	AUM		Current Quarter		Year-To-Date		Since Inception(2)		Primary Investment Strategy
Fund	Inception	(in millions)		Gross	Net	Gross	Net	Gross	Net
ARCC(3)	2004	$	15,055	N/A	2.9	N/A	10.2	N/A	11.9	U.S. Direct Lending
Sub-advised Client A(4)	2007	621		1.8	1.7	2.0	1.7	7.6	7.2	High Yield
Separately Managed Account Client B(4)	2016	728		1.8	1.7	0.8	0.5	5.0	4.6	High Yield

(1) Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses.

(2) Since inception returns are annualized.

(3) Net returns are calculated using the fund's NAV and assume dividends are reinvested at the closest quarter-end NAV to the relevant quarterly ex-dividend dates. Additional information related to ARCC can be found in its financial statements filed with the SEC, which are not part of this report.

(4) Gross returns do not reflect the deduction of management fees or any other expenses. Net returns are calculated by subtracting the applicable management fee from the gross returns on a monthly basis.

The following table presents the performance data of our significant drawdown funds:

				As of September 30, 2018 (Dollars in millions)
	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)		Primary Investment Strategy
Fund														Gross(3)	Net(4)	Gross(5)	Net(6)
ACE II(7)	2013	$	1,268	$	1,216	$	967	$	740	$	543	$	1,283	1.4x	1.3x	10.3	7.6	E.U. Direct Lending
ACE III(8)	2015	5,064		2,822		2,544		221		2,768		2,989		1.2x	1.2x	16.7	12.6	E.U. Direct Lending

(1) Realized proceeds represent the sum of all cash distributions to all partners and if applicable, exclude tax and incentive distributions made to the general partner.

(2) Unrealized value represents the fund's NAV reduced by the accrued incentive allocation, if applicable. There can be no assurance that unrealized values will be realized at the valuations indicated.

(3) The gross multiple of invested capital (“MoIC”) is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance income. The gross MoIC is before giving effect to management fees, performance income as applicable and other expenses.

(4) The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes those interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance income. The net MoIC is after giving effect to management fees, performance income as applicable and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. The net MoIC would have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5) The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance income. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. Gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses.

(6) The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or performance income. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, performance income as applicable, and other expenses. The funds may utilize a credit facility during the investment

89

period and for general cash management purposes. Net fund-level IRRs would likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7) ACE II is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and gross and net MoIC presented in the chart are for the U.S. dollar denominated feeder fund as that is the larger of the two feeders. The gross and net IRR for the Euro denominated feeder fund are 12.1% and 9.1%, respectively. The gross and net MoIC for the Euro denominated feeder fund are 1.5x and 1.4x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. The variance between the gross and net MoICs and the net IRRs for the U.S. dollar denominated and Euro denominated feeder funds is driven by the U.S. GAAP mark-to-market reporting of the foreign currency hedging program in the U.S. dollar denominated feeder fund. The feeder fund will be holding the foreign currency hedges until maturity, and therefore is expected to ultimately recognize a gain while mitigating the currency risk associated with the initial principal investments.

(8) ACE III is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC presented in the chart are for the Euro denominated feeder fund as that is the larger of the two feeders. The gross and net IRR for the U.S. dollar denominated feeder fund are 16.0% and 12.0%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.2x and 1.2x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE III are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

90

Private Equity Group

The following table sets forth certain statement of operations data and certain other data of our Private Equity Group segment for the periods presented.

	Three Months Ended						Favorable (Unfavorable)					Nine Months Ended						Favorable (Unfavorable)
	September 30,											September 30,
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Management fees	$	48,287		$	51,313		$	(3,026	)	(6	)%	$	147,492		$	147,559		$	(67	)	—	%
Other fees	206			449			(243		)	(54	)%	883			1,127			(244		)	(22	)%
Compensation and benefits	(17,443		)	(19,256		)	1,813			9	%	(55,314		)	(50,862		)	(4,452		)	(9	)%
General, administrative and other expenses	(5,866		)	(4,655		)	(1,211		)	(26	)%	(14,082		)	(13,198		)	(884		)	(7	)%
Fee Related Earnings	25,184			27,851			(2,667		)	(10	)%	78,979			84,626			(5,647		)	(7	)%
Performance income—realized	52,729			173,304			(120,575		)	(70	)%	137,542			238,084			(100,542		)	(42	)%
Performance related compensation—realized	(42,045		)	(138,657		)	96,612			70	%	(109,916		)	(189,571		)	79,655			42	%
Investment income—realized	8,104			14,268			(6,164		)	(43	)%	17,791			17,564			227			1	%
Interest and other investment income—realized	1,032			1,080			(48		)	(4	)%	4,011			2,549			1,462			57	%
Interest expense	(1,577		)	(1,229		)	(348		)	(28	)%	(4,245		)	(4,139		)	(106		)	(3	)%
Realized income	43,427			76,617			(33,190		)	(43	)%	124,162			149,113			(24,951		)	(17	)%
Performance income—unrealized	(109,024		)	(142,822		)	33,798			24	%	(221,563		)	118,162			(339,725		)	NM
Performance related compensation—unrealized	87,086			114,395			(27,309		)	(24	)%	175,304			(95,131		)	270,435			NM
Investment income (loss)—unrealized	(25,725		)	(8,421		)	(17,304		)	(205	)%	(29,585		)	25,479			(55,064		)	NM
Interest and other investment income—unrealized	40			49			(9		)	(18	)%	429			715			(286		)	(40	)%
Economic net income	$	(4,196	)	$	39,818		(44,014		)	NM		$	48,747		$	198,338		(149,591		)	(75	)%
Performance related earnings	$	(29,380	)	$	11,967		(41,347		)	NM		$	(30,232	)	$	113,712		(143,944		)	NM

NM - Not meaningful

Accrued carried interest for the Private Equity Group includes the following:

	As of September 30,		As of December 31,
	2018		2017
	(Dollars in thousands)
ACOF III	$	365,731	$	570,578
ACOF IV	219,711		217,354
EIF V	—		16,215
Other funds	8,402		11,260
Total Private Equity Group	$	593,844	$	815,407

91

Performance income for the Private Equity Group includes the following:

	Three Months Ended September 30, 2018								Three Months Ended September 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
ACOF III	$	52,729	$	(145,262	)	$	(92,533	)	$	15,588	$	3,239		$	18,827
ACOF IV	—		35,507			35,507			157,716		(146,013		)	11,703
EIF V	—		—			—			—		1,399			1,399
Other funds	—		731			731			—		(1,447		)	(1,447		)
Total Private Equity Group	$	52,729	$	(109,024	)	$	(56,295	)	$	173,304	$	(142,822	)	$	30,482

	Nine Months Ended September 30, 2018								Nine Months Ended September 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
ACOF III	$	135,938	$	(204,846	)	$	(68,908	)	$	19,851	$	186,765		$	206,616
ACOF IV	1,604		2,357			3,961			213,569		(49,987		)	163,582
EIF V	—		(16,215		)	(16,215		)	—		(1,040		)	(1,040		)
Other funds	—		(2,859		)	(2,859		)	4,664		(17,576		)	(12,912		)
Total Private Equity Group	$	137,542	$	(221,563	)	$	(84,021	)	$	238,084	$	118,162		$	356,246

The following tables present the components of the change in performance income - unrealized for the Private Equity Group:

	Three Months Ended September 30, 2018											Three Months Ended September 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
ACOF III	$	(52,729	)	$	—	$	(92,533	)	$	(145,262	)	$	(15,588	)	$	18,827	$	—		$	3,239
ACOF IV	—			35,507		—			35,507			(157,716		)	11,703		—			(146,013		)
EIF V	—			—		—			—			—			1,399		—			1,399
Other funds	—			731		—			731			—			11		(1,458		)	(1,447		)
Total Private Equity Group	$	(52,729	)	$	36,238	$	(92,533	)	$	(109,024	)	$	(173,304	)	$	31,940	$	(1,458	)	$	(142,822	)

	Nine Months Ended September 30, 2018											Nine Months Ended September 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
ACOF III	$	(135,938	)	$	—	$	(68,908	)	$	(204,846	)	$	(19,851	)	$	206,616	$	—		$	186,765
ACOF IV	(1,604		)	3,961		—			2,357			(213,569		)	163,582		—			(49,987		)
EIF V	—			—		(16,215		)	(16,215		)	—			—		(1,040		)	(1,040		)
Other funds	—			1,628		(4,487		)	(2,859		)	(4,664		)	1,013		(13,925		)	(17,576		)
Total Private Equity Group	$	(137,542	)	$	5,589	$	(89,610	)	$	(221,563	)	$	(238,084	)	$	371,211	$	(14,965	)	$	118,162

92

Private Equity Group—Three and Nine Months Ended September 30, 2018Compared to Three and Nine Months Ended September 30, 2017

Fee Related Earnings:

Fee related earnings decreased by $2.7 million, or 10%, to $25.2 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $5.6 million, or 7%, to $79.0 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Fee related earnings were impacted by fluctuations of the following components:

Management Fees

The charts below present Private Equity Group management fees and effective management fee rates for the three and nine months ended September 30, 2018 and 2017 (dollars in millions):

The decrease in management fees for the three month comparative periods was primarily driven by monetizations and distributions from certain infrastructure and power funds and from ACOF III subsequent to September 30, 2017 resulting in a $4.2 million decrease in management fees for the three month comparative periods. These funds are no longer in their reinvestment periods as such management fees are based on invested capital and will continue to decrease as investments are monetized. Conversely, capital deployment in Ares Special Situations Fund IV, L.P. (“SSF IV”) increased its fee basis and management fees by $0.9 million for the three month comparative periods.

The increase for the nine month comparative periods was primarily driven by an $18.5 million increase in management fees attributable to Ares Corporate Opportunities Fund V, L.P. (“ACOF V”), which began generating fees in March 2017. Capital deployment in SSF IV increased its fee basis, which generated additional management fees of $3.3 million for the nine month comparative periods. Conversely, management fees from ACOF IV decreased by $8.9 million for the nine month comparative periods due to a reduced fee rate and change in fee basis in connection with the launch of ACOF V. Monetizations and distributions of certain infrastructure and power funds and ACOF III subsequent to September 30, 2017 resulted in a $7.4 million decrease in management fees for the nine month comparative periods. Additionally, $5.8 million of one-time catch-up fees related to the final closings of EIF V were recognized during the nine months ended September 30, 2017.

The effective management fee rate, excluding the effect of one-time catch-up fees, decreased from 1.19% and 1.20% for the three and nine months ended September 30, 2017 to 1.18% and 1.19% for the three and nine months ended September 30, 2018. The decreases for the comparative periods were primarily the result of a reduced fee rate on ACOF IV's invested capital.

Compensation and Benefits.  Compensation and benefits expenses decreased by $1.8 million, or 9%, to $17.4 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. The decrease was primarily driven by a reduction in incentive compensation for the comparative periods.

Compensation and benefits expenses increased by $4.5 million, or 9%, to $55.3 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase was primarily due to additional headcount to expand our capabilities within the special opportunities strategy and to support an increasing asset base and pool of investments within our corporate opportunities strategy. Compensation and benefits expenses represented 36.1% and 37.5% of management fees for the three and nine months ended September 30, 2018 compared to 37.5% and 34.5% for the three and nine months ended September 30, 2017.

93

Realized Income:

The table below provides the components of realized income for the Private Equity Group for the three and nine months ended September 30, 2018 and 2017 (Dollars in millions):

	Three Months Ended				Favorable (Unfavorable)					Nine Months Ended				Favorable (Unfavorable)
	September 30,									September 30,
	2018		2017		$ Change			% Change		2018		2017		$ Change			% Change
FRE	$	25.2	$	27.9	$	(2.7	)	(10	)%	$	79.0	$	84.6	$	(5.6	)	(7	)%
Net performance income—realized	10.7		34.6		(23.9		)	(69	)%	27.6		48.5		(20.9		)	(43	)%
Net investment income—realized	7.6		14.1		(6.5		)	(46	)%	17.6		16.0		1.6			10	%
Realized income	$	43.5	$	76.6	(33.1		)	(43	)%	$	124.2	$	149.1	(24.9		)	(17	)%

Realized income for the three and nine months ended September 30, 2018 and 2017 was primarily attributable to FRE for the respective periods as a result of the activity described above and net realized performance income. Net realized performance income and net realized investment income for the three and nine months ended September 30, 2018 were primarily attributable to realizations and related distributions from ACOF III's partial sale of its position in a publicly traded retail portfolio company. Net realized performance income and net realized investment income for the three and nine months ended September 30, 2017 were primarily attributable to realizations and related distributions from monetizations of multiple investments held within ACOF IV.

Performance Related Earnings:

Performance related earnings decreased by $41.3 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $143.9 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Performance related earnings were impacted by fluctuations of the following components:

Net Performance Income. Net performance income includes realized and unrealized performance income, net of realized and unrealized performance related compensation. The impact of reversals of previously recognized performance income and the corresponding performance related compensation expense is reflected as a reduction in unrealized performance income and unrealized performance related compensation.

Net performance income decreased by $17.5 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $90.2 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Net performance income for the three months ended September 30, 2018 included an $18.5 million reversal of net performance income due to market depreciation of one of ACOF III’s publicly traded retail portfolio companies; offset by $7.2 million of net performance income due to market appreciation of certain of ACOF IV’s portfolio companies. Net performance income for the nine months ended September 30, 2018 included: (i) $13.8 million reversal of net performance income due to market depreciation of one of ACOF III’s publicly traded retail portfolio companies; (ii) $4.9 million reversal of net performance income attributable to EIF V primarily due to a reduction in fair value of one of its portfolio companies.

Net performance income for the three and nine months ended September 30, 2017 included: (i) $3.8 million and $41.3 million, respectively, of net performance income attributable to ACOF III primarily due to significant market appreciation of one of its publicly traded retail portfolio companies following the company's initial public offering; and (ii) $2.3 million and $32.7 million, respectively, of net performance income attributable to ACOF IV primarily due to an increased fair value of one of its veterinary portfolio companies following a minority sale of the company.

Net Investment Income (Loss).  Net investment income (loss) includes realized and unrealized investment income (loss) and realized and unrealized interest and other investment income (loss), net of interest expense.

Net investment income (loss)decreased by $23.9 million from net investment income of $5.7 million for the three months ended September 30, 2017 to net investment loss of $18.1 million for the three months ended September 30, 2018. Net investment income (loss)decreased by $53.8 million from net investment income of $42.2 million for the nine months ended September 30, 2017 to net investment loss of $11.6 million for the nine months ended September 30, 2018.

94

Net investment loss for the three months ended September 30, 2018 was principally composed of: (i) $14.2 million of net losses attributable to our investment in ACOF III primarily due to market depreciation of one of the fund’s publicly traded retail portfolio companies; (ii) $6.3 million of net losses attributable to our investment in a certain corporate opportunities fund; offset by (iii) $1.6 million of net gains attributable to our investment in ACOF IV primarily due to market appreciation across multiple portfolio companies.

Net investment loss for the nine months ended September 30, 2018 was principally composed of: (i) $12.1 million of net losses attributable to our investment in ACOF III primarily due to market depreciation of the fund’s publicly traded retail portfolio companies; (ii) $7.4 million of net losses attributable to our investment in a certain corporate opportunities fund; (iii) $3.5 million of net losses attributable to our investment in EIF V primarily due to a reduction in fair value of one of its portfolio companies; offset by (iv) $8.8 million of net gains attributable to our investment in our Asian corporate private equity fund primarily due to an increased valuation as a result of a recent round of fundraising of one the fund's portfolio companies; and (v) $2.0 million of net gains attributable to our investment in SSF IV due to market appreciation of several of the fund's investments.

Net investment income for the three months ended September 30, 2017 was primarily attributable to our investment in our Asian corporate private equity fund primarily due to market appreciation of one of the fund's publicly traded consumer products portfolio companies. Net investment income for the nine months ended September 30, 2017 was primarily attributable to: (i) $30.7 million of net gains from our investment in ACOF III primarily due to market appreciation of one of the fund’s publicly traded retail portfolio companies following the company's initial public offering during the period; (ii) $8.8 million of net gains from our investment in our Asian corporate private equity fund primarily due to market appreciation of one of the fund's publicly traded manufacturing portfolio companies; and (iii) $1.6 million of net gains attributable to our investments in certain of our special opportunities funds due to market appreciation of several of the funds' underlying investments.

Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income decreased by $44.0 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $149.6 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, as a result of the fluctuations described above.

95

Private Equity Group—Assets Under Management

The tables below provide the period‑to‑period rollforwards of AUM for the Private Equity Group for the three months ended September 30, 2018 and 2017 (in millions):

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
Balance at 6/30/2018	$	18,086		$	3,983		$	1,533		$	23,602
Net new debt commitments	—			—			100			100
Distributions	(312		)	(204		)	(7		)	(523		)
Change in fund value	(291		)	75			28			(188		)
Balance at 9/30/2018	$	17,483		$	3,854		$	1,654		$	22,991
Average AUM(1)	$	17,785		$	3,919		$	1,594		$	23,298

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
Balance at 6/30/2017	$	19,470		$	4,726		$	1,574		$	25,770
Net new equity commitments	—			—			—			—
Distributions	(1,299		)	(46		)	(28		)	(1,373		)
Change in fund value	211			(60		)	27			178
Balance at 9/30/2017	$	18,382		$	4,620		$	1,573		$	24,575
Average AUM(1)	$	18,926		$	4,673		$	1,574		$	25,173

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of AUM for the Private Equity Group for the nine months ended September 30, 2018 and 2017 (in millions):

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
Balance at 12/31/2017	$	18,557		$	4,423		$	1,550		$	24,530
Net new equity commitments	13			350			—			363
Net new debt commitments	—			—			100			100
Distributions	(821		)	(966		)	(56		)	(1,843		)
Change in fund value	(266		)	47			60			(159		)
Balance at 9/30/2018	$	17,483		$	3,854		$	1,654		$	22,991
Average AUM(1)	$	18,214		$	4,080		$	1,563		$	23,857

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
Balance at 12/31/2016	$	18,162		$	5,143		$	1,736		$	25,041
Net new equity commitments	23			300			—			323
Distributions	(1,852		)	(655		)	(169		)	(2,676		)
Change in fund value	2,049			(168		)	6			1,887
Balance at 9/30/2017	$	18,382		$	4,620		$	1,573		$	24,575
Average AUM(1)	$	18,600		$	4,766		$	1,645		$	25,011

(1) Represents the quarterly average of beginning and ending balances.

Private Equity Group—Fee Paying AUM

96

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Private Equity Group for the three months ended September 30, 2018 and 2017 (in millions):

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
FPAUM Balance at 6/30/2018	$	12,127		$	3,517		$	945		$	16,589
Subscriptions/deployment/increase in leverage	—			—			215			215
Redemptions/distributions/decrease in leverage	(13		)	(53		)	(4		)	(70		)
Change in fund value	(4		)	—			—			(4		)
Change in fee basis	—			—			(106		)	(106		)
FPAUM Balance at 9/30/2018	$	12,110		$	3,464		$	1,050		$	16,624
Average FPAUM(1)	$	12,119		$	3,491		$	998		$	16,608

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
FPAUM Balance at 6/30/2017	$	12,437		$	4,081		$	774		$	17,292
Commitments	—			—			—			—
Subscriptions/deployment/increase in leverage	40			28			18			86
Redemptions/distributions/decrease in leverage	(352		)	(8		)	(142		)	(502		)
Change in fund value	—			(61		)	(6		)	(67		)
Change in fee basis	(25		)	—			—			(25		)
FPAUM Balance at 9/30/2017	$	12,100		$	4,040		$	644		$	16,784
Average FPAUM(1)	$	12,269		$	4,061		$	709		$	17,039

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Private Equity Group for the nine months ended September 30, 2018 and 2017 (in millions):

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
FPAUM Balance at 12/31/2017	$	12,073		$	4,019		$	766		$	16,858
Commitments	13			350			—			363
Subscriptions/deployment/increase in leverage	123			34			432			589
Redemptions/distributions/decrease in leverage	(93		)	(939		)	(54		)	(1,086		)
Change in fund value	(6		)	—			12			6
Change in fee basis	—			—			(106		)	(106		)
FPAUM Balance at 9/30/2018	$	12,110		$	3,464		$	1,050		$	16,624
Average FPAUM(1)	$	12,104		$	3,659		$	922		$	16,685

	Corporate Private Equity			Private Equity - EIF			Special Opportunities			Total Private Equity Group
FPAUM Balance at 12/31/2016	$	6,454		$	4,232		$	628		$	11,314
Commitments	7,622			300			—			7,922
Subscriptions/deployment/increase in leverage	449			197			277			923
Redemptions/distributions/decrease in leverage	(873		)	(340		)	(207		)	(1,420		)
Change in fund value	—			(349		)	(54		)	(403		)
Change in fee basis	(1,552		)	—			—			(1,552		)
FPAUM Balance at 9/30/2017	$	12,100		$	4,040		$	644		$	16,784
Average FPAUM(1)	$	10,928		$	4,055		$	661		$	15,644

(1) Represents the quarterly average of beginning and ending balances.

97

The components of our AUM, including the portion that is FPAUM, for the Private Equity Group are presented below as of September 30, 2018 and 2017 (in millions):

AUM: $22,991 AUM: $24,575

The charts below present FPAUM for the Private Equity Group by its fee basis as of September 30, 2018 and 2017 (in millions):

FPAUM: $16,624 FPAUM: $16,784

98

Private Equity Group—Fund Performance Metrics as of September 30, 2018

The Private Equity Group managed 22 commingled funds and related co-investment vehicles as of September 30, 2018. ACOF III, ACOF IV, ACOF V, SSF IV, USPF IV and EIF V, each considered a significant fund, combined for approximately 94% of the Private Equity Group’s management fees for the nine months ended September 30, 2018. Our Corporate Private Equity funds focus on majority or shared-control investments, principally in under-capitalized companies in North America, Europe and Asia. Our special opportunities funds invest opportunistically across a broad spectrum of distressed or mispriced investments. Our infrastructure and power funds focus on generating long-term, stable cash-flowing investments in the power generation, transmission and midstream energy sector. ACOF III, ACOF IV and USPF IV are in harvest mode, meaning they are generally not seeking to deploy capital into new investment opportunities, while ACOF V, SSF IV and EIF V are in deployment mode. We do not present fund performance metrics for significant funds with less than two years of historical information, except for those significant funds that pay management fees on invested capital, in which case performance is shown at the earlier of (i) the one year anniversary of the fund's first investment or (ii) such time the fund is 50% or more invested.

The following table presents the performance data for our significant funds in the Private Equity Group, all of which are drawdown funds:

				As of September 30, 2018 (Dollars in millions)
	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)				Primary Investment Strategy
Fund														Gross(3)	Net(4)	Gross(5)		Net(6)
ACOF III	2008	$	3,412	$	3,510	$	3,867	$	6,956	$	3,110	$	10,066	2.6x	2.2x	29.6		21.1		Corporate Private Equity
USPF IV	2010	1,658		1,688		1,953		1,108		1,522		2,630		1.3x	1.3x	9.7		6.3		Infrastructure and Power
ACOF IV	2012	5,479		4,700		4,106		2,528		4,615		7,143		1.7x	1.5x	20.3		13.5		Corporate Private Equity
EIF V	2015	795		801		656		192		553		745		1.1x	1.0x	14.9		7.6		Infrastructure and Power
SSF IV(7)	2015	1,493		1,515		1,990		872		1,030		1,902		1.0x	0.9x	(4.6	)	(6.3	)	Special Opportunities
ACOF V	2017	7,852		7,850		3,085		130		3,205		3,335		1.1x	1.0x	NA		NA		Corporate Private Equity

(1) Realized proceeds represent the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments.

(2) Unrealized value represents the fair market value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations indicated.

(3) The gross MoIC is calculated at the investment-level and is based on the interests of all partners. The gross MoIC is before giving effect to management fees, performance fees as applicable and other expenses.

(4) The net MoIC for the infrastructure and power, and special opportunities funds is calculated at the fund-level. The net MoIC for the corporate private equity funds is calculated at the investment level. For all funds, the net MoIC is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or performance fees. The net MoIC is after giving effect to management fees, performance fees as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. The net MoIC would have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5) The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. For ASSF IV, cash flows used in the gross IRR calculation are based on the actual dates of the cash flows. For all other funds, cash flows are assumed to occur at month-end. The gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses.

(6) The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or performance fees. The cash flow dates used in the net IRR calculation are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, performance fees as applicable, and other expenses and exclude commitments by the general partner and Schedule I investors who do not pay either management fees or carried interest. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would have generally been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7) In January 2017, a new team assumed portfolio management of SSF IV. In addition to presenting the cumulative performance measure by SSF IV, we have also adopted a new performance measurement called “SSF IV 2.0”.  SSF IV 2.0 is a subset of SSF IV positions and is intended to provide insight into the new team’s cumulative investment performance. SSF IV 2.0 investments represent (i) existing and re-underwritten positions by the new team on January 1, 2017 and (ii) all new investments made by the new team since January 1, 2017. As part of the re-underwriting process, each liquid investment in the SSF IV portfolio was evaluated and a determination was made whether to continue to hold such investment in the SSF IV portfolio or dispose of such investment. At the same time, legacy illiquid investments have been excluded from the SSF IV 2.0 track record as it was not possible to dispose of such investments in the near-term due to their private, illiquid nature. Since January 2017, SSF IV 2.0 has generated gross and net (realized and unrealized) internal rates of return of 15.4% and 10.7%, respectively, through September 30, 2018.

99

Real Estate Group

The following table sets forth certain statement of operations data and certain other data of our Real Estate Group segment for the periods presented.

	Three Months Ended						Favorable (Unfavorable)					Nine Months Ended						Favorable (Unfavorable)
	September 30,											September 30,
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Management fees	$	19,961		$	17,137		$	2,824		16	%	$	52,272		$	49,231		$	3,041		6	%
Other fees	10			27			(17		)	(63	)%	20			37			(17		)	(46	)%
Compensation and benefits	(10,733		)	(11,398		)	665			6	%	(27,140		)	(30,848		)	3,708			12	%
General, administrative and other expenses	(2,856		)	(2,125		)	(731		)	(34	)%	(7,679		)	(7,947		)	268			3	%
Fee Related Earnings	6,382			3,641			2,741			75	%	17,473			10,473			7,000			67	%
Performance income—realized	17,110			2,389			14,721			NM		31,269			3,883			27,386			NM
Performance related compensation—realized	(16,865		)	(856		)	(16,009		)	NM		(25,079		)	(1,033		)	(24,046		)	NM
Investment income—realized	6,846			1,997			4,849			243	%	9,946			4,153			5,793			139	%
Interest and other investment income—realized	486			76			410			NM		1,370			401			969			242	%
Interest expense	(417		)	(396		)	(21		)	(5	)%	(1,289		)	(1,257		)	(32		)	(3	)%
Realized income	13,542			6,851			6,691			98	%	33,690			16,620			17,070			103	%
Performance income—unrealized	44,158			20,366			23,792			117	%	55,948			64,243			(8,295		)	(13	)%
Performance related compensation—unrealized	(26,672		)	(12,233		)	(14,439		)	(118	)%	(34,948		)	(39,303		)	4,355			11	%
Investment income (loss)—unrealized	(2,920		)	(767		)	(2,153		)	(281	)%	(4,677		)	(77		)	(4,600		)	NM
Interest and other investment income (loss)—unrealized	(45		)	640			(685		)	NM		(1,130		)	1,668			(2,798		)	NM
Economic net income	$	28,063		$	14,857		13,206			89	%	$	48,883		$	43,151		5,732			13	%
Performance related earnings	$	21,681		$	11,216		10,465			93	%	$	31,410		$	32,678		(1,268		)	(4	)%

NM - Not Meaningful

Accrued carried interest and incentive fee receivable for the Real Estate Group include the following:

	As of September 30,		As of December 31,
	2018		2017
	(Dollars in thousands)
US VIII	$	43,251	$	32,940
EF IV	64,425		50,801
Other real estate funds	69,316		37,528
Subtotal	176,992		121,269
Other fee generating funds(1)	14,108		15,362
Total Real Estate Group	$	191,100	$	136,631

(1) Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

100

The following tables present the components of performance income for the Real Estate Group. The three and nine month periods ended September 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.

	Three Months Ended September 30, 2018						Three Months Ended September 30, 2017
	Realized		Unrealized		Total		Realized		Unrealized		Total
	(Dollars in thousands)
US VIII	$	—	$	5,545	$	5,545	$	—	$	6,819	$	6,819
EF IV	—		12,520		12,520		—		8,094		8,094
Other real estate funds	17,110		25,299		42,409		1,408		5,248		6,656
Subtotal	17,110		43,364		60,474		1,408		20,161		21,569
Other fee generating funds(1)	—		794		794		981		205		1,186
Total Real Estate Group	$	17,110	$	44,158	$	61,268	$	2,389	$	20,366	$	22,755

	Nine Months Ended September 30, 2018								Nine Months Ended September 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
US VIII	$	—	$	10,310		$	10,310		$	—	$	14,953		$	14,953
EF IV	12,396		13,624			26,020			—		36,149			36,149
Other real estate funds	18,352		32,746			51,098			1,702		13,895			15,597
Subtotal	30,748		56,680			87,428			1,702		64,997			66,699
Other fee generating funds(1)	521		(732		)	(211		)	2,181		(754		)	1,427
Total Real Estate Group	$	31,269	$	55,948		$	87,217		$	3,883	$	64,243		$	68,126

(1) Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

The following tables present the components of the change in performance income - unrealized for the Real Estate Group. The three and nine month periods ended September 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.

	Three Months Ended September 30, 2018									Three Months Ended September 30, 2017
	Performance Income - Realized		Increases		Decreases			Performance Income - Unrealized		Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
US VIII	$	—	$	5,545	$	—		$	5,545	$	—		$	6,819	$	—		$	6,819
EF IV	—		12,520		—			12,520		—			8,094		—			8,094
Other real estate funds	—		25,299		—			25,299		(1,408		)	6,887		(231		)	5,248
Subtotal	—		43,364		—			43,364		(1,408		)	21,800		(231		)	20,161
Other fee generating funds(1)	—		865		(71		)	794		(981		)	1,186		—			205
Total Real Estate Group	$	—	$	44,229	$	(71	)	$	44,158	$	(2,389	)	$	22,986	$	(231	)	$	20,366

	Nine Months Ended September 30, 2018											Nine Months Ended September 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
US VIII	$	—		$	10,310	$	—		$	10,310		$	—		$	14,953	$	—		$	14,953
EF IV	(12,396		)	26,020		—			13,624			—			36,149		—			36,149
Other real estate funds	(1,242		)	34,180		(192		)	32,746			(1,702		)	16,137		(540		)	13,895
Subtotal	(13,638		)	70,510		(192		)	56,680			(1,702		)	67,239		(540		)	64,997
Other fee generating funds(1)	(521		)	1,108		(1,319		)	(732		)	(2,181		)	1,987		(560		)	(754		)
Total Real Estate Group	$	(14,159	)	$	71,618	$	(1,511	)	$	55,948		$	(3,883	)	$	69,226	$	(1,100	)	$	64,243

(1) Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

101

Real Estate Group—Three and Nine Months Ended September 30, 2018Compared to Three and Nine Months Ended September 30, 2017

Fee Related Earnings:

Fee related earnings increased by $2.7 million, or 75%, to $6.4 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $7.0 million, or 67%, to $17.5 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Fee related earnings were impacted by fluctuations of the following components:

Management Fees

The charts below present Real Estate Group management fees and effective management fee rates for the three and nine months ended September 30, 2018 and 2017 (dollars in millions):

Management fees for the three and nine months comparative periods increased by $6.1 million and $11.7 million, respectively, from the launches of our new flagship E.U. real estate equity fund and Ares US Real Estate Fund IX, L.P. (“VEF IX”), from which $2.3 million and $3.4 million was attributable to one-time catch up fees for the three and nine month comparative periods, respectively. These increases were primarily offset by decreases of $3.3 million and $8.7 million for the three and nine month comparative periods, respectively, caused by the liquidation of one of our European real estate equity funds and monetizations of investments within certain of our other real estate equity funds nearing the end of their fund terms.

The effective management fee rate, excluding the effect of one-time catch-up fees, decreased from 1.03% and 0.99% for three and nine months ended September 30, 2017, respectively, to 0.98% and 0.95% for the three and nine months ended September 30, 2018, respectively. The decreases in effective management fee rates between periods were primarily due to a change in the ratio and composition of committed capital to invested capital of certain of our real estate equity funds. Our latest U.S. and E.U. real estate equity funds pay a lower fixed fee on committed capital and than a higher fee on deployed capital. As a result, immediately following fund raising, our effective fee rate decreases temporarily and is expected to increase as capital is deployed in the future.

Compensation and Benefits.  Compensation and benefits expenses decreased by $0.7 million, or 6%, to $10.7 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $3.7 million, or 12%, to $27.1 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The decreases were primarily driven by reductions in incentive based compensation. Compensation and benefits expenses represented 53.8% and 51.9% of management fees for the three and nine months ended September 30, 2018 compared to 66.5% and 62.7% for the three and nine months ended September 30, 2017.

102

Realized Income:

The table below provides the components of realized income for the Real Estate Group for the three and nine months ended September 30, 2018 and 2017 (Dollars in millions):

	Three Months Ended				Favorable (Unfavorable)					Nine Months Ended				Favorable (Unfavorable)
	September 30,									September 30,
	2018		2017		$ Change			% Change		2018		2017		$ Change		% Change
FRE	$	6.4	$	3.6	$	2.8		75	%	$	17.5	$	10.5	$	7.0	67	%
Net performance income—realized	0.2		1.5		(1.3		)	(84	)%	6.2		2.9		3.3		117	%
Net investment income—realized	6.9		1.7		5.2			NM		10.0		3.3		6.7		204	%
Realized income	$	13.5	$	6.8	6.7			98	%	$	33.7	$	16.7	17.0		103	%

Realized income for the three and nine months ended September 30, 2018 and 2017 was primarily attributable to FRE, as a result of the activity described above, and to net realized investment income for the respective periods. Net realized performance income for the nine months ended September 30, 2018 was primarily attributable to realizations and related distributions from Ares European Real Estate Fund IV L.P. (“EF IV”) generating returns in excess of its hurdle rate. Net realized investment income for the three and nine months ended September 30, 2018 was primarily attributable to realizations and related distributions from EF IV and from monetizations of investments within certain of our real estate equity funds nearing the end of their fund terms. Net realized performance income and net realized investment income for the three and nine months ended September 30, 2017 were primarily attributable to realizations and related distributions from monetizations of investments within certain of our real estate equity funds nearing the end of their fund terms.

Performance Related Earnings:

Performance related earnings increased by $10.5 million, or 93%, to $21.7 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $1.3 million, or 4%, to $31.4 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Performance related earnings were impacted by fluctuations of the following components:

Net Performance Income.  Net performance income includes realized and unrealized performance income, net of realized and unrealized performance related compensation. The impact of reversals of previously recognized performance income and the corresponding performance related compensation expense is reflected as a reduction in unrealized performance income and performance related compensation.

Net performance income increased by $8.1 million to $17.7 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and decreased by $0.6 million to $27.2 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase for the three month comparative periods was primarily due to greater unrealized market appreciation of U.S. and E.U. equity funds' investments in the current year period compared to the prior year period.

Net Investment Income (Loss). Net investment income (loss) includes realized and unrealized investment income (loss) and realized and unrealized interest and other investment income (loss), net of interest expense.

Net investment incomeincreased by $2.4 million to $4.0 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Investments in our U.S. and E.U. equity funds experienced increases in net gains of $2.7 million for the three month comparative periods as a result of greater appreciation in values across multiple underlying properties during the current year periods compared to the prior year periods.

Net investment incomedecreased by $0.7 million to $4.2 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Transaction gains of $1.6 million from the revaluation of certain assets and liabilities denominated in foreign currencies for the nine months ended September 30, 2017 decreased by $2.7 million to transaction losses of $1.1 million for the nine months ended September 30, 2018. This decrease was offset by a $1.2 million increase in net gains attributable to investments in our U.S. and E.U. equity funds as a result of greater unrealized appreciation in underlying property values during the current year periods compared to the prior year periods.

103

Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income increased by $13.2 million, or 89%, to $28.1 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $5.7 million, or 13%, to $48.9 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017, as a result of the fluctuations described above.

104

Real Estate Group—Assets Under Management

The tables below provide the period‑to‑period rollforwards of AUM for the Real Estate Group for the three months ended September 30, 2018 and 2017 (in millions):

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 6/30/2018	$	4,554		$	3,351		$	3,005		$	10,910
Net new equity commitments	55			315			—			370
Distributions	(832		)	(26		)	(8		)	(866		)
Change in fund value	131			32			10			173
Balance at 9/30/2018	$	3,908		$	3,672		$	3,007		$	10,587
Average AUM(1)	$	4,231		$	3,512		$	3,006		$	10,749

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 6/30/2017	$	4,659		$	3,143		$	2,990		$	10,792
Net new equity commitments	246			—			—			246
Distributions	(197		)	(437		)	(8		)	(642		)
Change in fund value	107			79			11			197
Balance at 9/30/2017	$	4,815		$	2,785		$	2,993		$	10,593
Average AUM(1)	$	4,737		$	2,964		$	2,992		$	10,693

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of AUM for the Private Equity Group for the nine months ended September 30, 2018 and 2017 (in millions):

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 12/31/2017	$	4,578		$	2,704		$	2,947		$	10,229
Net new equity commitments	198			1,280			55			1,533
Distributions	(1,098		)	(275		)	(24		)	(1,397		)
Change in fund value	230			(37		)	29			222
Balance at 9/30/2018	$	3,908		$	3,672		$	3,007		$	10,587
Average AUM(1)	$	4,386		$	3,279		$	2,991		$	10,656

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 12/31/2016	$	4,106		$	3,100		$	2,546		$	9,752
Net new equity commitments	767			—			—			767
Net new debt commitments	—			—			509			509
Distributions	(290		)	(641		)	(86		)	(1,017		)
Change in fund value	232			326			24			582
Balance at 9/30/2017	$	4,815		$	2,785		$	2,993		$	10,593
Average AUM(1)	$	4,429		$	3,020		$	2,821		$	10,270

(1) Represents the quarterly average of beginning and ending balances.

105

Real Estate Group—Fee Paying AUM

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Real Estate Group for the three months ended September 30, 2018 and 2017 (in millions):

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 6/30/2018	$	3,059		$	2,862		$	1,042		$	6,963
Commitments	54			315			—			369
Subscriptions/deployment/increase in leverage	10			14			—			24
Redemptions/distributions/decrease in leverage	(349		)	—			(111		)	(460		)
Change in fund value	—			(6		)	10			4
Change in fee basis	(66		)	—			—			(66		)
FPAUM Balance at 9/30/2018	$	2,708		$	3,185		$	941		$	6,834
Average FPAUM(1)	$	2,884		$	3,024		$	992		$	6,900

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 6/30/2017	$	3,003		$	2,536		$	1,115		$	6,654
Commitments	245			—			—			245
Subscriptions/deployment/increase in leverage	225			24			—			249
Redemptions/distributions/decrease in leverage	(107		)	(77		)	(32		)	(216		)
Change in fund value	3			46			11			60
FPAUM Balance at 9/30/2017	$	3,369		$	2,529		$	1,094		$	6,992
Average FPAUM(1)	$	3,186		$	2,533		$	1,105		$	6,824

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Real Estate Group for the nine months ended September 30, 2018 and 2017 (in millions):

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 12/31/2017	$	3,062		$	2,064		$	1,063		$	6,189
Commitments	180			1,052			—			1,232
Subscriptions/deployment/increase in leverage	61			353			26			440
Redemptions/distributions/decrease in leverage	(497		)	(83		)	(178		)	(758		)
Change in fund value	4			(34		)	30			—
Change in fee basis	(102		)	(167		)	—			(269		)
FPAUM Balance at 9/30/2018	$	2,708		$	3,185		$	941		$	6,834
Average FPAUM(1)	$	2,959		$	2,710		$	1,015		$	6,684

	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 12/31/2016	$	2,891		$	2,531		$	1,118		$	6,540
Commitments	635			—			—			635
Subscriptions/deployment/increase in leverage	432			24			3			459
Redemptions/distributions/decrease in leverage	(306		)	(123		)	(58		)	(487		)
Change in fund value	2			97			31			130
Change in fee basis	(285		)	—			—			(285		)
FPAUM Balance at 9/30/2017	$	3,369		$	2,529		$	1,094		$	6,992
Average FPAUM(1)	$	3,005		$	2,520		$	1,111		$	6,636

(1) Represents the quarterly average of beginning and ending balances.

106

The components of our AUM, including the portion that is FPAUM, for the Real Estate Group are presented below as of September 30, 2018 and 2017 (in millions):

AUM: $10,587 AUM: $10,593

The charts below present FPAUM for the Real Estate Group by its fee basis as of September 30, 2018 and 2017 (in millions):

FPAUM: $6,834 FPAUM: $6,992

(1)Market value/other includes ACRE fee paying AUM, which is based on ACRE's stockholders' equity.

107

Real Estate Group—Fund Performance Metrics as of September 30, 2018

The Real Estate Group managed 42 funds across the real estate debt and equity strategies as of September 30, 2018. Three funds in our Real Estate Group, each considered a significant fund, combined for approximately 35% of the Real Estate Group’s management fees for the nine months ended September 30, 2018: EF IV, a commingled fund focused on real estate assets located in Europe, primarily in the United Kingdom, France and Germany; Ares European Property Enhancement Program II, L.P. (“EPEP II”), a commingled equity fund focused on real estate assets located in Europe; and Ares US Real Estate Fund IX, L.P. (“VEF IX”), a commingled equity fund focused on real estate assets located in United States.

The following table presents the performance data for our significant funds in the Real Estate Group, each of which are drawdown funds:

				As of September 30, 2018 (Dollars in millions)
	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)		Primary Investment Strategy
Fund														Gross(3)	Net(4)	Gross(5)	Net(6)
EF IV(7)	2014	$	1,051	$	1,302	$	1,126	$	538	$	1,091	$	1,629	1.5x	1.2x	21.0	14.5	E.U. Real Estate Equity
EPEP II(8)	2015	687		747		344		135		307		442		1.3x	1.2x	19.4	17.4	E.U. Real Estate Equity
VEF IX	2017	858		870		170		4		254		258		1.0x	1.0x	NA	NA	U.S. Real Estate Equity

(1) Realized proceeds include distributions of operating income, sales and financing proceeds received.

(2) Unrealized value represents the fair market value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations indicated.

(3) The gross MoIC is calculated at the investment level and is based on the interests of all partners. The gross MoIC for all funds is before giving effect to management fees, performance income as applicable and other expenses.

(4) The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner who does not pay management fees or performance income or has such fees rebated outside of the fund. The net MoIC is after giving effect to management fees, performance income as applicable and other expenses. Net fund-level MoICs would generally likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5) The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. Cash flows used in the gross IRR calculation are assumed to occur at quarter-end. The gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses.

(6) The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner who does not pay management fees or performance income or has such fees rebated outside of the fund. The cash flow dates used in the net IRR calculation are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, performance income as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7) EF IV is made up of two parallel funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC and gross and net IRRs presented in the chart are for the U.S. dollar denominated parallel fund as that is the larger of the two funds. The gross and net IRRs for the Euro denominated parallel fund are 21.3% and 14.8%, respectively. The gross and net MoIC for the Euro denominated parallel fund are 1.5x and 1.3x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of fund's closing.  All other values for EF IV are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(8) EPEP II is made up of dual currency investors and Euro currency investors. The gross and net MoIC presented in the chart are for dual currency investors as dual currency investors represent the largest group of investors in the fund. Multiples exclude foreign currency gains and losses since dual currency investors fund capital contributions and receive distributions in local deal currency (GBP or EUR) and therefore, do not realize foreign currency gains or losses. The gross and net IRRs for the euro currency investors, which include foreign currency gains and losses, are 18.9% and 16.5%, respectively. The gross and net MoIC for the Euro currency investors, which include foreign currency gains and losses, are 1.3x and 1.2x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of fund's closing. All other values for EPEP II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

108

Operations Management Group

The following table sets forth certain statement of operations data and certain other data of the OMG on a standalone basis for the periods presented.

	Three Months Ended						Favorable (Unfavorable)					Nine Months Ended						Favorable (Unfavorable)
	September 30,											September 30,
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Compensation and benefits	$	(32,202	)	$	(27,306	)	$	(4,896	)	(18	)%	$	(93,867	)	$	(83,843	)	$	(10,024	)	(12	)%
General, administrative and other expenses	(18,292		)	(18,306		)	14			< 1%		(56,397		)	(56,481		)	84			< 1%
Fee Related Earnings	(50,494		)	(45,612		)	(4,882		)	(11	)%	(150,264		)	(140,324		)	(9,940		)	(7	)%
Investment income—realized	22			18			4			22	%	1,658			3,217			(1,559		)	(48	)%
Interest and other investment income—realized	442			119			323			271	%	2,178			1,020			1,158			114	%
Interest expense	(622		)	(441		)	(181		)	(41	)%	(1,758		)	(1,380		)	(378		)	(27	)%
Realized income	(50,652		)	(45,916		)	(4,736		)	(10	)%	(148,186		)	(137,467		)	(10,719		)	(8	)%
Investment income—unrealized	5,247			4,357			890			20	%	9,344			222			9,122			NM
Interest and other investment income (loss)—unrealized	(10		)	(93		)	83			89	%	124			105			19			18	%
Economic net income	$	(45,415	)	$	(41,652	)	(3,763		)	(9	)%	$	(138,718	)	$	(137,140	)	(1,578		)	(1	)%
Performance related earnings	$	5,079		$	3,960		1,119			28	%	$	11,546		$	3,184		8,362			263	%

NM - Not Meaningful

Operations Management Group—Three and Nine Months Ended September 30, 2018Compared to Three and Nine Months Ended September 30, 2017

Fee Related Earnings:

Fee related earnings decreased by $4.9 million, or 11%, for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $9.9 million, or 7%, for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Fee related earnings were impacted by the following:

Compensation and Benefits.  Compensation and benefits expenses increased by $4.9 million, or 18%, to $32.2 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $10.0 million, or 12%, to $93.9 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases were primarily driven by annual merit increases and headcount growth for the comparative periods. Headcount growth was partially driven by expansion of our business development platform in order to support global fundraising initiatives and by employees hired to support several information technology initiatives.

Realized Income:

Realized income for the three months ended September 30, 2018 was primarily attributable to negative FRE of $50.5 million. Realized income for the nine months ended September 30, 2018 included negative FRE of $150.3 million offset by net realized investment income of $2.1 million from our non-core fund investments. Realized income for the three months ended September 30, 2017 was primarily attributable to negative FRE of $45.6 million. Realized income for the nine months ended September 30, 2017 included negative FRE of $140.3 million offset by net realized investment income of $2.9 million from our non-core investments.

Performance Related Earnings:

Net Investment Income (Loss). Net investment income (loss) includes realized and unrealized investment income (loss) and realized and unrealized interest and other investment income (loss), net of interest expense.

Net investment incomeincreased by $1.1 million to $5.1 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $8.4 million to $11.5 million for the nine months ended September 30, 2018

109

compared to the nine months ended September 30, 2017. The increases were primarily driven by increased net gains from market appreciation of certain non-core investments for the comparative periods.

Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income decreased by $3.8 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 and by $1.6 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increases were a result of the fluctuations described above.

110

Liquidity and Capital Resources

Sources and Uses of Liquidity

Our sources of liquidity are (1) cash on hand, (2) net working capital, (3) cash from operations, including management fees, which are collected monthly, quarterly or semi-annually, and net realized performance income, which is unpredictable as to amount and timing, (4) fund distributions related to our investments that are also unpredictable as to amount and timing and (5) net borrowing from the Credit Facility. As of September 30, 2018, our cash and cash equivalents were $122.2 million and we had $105.0 million of borrowings outstanding under our Credit Facility. Our ability to draw from the Credit Facility is subject to debt covenants. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the ordinary course of business for the foreseeable future.

We expect that our primary liquidity needs will continue to be (1) provide capital to facilitate the growth of our existing investment management businesses, (2) fund a portion of our investment commitments, (3) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management businesses, (4) pay operating expenses, including cash compensation to our employees and payments under the tax receivable agreement (“TRA”), (5) fund capital expenditures, (6) service our debt, (7) pay income taxes and (8) make dividend payments to our common and preferred shareholders in accordance with our dividend policy.

In the normal course of business, we intend to pay dividends from core operations, which we define as FRE. If cash flows from core operations were insufficient to fund dividends over a sustained period of time, we expect that we would suspend paying such dividends. Unless quarterly dividends have been declared and paid (or declared and set apart for payment) on the preferred shares, we may not declare, pay or set apart payment for dividends on any common shares during the period. Dividends on the preferred shares are not cumulative and the preferred shares are not convertible into common shares or any other security.

Net realized performance income also provides a source of liquidity. Performance income is realized when a portfolio investment is profitably monetized and the fund’s cumulative returns are in excess of the preferred return or hurdle rate. Performance income is typically realized at the end of each fund’s measurement period when investment performance exceeds a stated benchmark or hurdle rate.

Our accrued carried interest by segment as of September 30, 2018 is set forth below.

	As of September 30, 2018
	Accrued Carried Interest		Eliminations(1)		Consolidated Accrued Carried Interest
Segment	(dollars in thousands)
Credit Group	$	176,431	$	—	$	176,431
Private Equity Group	593,844		—		593,844
Real Estate Group	176,992		—		176,992
Total	$	947,267	$	—	$	947,267

(1) Amounts represent accrued performance income earned from Consolidated Funds that are eliminated in consolidation.

Our condensed consolidated financial statements reflect the cash flows of our operating businesses as well as the results of our Consolidated Funds. The assets of our Consolidated Funds, on a gross basis, are significantly larger than the assets of our operating businesses and therefore have a substantial effect on our reported cash flows. The primary cash flow activities of our Consolidated Funds include: (1) raising capital from third-party investors, which is reflected as non-controlling interests of our Consolidated Funds when required to be consolidated into our condensed consolidated financial statements, (2) financing certain investments by issuing debt, (3) purchasing and selling investment securities, (4) generating cash through the realization of certain investments, (5) collecting interest and dividend income and (6) distributing cash to investors. Our Consolidated Funds are treated as investment companies for financial accounting purposes under GAAP; therefore, Consolidated Funds' investment activities are presented as cash flows from operations.

111

Cash Flows

The significant captions and amounts from our consolidated financial statements, which include the effects of our Consolidated Funds in accordance with GAAP, are summarized below. Negative amounts represent a net outflow, or a use of cash.

	Nine Months Ended September 30,
	2018			2017
	(dollars in millions)
Statements of cash flows data
Net cash used in operating activities	(1,723		)	(1,192		)
Net cash used in investing activities	(14		)	(28		)
Net cash provided by financing activities	1,733			1,052
Effect of foreign exchange rate change	8			12
Net change in cash and cash equivalents	$	4		$	(156	)

Operating Activities

Net cash flows used in operating activities was $1.7 billion for the nine months ended September 30, 2018 compared to $1.2 billion for the nine months ended September 30, 2017. For the nine months ended September 30, 2018, net purchases of investments were $2.0 billion compared to $1.2 billion for the nine months ended September 30, 2017. The change in cash used in operating activities was primarily driven by a $1.1 billion increase in net purchases of investments of our Consolidated Funds for the comparative periods due to the launch of two new U.S. CLOs and two new European CLOs and the refinancing of two U.S. CLOs during the nine months ended September 30, 2018. Conversely, net proceeds from the sale of investments of the Company increased by $244.6 million for the comparative periods primarily due to the sale of CLO securities during the nine months ended September 30, 2018. Subsequent to the removal of the U.S. risk retention requirements related to open-market CLO managers, we sold $206.0 million of CLO securities and used the proceeds to pay off the related term loans and settle our repurchase agreement during the second quarter of 2018.

Our increasing working capital needs reflect the growth of our business, while the capital requirements needed to support fund-related activities vary based upon the specific investment activities being conducted during such period. The movements within our Consolidated Funds do not adversely impact our liquidity or earnings trends. We believe that our ability to generate cash from operations, as well as the capacity under the Credit Facility, provides us with the necessary liquidity to manage short-term fluctuations in working capital and to meet our short-term commitments.

Investing Activities

Our investing activities generally reflect cash used for certain acquisitions and purchases of fixed assets. Purchases of fixed assets were $14.4 million and $27.9 million for the nine months ended September 30, 2018 and 2017, respectively. The decrease for the comparative periods was primarily driven by furniture, fixtures, equipment and leasehold improvements purchased for a new office location in Los Angeles during the prior year period.

Financing Activities

Net cash provided by financing activities was $1.7 billion for the nine months ended September 30, 2018 compared to $1.1 billion for the nine months ended September 30, 2017. For the nine months ended September 30, 2018, net cash inflows were primarily due to net borrowings on debt facilities of our Consolidated Funds and net proceeds from our common share issuance offset by net repayments on debt facilities of the Company and distributions to AOG unitholders and common shareholders. For the nine months ended September 30, 2017, net cash inflows were primarily from net borrowings on debt facilities of the Company and our Consolidated Funds partially offset by distributions to AOG unitholders and common shareholders.

Net repayments of our debt obligations were $267.0 million for the nine months ended September 30, 2018 compared to net borrowings of $180.0 million for the nine months ended September 30, 2017. During the nine months ended September 30, 2018, we had net repayments under the Credit Facility, paid off our term loans and settled our repurchase agreement. During the nine months ended September 30, 2017, net borrowings under the Credit Facility were used to support payments of 2016 annual bonuses, whereas 2017 annual bonuses were paid in 2017. Our Consolidated Funds had net borrowings of $2.1 billion and $1.0 billion for the nine months ended September 30, 2018 and 2017, respectively. The increase was primarily driven by net borrowings from the launch of two new U.S. CLOs and two new European CLOs and the refinancing of two U.S. CLOs during the nine months ended September 30, 2018.

112

    Distributions to our preferred, AOG and common shareholders were $263.5 million for the nine months ended September 30, 2018 compared to $185.3 million for the nine months ended September 30, 2017. The increase in distributions was primarily driven by a change in the timing of dividend payments to common shareholders as a result of our election to be treated as a corporation for U.S. federal income tax purposes. Dividends paid in the first quarter of 2017 reflected a portion of realized income generated in the fourth quarter of 2016, whereas dividends paid in the first quarter of 2018 reflected a portion of realized income generated in the five months ended on February 28, 2018, the last day we were treated as a partnership for U.S. federal income tax purposes. For our Consolidated Funds, net contributions were $24.2 million and $96.6 million for the nine months ended September 30, 2018 and 2017, respectively.

Capital Resources

The following table summarizes the Company's debt obligations (in thousands):

					As of September 30, 2018			December 31, 2017
	Debt Origination Date	Maturity	Original Borrowing Amount		Carrying Value		Interest Rate	Carrying Value		Interest Rate
Credit Facility(1)	Revolver	2/24/2022	N/A		$	105,000	3.74%	$	210,000	3.09%
Senior Notes(2)	10/8/2014	10/8/2024	$	250,000	245,789		4.21%	245,308		4.21%
2015 Term Loan(3)	9/2/2015	7/29/2026	$	—	—		N/A	35,037		2.86%
2016 Term Loan(4)	12/21/2016	1/15/2029	$	—	—		N/A	25,948		3.08%
2017 Term Loan A(4)	3/22/2017	1/22/2028	$	—	—		N/A	17,407		2.90%
2017 Term Loan B(4)	5/10/2017	10/15/2029	$	—	—		N/A	35,062		2.90%
2017 Term Loan C(4)	6/22/2017	7/30/2029	$	—	—		N/A	17,078		2.88%
2017 Term Loan D(4)	11/16/2017	10/15/2030	$	—	—		N/A	30,336		2.77%
Total debt obligations					$	350,789		$	616,176

(1) The AOG entities are borrowers under the Credit Facility, which provides a $1.065 billion revolving line of credit. It has a variable interest rate based on LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change with the Company’s underlying credit agency rating. As of September 30, 2018, base rate loans bear interest calculated based on the base rate plus 0.50% and the LIBOR rate loans bear interest calculated based on LIBOR plus 1.50%. The unused commitment fee is 0.20% per annum. There is a base rate and LIBOR floor of zero.

(2) The Senior Notes were issued in October 2014 by Ares Finance Co. LLC, a subsidiary of the Company, at 98.268% of the face amount with interest paid semi-annually. The Company may redeem the Senior Notes prior to maturity, subject to the terms of the indenture.

(3) The 2015 Term Loan was entered into in August 2015 by a subsidiary of the Company that acted as a manager to a CLO. The 2015 Term Loan was secured by collateral in the form of CLO senior tranches owned by the Company. To the extent the assets were not sufficient to cover the Term Loan, there was no further recourse to the Company to fund or repay the remaining balance. Interest was paid quarterly, and the Company also paid a fee of 0.025% of a maximum investment amount.

(4) The 2016 and 2017 Term Loans (“Term Loans”) were entered into by a subsidiary of the Company that acted as a manager to CLOs. The Term Loans were secured by collateral in the form of CLO senior tranches and subordinated notes owned by the Company. Collateral associated with one of the Term Loans could have been used to satisfy outstanding liabilities of another Term Loan should the collateral fall short. To the extent the assets associated with these Term Loans were not sufficient to cover the Term Loans, there was no further recourse to the Company to fund or repay the remaining balance. Interest was paid quarterly, and the Company also paid a fee of 0.03% of a maximum investment amount.

Subsequent to the removal of the U.S. risk retention requirements related to open-market CLO managers, we sold $219.3 million of CLO securities and used the proceeds to pay off the related 2015-2017 Term Loans and settle a repurchase agreement of $206.0 million during the second quarter of 2018. The resulting loss from the debt extinguishment was immaterial.

As of September 30, 2018, we were in compliance with all covenants under our debt obligations.

We intend to use a portion of our available liquidity to make cash dividends to our preferred and common shareholders on a quarterly basis in accordance with our dividend policies. Our ability to make cash dividends to our preferred and common shareholders is dependent on a myriad of factors, including among others: general economic and business conditions; our strategic plans and prospects; our business and investment opportunities; timing of capital calls by our funds in support of our commitments; our financial condition and operating results; working capital requirements and other anticipated cash needs; contractual restrictions

113

and obligations; legal, tax and regulatory restrictions; restrictions on the payment of distributions by our subsidiaries to us and other relevant factors.

We are required to maintain minimum net capital balances for regulatory purposes for our United Kingdom subsidiary and for our broker-dealer subsidiary. These net capital requirements are met in part by retaining cash, cash equivalents and investment securities. As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions. As of September 30, 2018, we were required to maintain approximately $26.9 million in liquid net assets within these subsidiaries to meet regulatory net capital and capital adequacy requirements. We remain in compliance with all regulatory requirements.

Holders of AOG Units, subject to the terms of the exchange agreement, may exchange their AOG Units for Ares Management, L.P. common shares on a one-for-one basis. Subsequent exchanges may result in increases in the tax basis of the tangible and intangible assets of Ares Management, L.P. that otherwise would not have been available. These increases in tax basis may increase depreciation and amortization for U.S. federal income tax purposes and thereby reduce the amount of tax that Ares Management, L.P. would otherwise be required to pay in the future. We and our wholly owned subsidiaries are parties to the tax receivable agreement (“TRA”), which provides payment to the TRA recipients of 85% of the amount of actual cash savings, if any, in U.S. federal, state, local and foreign income tax or franchise tax that Ares Management, L.P. actually realizes as a result of such increases in tax basis, including increases in tax basis attributable to payments under the TRA and certain interest accrued thereon. This payment obligation is an obligation of Ares Management, L.P. or its wholly owned subsidiaries. Future payments under the TRA in respect of subsequent exchanges are expected to be substantial. During the nine months ended September 30, 2018, no material cash payments were made under the tax receivable agreement. As of September 30, 2018, as a result of the exchanges of AOG Units for common shares, primarily by Alleghany, a $17.6 million liability has been recorded to estimate the amount of the future expected payments to the TRA recipients pursuant to the tax receivable agreement.

Common Share Offering

On March 12, 2018, we and AREC Holdings Ltd., a wholly owned subsidiary of Abu Dhabi Investment Authority (collectively, “ADIA”), completed a public offering of 15,000,000 common shares. In connection with this offering, ADIA sold 10,000,000 of its previously issued and outstanding common shares from which we received no proceeds. Additionally, we issued 5,000,000 common shares from which we received $105.9 million in gross proceeds. We incurred approximately $0.5 million of expenses in connection with this offering. The expenses have been treated as a reduction of the proceeds received from the offering and are presented on a net basis with the proceeds from the offering in shareholders' equity in the Condensed Consolidated Statements of Changes in Equity.

In April 2018, the underwriters in the offering exercised a portion of their option to purchase 1,130,000 additional common shares from ADIA. We did not receive any of the proceeds from the underwriters' exercise. The expenses incurred by us related to the option exercise have been included in other income (expense), net in the Condensed Consolidated Statements of Operations. ADIA paid the underwriting discounts and commissions and/or similar charges incurred for the sale of the common shares.     

Preferred Equity

As of September 30, 2018 and December 31, 2017, we had 12,400,000 shares of Series A Preferred Equity (the “Preferred Equity”) outstanding. When, as and if declared by our board of directors, distributions on the Preferred Equity are paid quarterly at a rate per annum equal to 7.00%. The Preferred Equity may be redeemable at our option, in whole or in part, at any time on or after June 30, 2021, at a price of $25.00 per share.

Cash dividends to our common shareholders may be impacted by any corporate tax liability owed by us. In connection with the Preferred Equity issuance, the Ares Operating Group issued mirror preferred units (“GP Mirror Units”) to our wholly owned subsidiaries, which pay the same 7.00% rate per annum. Although income allocated to our wholly owned subsidiaries in respect of distributions on the GP Mirror Units is subject to tax, cash dividends to our preferred shareholders will not be reduced on account of any income taxes owed by us. As a result, the amounts ultimately distributed by us to our common shareholders may be reduced by any corporate taxes imposed on us.

In July 2018, the board of directors of the general partner authorized the repurchase, from time to time in open market purchases privately negotiated transactions, of our Preferred Equity with an aggregate liquidation preference of up to $50 million. Such repurchases, if any, will depend on the prevailing market conditions and other factors.

114

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. For a summary of our significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q and in our Annual Report on Form 10-K. For a summary of our critical accounting estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates" in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and their impact on the Company can be found in Note 2, “Summary of Significant Accounting Policies,” in the “Notes to the Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10‑Q and in our Annual Report on Form 10-K.

Off‑Balance Sheet Arrangements

In the normal course of business, we engage in off‑balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications and potential contingent repayment obligations. See Note 8, “Commitments and Contingencies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Commitments and Contingencies

Capital Commitments

As of September 30, 2018 and December 31, 2017, we had aggregate unfunded commitments of $311.9 million and $285.7 million, respectively, including commitments to both non-consolidated funds and Consolidated Funds. Total unfunded commitments included $16.0 million and $16.5 million in unfunded commitments to funds not managed by us as of September 30, 2018 and December 31, 2017, respectively.

ARCC Fee Waiver

In conjunction with ARCC's acquisition of American Capital, Ltd. (“ACAS”), the Company agreed to waive up to $10 million per quarter of ARCC's Part I Fees for ten calendar quarters, which began in the second quarter of 2017. ARCC Part I Fees will only be waived to the extent they are paid. The maximum amount of fees that may be waived in a quarter is $10 million, and if ARCC Part I Fees are less than $10 million in any single quarter, the shortfall will not carryover to subsequent quarters. As of September 30, 2018, there are four remaining quarters as part of the fee waiver agreement, with a maximum of $40 million in potential waivers. ARCC Part I Fees are reported net of the fee waiver.

Indemnifications

Consistent with standard business practices in the normal course of business, we enter into contracts that contain indemnities for our affiliates, persons acting on our behalf or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the maximum exposure under these arrangements, if any, cannot be determined and has not been recorded in our consolidated financial statements. As of September 30, 2018, we have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.

Contingent Obligations

Generally, if at the termination of a fund (and increasingly at interim points in the life of a fund), the fund has not achieved investment returns that (in most cases) exceed the preferred return threshold or (in all cases) the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, the Company will be obligated to repay carried interest that was received by the Company in excess of the amounts to which the Company is entitled. This contingent obligation is normally reduced by income taxes paid by the Company related to its carried interest. 

115

The partnership documents governing our funds generally include a contingent repayment provision that, if triggered, may give rise to a contingent obligation that may require the general partner to return amounts to the fund for distribution to investors. Therefore, performance income, generally, is subject to reversal in the event that the funds incur future losses. These losses are limited to the extent of the cumulative performance income recognized to date. Due in part to our investment performance and the fact that our performance income is generally determined on a liquidation basis, if the funds were liquidated at their fair values as of September 30, 2018, there would have been $0.1 million of contingent repayment obligation or liability. No contingent repayment obligation existed as of December 31, 2017. There can be no assurance that we will not incur additional contingent repayment obligation in the future. If all of the existing investments were deemed worthless, the amount of cumulative revenues that have been recognized would be reversed. We believe that the possibility of all of the existing investments becoming worthless is remote. At September 30, 2018 and December 31, 2017, had we assumed all existing investments were worthless, the amount of carried interest, net of tax, subject to contingent repayment would have been approximately $468.3 million and $476.1 million, respectively, of which approximately $363.8 million and $370.0 million, respectively, would be reimbursable to the Company by certain professionals who are the recipients of such carried interest.

Performance income is also affected by changes in the fair values of the underlying investments in the funds that we advise. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and industry trading multiples.

Our senior professionals who have received carried interest distributions are responsible for funding their proportionate share of any contingent repayment obligations. However, the governing agreements of certain of our funds provide that if a current or former professional does not fund his or her respective share for such fund, then we may have to fund additional amounts beyond what we received in carried interest, although we will generally retain the right to pursue any remedies that we have under such governing agreements against those carried interest recipients who fail to fund their obligations.

Additionally, at the end of the life of the funds there could be a payment due to a fund by us if we have recognized more performance income than was ultimately earned. The general partner obligation amount, if any, will depend on final realized values of investments at the end of the life of the fund.

116

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Our primary exposure to market risk is related to our role as general partner or investment adviser to our investment funds and the sensitivity to movements in the fair value of their investments, including the effect on management fees, performance income and investment income.

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. It may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.

Our credit orientation has been a central tenet of our business across our debt and equity investment strategies. Our investment professionals benefit from our independent research and relationship networks in approximately 60 industries and insights from our portfolio of active investments. We believe the combination of high-quality proprietary information flow and a consistent, rigorous approach to managing investments across our strategies has been, and we believe will continue to be, a major driver of our strong risk-adjusted returns and the stability and predictability of our income.

There have been no material changes in our market risks for the nine months ended September 30, 2018. For additional information on our market risks, refer to our Annual Report on Form 10-K for the year ended December 31, 2017, which is accessible on the SEC's website at sec.gov.

Item 4.  Controls And Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our co-principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018. Based upon that evaluation and subject to the foregoing, our principal executive officers and principal financial officer concluded that, as of September 30, 2018, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended September 30, 2018 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

117

PART II.

Item 1.  Legal Proceedings

From time to time we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business, some of which may be material. As of September 30, 2018 and December 31, 2017, we were not subject to any material pending legal proceedings. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us.

Item 1A.  Risk Factors

For a discussion of our other potential risks and uncertainties, see the information under “Item 1A. Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2017, which is accessible on the SEC’s website at www.sec.gov.There have been no material changes to the risk factors disclosed in our 2017 Form 10‑K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.  Defaults Upon Senior Securities

None.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

None

118

Item 6.  Exhibits, Financial Statement Schedules

(a)Exhibits.

The following is a list of all exhibits filed or furnished as part of this report.

Exhibit No.	Description
3.1	Certificate of Limited Partnership of Ares Management, L.P. (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-36429, filed with the SEC on February 29, 2016).
3.2	Third Amended and Restated Limited Partnership Agreement of Ares Management, L.P. dated March 1, 2018 (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-36429, filed with the SEC on March 1, 2018).
31.1*	Certification of the Chief Executive Officer pursuant to Rule 13a‑14(a).
31.2*	Certification of the Chief Financial Officer pursuant to Rule 13a‑14(a).
32.1*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document.

*   Filed herewith.

119

SIGNATURES

	ARES MANAGEMENT, L.P.
	By:		Ares Management GP LLC, its general partner
Dated: November 5, 2018	By:		/s/ Michael J Arougheti
		Name:	Michael J Arougheti
		Title:	Co‑Founder, Chief Executive Officer & President (Principal Executive Officer)
Dated: November 5, 2018	By:		/s/ Michael R. McFerran
		Name:	Michael R. McFerran
		Title:	Chief Financial Officer & Chief Operating Officer (Principal Financial and Accounting Officer)

120