SEGMENT REPORTING

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

SEGMENT REPORTING

15. 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 targets first lien secured debt, with a secondary focus on second lien secured loans and subordinated and other 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 allowing us to tactically allocate 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. The direct lending team 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 subordinated debt, generally in a first lien position), second lien senior secured loans, subordinated debt, preferred equity and non-control equity co-investments in private middle market companies. U.S. direct lending activities are managed through a publicly traded business development company, ARCC, as well as through private commingled funds and separately managed accounts (“SMAs”).

Private Equity Group: The Private Equity Group manages investment strategies broadly categorizes its investment activities into three strategies: Corporate Private Equity, Special Opportunities and Infrastructure and Power. In the Corporate Private Equity strategy, the Company targets four principal transactions types: prudently leveraged control buyouts, growth equity, rescue/deleveraging capital and distressed buyouts/discounted debt accumulation together with the broad resources of potential investment opportunities. This flexible capital approach, together with the broad resources of the Ares platform, widens our universe of potential investment opportunities and allows us to remain active in different markets and to be highly selective in making investments across various market environments. In the Special Opportunities strategy, the Company employs a flexible capital strategy to target non-control positions across a broad spectrum of stressed, distressed and opportunistic situations. The Infrastructure and Power strategy targets value-added approach that seeks to source and structure essential infrastructure assets with strong downside protection and potential for capital appreciation throughout the climate infrastructure, natural gas generation, and energy transportation sectors.

Real Estate Group: The Real Estate Group manages comprehensive real estate equity and debt strategies, focusing on activities categorized as core, value-add, and opportunistic. Real Estate equity strategies involve high-quality properties and locations and de-risked developments with an opportunity to create value through repositioning, lease-up, re-tenanting, redevelopment, and/or complex recapitalizations. The group targets assets located in liquid markets with diversified economies in order to deliver compelling, risk-adjusted returns through a combination of asset selectivity and disciplined portfolio management. The U.S. core investment activities focus on the acquisition of assets secured by long-term cash flows and durable tenancy diversified across geographies and end-user industries. The core strategy encompasses industrial, multifamily, office, necessity-based retail, and other property types across major metropolitan economies. The value-add investment activities focus on acquiring underperforming, income-producing, institutional-quality assets that can be improved through select value-creation initiatives across the U.S. and Europe. The opportunistic activities focus on capitalizing on distressed and special situations, repositioning underperforming assets and undertaking select development and redevelopment projects across the U.S. and Europe. Additionally, the Ares Real Estate Group has specialized operating and investment capabilities specifically in the industrial sector through its vertically integrated operating platform. The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and invest in a wide range of financing opportunities in the U.S. In addition to managing private commingled funds and SMAs investing in equity and debt strategies, the Real Estate Group also makes investments through Black Creek Diversified Property Fund, Inc. (“DPF”) and Black Creek Industrial REIT IV, Inc. (“BCI IV”), its non-traded REITs, and ACRE, a publicly traded commercial mortgage REIT.

Secondary Solutions Group: The Secondary Solutions Group was formed during the second quarter of 2021 in connection with the Landmark Acquisition. The Secondary Solutions Group invests in secondary markets across a range of alternative asset class strategies, including private equity, real estate and infrastructure. The Company acquires interests across a range of partnership vehicles, including funds, multi-asset portfolios and single asset joint ventures. Each strategy focuses on recapitalizing and restructuring the funds, including transactions that can address pending fund maturity, strategy change or the need for additional equity capital. The private equity secondaries strategy targets opportunities in non-competitive channels and makes investments in durable, performing assets with attractive capital structures. In the real estate secondaries strategy, the Company seeks broad diversification by property sector and geography and to drive investment results through underwriting, transaction structuring and portfolio construction. In the infrastructure secondaries strategy, the Company focuses on achieving diversification through a portfolio that provides inflation protection and exposure to uncorrelated assets.

Strategic Initiatives: The Company began reflecting the Strategic Initiatives category beginning in the third quarter of 2020. It represents an all other category that includes operating segments and strategic investments that seek to expand the Company’s reach and its scale in new and existing global markets including Ares SSG, Ares Insurance Solutions (“AIS”) and AAC.

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, legal, compliance, human resources, strategy, relationship management and distribution. The OMG includes Ares Wealth Management Solutions (“WMS”) that facilitates the product development, distribution, marketing and client management activities for investment offerings in the global wealth management channel. 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 revenues and 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 activities, 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, 2021
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	271,591	$	69,591	$	55,160	$	41,064	16,544		$	453,950	$	—	$	453,950
Other fees	5,798		370		3,681		—		2		9,851		3,446		13,297
Compensation and benefits	(86,502)		(26,773)		(29,160)		(11,955)		(5,316)		(159,706)		(66,107)		(225,813)
General, administrative and other expenses	(14,930)		(6,238)		(5,420)		(2,593)		(1,774)		(30,955)		(28,142)		(59,097)
Fee related earnings	175,957		36,950		24,261		26,516		9,456		273,140		(90,803)		182,337
Performance income—realized	6,332		34,316		4,693		—		—		45,341		—		45,341
Performance related compensation—realized	(3,079)		(27,483)		(3,166)		—		—		(33,728)		—		(33,728)
Realized net performance income	3,253		6,833		1,527		—		—		11,613		—		11,613
Investment income—realized	618		2,020		1,699		—		1,025		5,362		—		5,362
Interest and other investment income (expense)—realized	4,716		4,861		918		699		163		11,357		(270)		11,087
Interest expense	(2,392)		(2,726)		(1,683)		(427)		(4,135)		(11,363)		(160)		(11,523)
Realized net investment income (loss)	2,942		4,155		934		272		(2,947)		5,356		(430)		4,926
Realized income	$	182,152	$	47,938	$	26,722	$	26,788	$	6,509	$	290,109	$	(91,233)	$	198,876
	Three months ended September 30, 2020
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	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

	Nine months ended September 30, 2021
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	764,702	$	171,019	$	115,602	$	53,962	$	48,963	$	1,154,248	$	—	$	1,154,248
Other fees	18,494		726		4,604		—		82		23,906		3,446		27,352
Compensation and benefits	(252,783)		(73,534)		(60,767)		(16,244)		(15,440)		(418,768)		(158,943)		(577,711)
General, administrative and other expenses	(37,716)		(17,499)		(12,064)		(3,452)		(5,580)		(76,311)		(69,872)		(146,183)
Fee related earnings	492,697		80,712		47,375		34,266		28,025		683,075		(225,369)		457,706
Performance income—realized	78,255		159,479		12,255		—		—		249,989		—		249,989
Performance related compensation—realized	(49,433)		(127,706)		(8,167)		—		—		(185,306)		—		(185,306)
Realized net performance income	28,822		31,773		4,088		—		—		64,683		—		64,683
Investment income—realized	1,858		5,308		4,182		—		1,347		12,695		—		12,695
Interest and other investment income—realized	14,354		10,716		3,892		701		2,824		32,487		170		32,657
Interest expense	(5,372)		(6,032)		(3,930)		(432)		(8,962)		(24,728)		(397)		(25,125)
Realized net investment income (loss)	10,840		9,992		4,144		269		(4,791)		20,454		(227)		20,227
Realized income	$	532,359	$	122,477	$	55,607	$	34,535	$	23,234	$	768,212	$	(225,596)	$	542,616
	Nine months ended September 30, 2020
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	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

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,
	2021		2020		2021		2020
Segment revenues
Management fees	$	453,950	$	300,131	$	1,154,248	$	851,581
Other fees	9,851		4,911		23,906		12,921
Performance income—realized	45,341		123,265		249,989		319,660
Total segment revenues	$	509,142	$	428,307	$	1,428,143	$	1,184,162
Segment expenses
Compensation and benefits	$	159,706	$	112,849	$	418,768	$	327,409
General, administrative and other expenses	30,955		24,292		76,311		68,408
Performance related compensation—realized	33,728		97,538		185,306		252,575
Total segment expenses	$	224,389	$	234,679	$	680,385	$	648,392
Segment realized net investment income
Investment income—realized	$	5,362	$	16,837	$	12,695	$	37,763
Interest and other investment income —realized	11,357		4,331		32,487		18,550
Interest expense	(11,363)		(6,674)		(24,728)		(16,941)
Total segment realized net investment income	$	5,356	$	14,494	$	20,454	$	39,372

    

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

	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Total consolidated revenue	$	948,719	$	489,866	$	2,901,926	$	1,106,033
Performance (income) loss—unrealized	(415,317)		(52,488)		(1,381,697)		77,866
Management fees of Consolidated Funds eliminated in consolidation	11,051		11,719		33,416		33,601
Incentive fees of Consolidated Funds eliminated in consolidation	—		—		1,528		(70)
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation	4,264		4,448		13,157		12,249
Administrative fees(1)	(15,632)		(9,216)		(34,754)		(27,715)
OMG revenue	(3,446)		—		(3,446)		—
Performance income (loss) reclass(2)	680		(291)		1,285		(3,664)
Principal investment income, net of eliminations	(14,250)		(11,408)		(86,477)		(8,330)
Net income of non-controlling interests in consolidated subsidiaries	(6,927)		(4,323)		(16,795)		(5,808)
Total consolidation adjustments and reconciling items	(439,577)		(61,559)		(1,473,783)		78,129
Total segment revenue	$	509,142	$	428,307	$	1,428,143	$	1,184,162

(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,
	2021		2020		2021		2020
Total consolidated expenses	$	813,267	$	392,580	$	2,363,108	$	958,106
Performance related compensation-unrealized	(296,044)		(24,818)		(1,022,393)		61,010
Expenses of Consolidated Funds added in consolidation	(23,206)		(17,737)		(66,653)		(50,237)
Expenses of Consolidated Funds eliminated in consolidation	11,102		11,718		35,078		33,531
Administrative fees(1)	(15,632)		(9,216)		(34,754)		(27,715)
OMG expenses	(94,249)		(61,070)		(228,815)		(171,793)
Acquisition and merger-related expense	(754)		(3,474)		(18,364)		(9,430)
Equity compensation expense	(65,991)		(30,336)		(191,144)		(91,576)
Acquisition-related compensation expense(2)	(28,194)		—		(32,824)		—
Deferred placement fees	(32,413)		(2,942)		(33,740)		(18,677)
Depreciation and amortization expense	(36,668)		(14,336)		(71,742)		(26,197)
Expense of non-controlling interests in consolidated subsidiaries	(6,829)		(5,690)		(17,372)		(8,630)
Total consolidation adjustments and reconciling items	(588,878)		(157,901)		(1,682,723)		(309,714)
Total segment expenses	$	224,389	$	234,679	$	680,385	$	648,392

(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)Represents compensation expense associated with contingent obligations recorded in connection with the Landmark Acquisition and the Black Creek Acquisition and is presented in compensation and benefits in the Company’s Condensed Consolidated Statements of Operations.

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,
	2021		2020		2021		2020
Total consolidated other income (expense)	$	111,536	$	62,355	$	218,011	$	(43,602)
Investment (income) loss—unrealized	(3,609)		1,479		(60,588)		83,369
Interest and other investment (income) loss—unrealized	(1,405)		(1,390)		3,057		(10,330)
Other (income) loss from Consolidated Funds added in consolidation, net	(76,287)		(68,132)		(178,195)		20,719
Other expense from Consolidated Funds eliminated in consolidation, net	(4,973)		(3,470)		(13,783)		(11,478)
OMG other (income) expense	37		(1,820)		646		(781)
Performance (income) loss reclass(1)	(680)		291		(1,285)		3,664
Principal investment income (loss)	20,719		18,080		96,448		(24,951)
Other (income) expense, net	(34,812)		9,534		(34,666)		9,903
Other (income) loss of non-controlling interests in consolidated subsidiaries	(5,170)		(2,433)		(9,191)		12,859
Total consolidation adjustments and reconciling items	(106,180)		(47,861)		(197,557)		82,974
Total segment realized net investment income	$	5,356	$	14,494	$	20,454	$	39,372

(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.

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,
	2021		2020		2021		2020
Income before taxes	$	246,988	$	159,641	$	756,829	$	104,325
Adjustments:
Depreciation and amortization expense	36,668		14,336		71,742		26,197
Equity compensation expense	65,991		30,336		191,144		91,576
Acquisition-related compensation expense(1)	28,194		—		32,824		—
Acquisition and merger-related expense	7,967		3,490		26,188		9,815
Deferred placement fees	32,413		2,942		33,740		18,677
OMG expense, net	90,840		59,250		226,015		171,012
Other (income) expense, net	(42,025)		9,518		(42,490)		9,518
Net (income) expense of non-controlling interests in consolidated subsidiaries	(5,268)		(1,066)		(8,614)		15,681
(Income) loss before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(47,372)		(42,744)		(102,331)		38,446
Total performance (income) loss—unrealized	(415,317)		(52,488)		(1,381,697)		77,866
Total performance related compensation—unrealized	296,044		24,818		1,022,393		(61,010)
Total investment (income) loss—unrealized	(5,014)		89		(57,531)		73,039
Realized income	290,109		208,122		768,212		575,142
Total performance income—realized	(45,341)		(123,265)		(249,989)		(319,660)
Total performance related compensation—realized	33,728		97,538		185,306		252,575
Total investment income—realized	(5,356)		(14,494)		(20,454)		(39,372)
Fee related earnings	$	273,140	$	167,901	$	683,075	$	468,685

(1)Represents compensation expense associated with contingent obligations recorded in connection with the Landmark Acquisition and the Black Creek Acquisition and is presented in compensation and benefits in the Company’s Condensed Consolidated Statements of Operations.