SEGMENT REPORTING

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

SEGMENT REPORTING

14. SEGMENT REPORTING

The Company operates through its distinct operating segments that are summarized below:

Credit Group: The Credit Group manages credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, multi-asset credit, alternative credit investments and direct lending. The syndicated loans strategy focuses on evaluating individual credit opportunities related primarily to non-investment grade senior secured loans and primarily target first lien secured debt, with a secondary focus on second lien loans, mezzanine loans, high yield bonds and unsecured loans. 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. Multi-asset credit is a “go anywhere” strategy designed to offer investors a flexible solution to global credit investing by tactical allocation between multiple asset classes in various market conditions. The alternative credit strategy seeks to capitalize on asset-focused investment opportunities that fall outside of traditional, well-defined markets such as corporate debt, real estate and private equity. The alternative credit strategy emphasizes downside protection and capital preservation through a focus on investments that tend to share the following key attributes: asset security, covenants, structural protections and cash flow velocity. The direct lending strategy is one of the largest self-originating direct lenders to the U.S. and European markets and has a multi-channel origination strategy designed to address a broad set of investment opportunities in the middle market. U.S. direct lending activities are managed through a publicly traded business development company, ARCC, as well as through private funds. The group maintains a flexible investment strategy with the capability to invest in first lien senior secured loans (including “unitranche” loans which are loans that combine senior and mezzanine debt, generally in a first lien position), second lien senior secured loans, mezzanine debt and non-control equity co-investments in middle market companies and power generation projects.

Private Equity Group: The Private Equity Group manages investment strategies broadly categorized as corporate private equity, infrastructure and power, special opportunities, and energy opportunities. In its North American and European flexible capital corporate private equity 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, midstream sectors and renewables 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. The energy opportunities strategy targets investments in the energy industry where its flexible capital can provide attractive risk-adjusted returns while attempting to mitigate commodity risk.

Real Estate Group: The Real Estate Group manages comprehensive real estate equity and debt strategies. 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 ACRE, a publicly traded commercial mortgage REIT.

Strategic Initiatives: Strategic Initiatives represents an all other category that includes operating segments and strategic investments that are seeking to broaden the Company's distribution channels or expand its access to global markets and includes the results of Ares SSG subsequent to the completion of the SSG Acquisition on July 1, 2020.

The OMG 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, strategy and relationship management, 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 reportable segments but the Company does consider the cost structure of the OMG when evaluating its financial performance.

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

Fee related earnings (“FRE”) 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 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”) 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 income before taxes by excluding (a) operating results of the Consolidated Funds, (b) depreciation and amortization expense, (c) the effects of changes arising from corporate actions, (d) unrealized gains and losses related to performance income and investment performance and (e) certain other items that the Company believes are not indicative of 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. Management believes RI is a more appropriate metric to evaluate the Company's current business operations.

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.

The following tables present the financial results for the Company’s operating segments, as well as the OMG:

	Three months ended September 30, 2020
	Credit Group		Private Equity Group		Real Estate Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $41,643)	$	208,371	$	54,653	$	23,787	13,320		$	300,131	$	—	$	300,131
Other fees	4,898		2		5		6		4,911		—		4,911
Compensation and benefits	(74,373)		(21,224)		(13,011)		(4,241)		(112,849)		(41,551)		(154,400)
General, administrative and other expenses	(13,789)		(6,002)		(2,987)		(1,514)		(24,292)		(19,519)		(43,811)
Fee related earnings	125,107		27,429		7,794		7,571		167,901		(61,070)		106,831
Performance income—realized	7,069		115,997		199		—		123,265		—		123,265
Performance related compensation—realized	(4,131)		(93,284)		(123)		—		(97,538)		—		(97,538)
Realized net performance income	2,938		22,713		76		—		25,727		—		25,727
Investment income—realized	—		16,351		486		—		16,837		—		16,837
Interest and other investment income (expense) —realized	1,962		1,065		1,308		(4)		4,331		(503)		3,828
Interest expense	(2,340)		(2,216)		(1,389)		(729)		(6,674)		(141)		(6,815)
Realized net investment income (loss)	(378)		15,200		405		(733)		14,494		(644)		13,850
Realized income	$	127,667	$	65,342	$	8,275	$	6,838	$	208,122	$	(61,714)	$	146,408
	Three months ended September 30, 2019
	Credit Group		Private Equity Group		Real Estate Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $38,786)	$	178,447	$	54,543	$	26,988	$	—	$	259,978	$	—	$	259,978
Other fees	5,174		141		28		—		5,343		—		5,343
Compensation and benefits	(67,770)		(19,226)		(14,523)		—		(101,519)		(34,061)		(135,580)
General, administrative and other expenses	(12,789)		(5,532)		(3,341)		—		(21,662)		(21,405)		(43,067)
Fee related earnings	103,062		29,926		9,152		—		142,140		(55,466)		86,674
Performance income—realized	1,037		—		6,277		—		7,314		—		7,314
Performance related compensation—realized	(630)		—		(1,412)		—		(2,042)		—		(2,042)
Realized net performance income	407		—		4,865		—		5,272		—		5,272
Investment income—realized	114		47		2,015		—		2,176		—		2,176
Interest and other investment income (expense) —realized	6,964		435		1,588		—		8,987		(11)		8,976
Interest expense	(1,561)		(1,628)		(967)		—		(4,156)		(535)		(4,691)
Realized net investment income (loss)	5,517		(1,146)		2,636		—		7,007		(546)		6,461
Realized income	$	108,986	$	28,780	$	16,653	$	—	$	154,419	$	(56,012)	$	98,407

	Nine months ended September 30, 2020
	Credit Group		Private Equity Group		Real Estate Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $126,872)	$	606,596	$	160,206	$	71,459	$	13,320	$	851,581	$	—	$	851,581
Other fees	12,057		142		716		6		12,921		—		12,921
Compensation and benefits	(222,063)		(62,946)		(38,159)		(4,241)		(327,409)		(114,916)		(442,325)
General, administrative and other expenses	(41,626)		(16,083)		(9,185)		(1,514)		(68,408)		(56,877)		(125,285)
Fee related earnings	354,964		81,319		24,831		7,571		468,685		(171,793)		296,892
Performance income—realized	16,085		276,469		27,106		—		319,660		—		319,660
Performance related compensation—realized	(12,142)		(222,949)		(17,484)		—		(252,575)		—		(252,575)
Realized net performance income	3,943		53,520		9,622		—		67,085		—		67,085
Investment income (loss)—realized	(843)		35,866		2,740		—		37,763		(5,698)		32,065
Interest and other investment income (expense) —realized	13,166		2,364		3,024		(4)		18,550		(588)		17,962
Interest expense	(6,391)		(6,106)		(3,715)		(729)		(16,941)		(1,262)		(18,203)
Realized net investment income (loss)	5,932		32,124		2,049		(733)		39,372		(7,548)		31,824
Realized income	$	364,839	$	166,963	$	36,502	$	6,838	$	575,142	$	(179,341)	$	395,801
	Nine months ended September 30, 2019
	Credit Group		Private Equity Group		Real Estate Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees (Credit Group includes ARCC Part I Fees of $116,336)	$	513,760	$	158,101	$	67,408	$	—	$	739,269	$	—	$	739,269
Other fees	12,179		141		709		—		13,029		—		13,029
Compensation and benefits	(193,083)		(61,713)		(35,735)		—		(290,531)		(100,716)		(391,247)
General, administrative and other expenses	(39,675)		(14,501)		(9,996)		—		(64,172)		(61,911)		(126,083)
Fee related earnings	293,181		82,028		22,386		—		397,595		(162,627)		234,968
Performance income—realized	38,921		62,492		10,468		—		111,881		—		111,881
Performance related compensation—realized	(22,857)		(49,993)		(3,638)		—		(76,488)		—		(76,488)
Realized net performance income	16,064		12,499		6,830		—		35,393		—		35,393
Investment income—realized	662		12,013		7,041		—		19,716		—		19,716
Interest and other investment income (expense) —realized	14,500		4,047		4,812		—		23,359		(13)		23,346
Interest expense	(5,368)		(6,239)		(3,136)		—		(14,743)		(1,330)		(16,073)
Realized net investment income (loss)	9,794		9,821		8,717		—		28,332		(1,343)		26,989
Realized income	$	319,039	$	104,348	$	37,933	$	—	$	461,320	$	(163,970)	$	297,350

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

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Segment revenues
Management fees (includes ARCC Part I Fees of $41,643, $126,872 and $38,786, $116,336 for the three and nine months ended September 30, 2020 and 2019, respectively)	$	300,131	$	259,978	$	851,581	$	739,269
Other fees	4,911		5,343		12,921		13,029
Performance income—realized	123,265		7,314		319,660		111,881
Total segment revenues	$	428,307	$	272,635	$	1,184,162	$	864,179
Segment expenses
Compensation and benefits	$	112,849	$	101,519	$	327,409	$	290,531
General, administrative and other expenses	24,292		21,662		68,408		64,172
Performance related compensation—realized	97,538		2,042		252,575		76,488
Total segment expenses	$	234,679	$	125,223	$	648,392	$	431,191
Segment realized net investment income
Investment income—realized	$	16,837	$	2,176	$	37,763	$	19,716
Interest and other investment income —realized	4,331		8,987		18,550		23,359
Interest expense	(6,674)		(4,156)		(16,941)		(14,743)
Total segment realized net investment income	$	14,494	$	7,007	$	39,372	$	28,332

The following table reconciles the Company's consolidated revenues to segment revenue:

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Total consolidated revenue	$	489,866	$	466,490	$	1,106,033	$	1,328,509
Performance (income) loss-unrealized	(52,488)		(181,174)		77,866		(426,411)
Management fees of Consolidated Funds eliminated in consolidation	11,719		8,780		33,601		25,928
Incentive fees of Consolidated Funds eliminated in consolidation	—		—		(70)		5,184
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation	4,448		—		12,249		—
Administrative fees(1)	(9,216)		(9,649)		(27,715)		(22,853)
Performance income (loss) reclass(2)	(291)		(27)		(3,664)		553
Principal investment income, net of eliminations	(11,408)		(11,389)		(8,330)		(45,992)
Net income of non-controlling interests in consolidated subsidiaries	(4,323)		(396)		(5,808)		(739)
Total consolidation adjustments and reconciling items	(61,559)		(193,855)		78,129		(464,330)
Total segment revenue	$	428,307	$	272,635	$	1,184,162	$	864,179

(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 net realized and unrealized gains (losses) on investments in the Company’s Condensed Consolidated Statements of Operations.

The following table reconciles the Company's consolidated expenses to segment expenses:

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Total consolidated expenses	$	392,580	$	395,701	$	958,106	$	1,100,509
Performance related compensation-unrealized	(24,818)		(137,174)		61,010		(311,936)
Expenses of Consolidated Funds added in consolidation	(17,737)		(19,664)		(50,237)		(61,977)
Expenses of Consolidated Funds eliminated in consolidation	11,718		8,780		33,531		31,112
Administrative fees(1)	(9,216)		(9,649)		(27,715)		(22,853)
OMG expenses	(61,070)		(55,466)		(171,793)		(162,627)
Acquisition and merger-related expense	(3,474)		(4,777)		(9,430)		(10,757)
Equity compensation expense	(30,336)		(22,393)		(91,576)		(73,974)
Deferred placement fees	(2,942)		(4,366)		(18,677)		(17,319)
Depreciation and amortization expense	(14,336)		(24,564)		(26,197)		(35,609)
Expense of non-controlling interests in consolidated subsidiaries	(5,690)		(1,205)		(8,630)		(3,378)
Total consolidation adjustments and reconciling items	(157,901)		(270,478)		(309,714)		(669,318)
Total segment expenses	$	234,679	$	125,223	$	648,392	$	431,191

(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.

The following table reconciles the Company's consolidated other income to segment realized net investment income:

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Total consolidated other income (expense)	$	62,355	$	32,787	$	(43,602)	$	95,919
Investment (income) loss—unrealized	1,479		(4,138)		83,369		(12,703)
Interest and other investment (income) loss—unrealized	(1,390)		3,044		(10,330)		3,394
Other (income) loss from Consolidated Funds added in consolidation, net	(68,132)		(37,070)		20,719		(101,285)
Other income from Consolidated Funds eliminated in consolidation, net	(3,470)		(1,124)		(11,478)		(1,214)
OMG other (income) expense	(1,820)		87		(781)		(71)
Performance (income) loss reclass(1)	291		27		3,664		(553)
Principal investment income (loss)	18,080		13,865		(24,951)		45,336
Other (income) expense, net(2)	9,534		(461)		9,903		(460)
Other (income) loss of non-controlling interests in consolidated subsidiaries	(2,433)		(10)		12,859		(31)
Total consolidation adjustments and reconciling items	(47,861)		(25,780)		82,974		(67,587)
Total segment realized net investment income	$	14,494	$	7,007	$	39,372	$	28,332

(1)Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within net realized and unrealized gains (losses) on investments in the Company’s Condensed Consolidated Statements of Operations.

(2)The three and nine months ended September 30, 2020 includes a $9.5 million non-cash unrealized guarantee expense.

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

	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
Income before taxes	$	159,641	$	103,576	$	104,325	$	323,919
Adjustments:
Depreciation and amortization expense	14,336		24,564		26,197		35,609
Equity compensation expense	30,336		22,393		91,576		73,974
Acquisition and merger-related expense	3,490		4,777		9,815		10,757
Deferred placement fees	2,942		4,366		18,677		17,319
OMG expense, net	59,250		55,553		171,012		162,556
Other (income) expense, net(1)	9,518		(461)		9,518		(460)
Net (income) expense of non-controlling interests in consolidated subsidiaries	(1,066)		799		15,681		2,608
(Income) loss before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(42,744)		(16,054)		38,446		(41,178)
Total performance (income) loss-unrealized	(52,488)		(181,174)		77,866		(426,411)
Total performance related compensation - unrealized	24,818		137,174		(61,010)		311,936
Total investment (income) loss-unrealized	89		(1,094)		73,039		(9,309)
Realized income	208,122		154,419		575,142		461,320
Total performance income - realized	(123,265)		(7,314)		(319,660)		(111,881)
Total performance related compensation - realized	97,538		2,042		252,575		76,488
Total investment income - realized	(14,494)		(7,007)		(39,372)		(28,332)
Fee related earnings	$	167,901	$	142,140	$	468,685	$	397,595