SEGMENT REPORTING

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

SEGMENT REPORTING

15. SEGMENT REPORTING

The Company operates through its distinct operating segments. On January 1, 2022, the Company changed its segment composition and established the Real Assets Group. The Real Assets Group consists of the activities of the former Real Estate Group and the infrastructure and power strategy, now referred to as infrastructure opportunities, that was formerly presented within the Private Equity Group. The Real Assets Group also includes infrastructure debt following the Infrastructure Debt Acquisition. The Company reclassified activities from the infrastructure opportunities strategy in the Private Equity Group and from the former Real Estate Group to the Real Assets Group to better align the segment presentation with how the asset classes within the investment strategies are managed. The Company has modified historical results to conform with its current presentation. The Company operating segments 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 broadly categorizes its investment strategies as corporate private equity and special opportunities. In the corporate private equity strategy, the Company targets four principal transactions types: (i) prudently leveraged control buyouts; (ii) growth equity; (iii) rescue capital; and (iv) distressed-for-control. This differentiated strategy, together with the broad resources of the Ares platform, widens our universe of potential investment opportunities and allows us to remain active across various market environments and to be highly selective in making

investments by identifying the most attractive relative value opportunities. The corporate private equity strategy also includes our energy opportunities fund which serves as a companion fund and employs our flexible capital strategy to provide creative capital solutions across the energy industry. In the special opportunities strategy, the Company employs an “all weather” flexible capital strategy to finance debt and non-control equity solutions in middle market companies undergoing transformational change or stress. The strategy seeks to consistently invest in a range of private, special-situation opportunities and flex into distressed public market debt when attractive.

Real Assets Group: The Real Assets Group manages comprehensive equity and debt strategies across real estate and infrastructure investments.

The real estate strategy focuses on activities categorized as core/core-plus, value-add, opportunistic and debt. 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 U.S. core/core-plus investment activities focuses on the acquisition of assets with strong long-term cash flow potential and durable tenancy diversified across end-user industries and geographies. 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. The real estate debt strategy primarily focuses on directly originating a wide range of financing opportunities in the U.S. and Europe leveraging the Real Asset Group’s diverse sources of capital. In addition to managing private commingled funds and SMAs investing in equity and debt strategies, the real estate strategy also makes investments through Ares Real Estate Income Trust, Inc. (“AREIT”) and Ares Industrial Real Estate Income Trust, Inc. (“AIREIT”), its non-traded REITs, and ACRE, a publicly traded commercial mortgage REIT.

The infrastructure strategy focuses on investment strategies broadly categorized as infrastructure opportunities and infrastructure debt. Infrastructure opportunities is a market leader in infrastructure and power investing with a focus on climate infrastructure, natural gas generation and energy transportation sectors. The infrastructure opportunities strategy targets essential infrastructure assets and companies with stable cash flow profiles through long-term contracts and high-barriers to entry. The infrastructure debt strategy was formed during the first quarter of 2022 in connection with the Infrastructure Debt Acquisition. The infrastructure debt strategy targets global assets and businesses with defensive characteristics across the digital, transport, energy and utility sectors. Leveraging the established long standing relationships, the strategy seeks to generate exclusive deal flow and high-quality investment opportunities.

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. Activities within each strategy include 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: Strategic Initiatives 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. Strategic Initiatives includes activities from (i) Ares SSG, the Asia-Pacific platform that makes credit and special situations investments through its local originating presence on behalf of its institutional client base, (ii) Ares Insurance Solutions (“AIS”), the Company’s insurance platform that provides solutions to insurance clients including asset management, capital solutions and corporate development and (iii) Ares Acquisition Corporation (NYSE: AAC) (“AAC”), the Company’s first sponsored SPAC, among others.

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, LLC (“AWMS”) 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 managed funds and vehicles, 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 financial results 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 and fee related performance revenues, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it excludes net performance income, 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. Fee related performance revenues, together with fee related performance compensation, is presented within FRE because it represents incentive fees from perpetual capital vehicles that is measured and received on a recurring basis and not dependent on realization events from the underlying investments. Fee related performance revenues and fee related performance compensation were previously presented within realized net performance income. Historical periods have been modified to conform to the current period presentation.

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 (i) operating results of the Consolidated Funds, (ii) depreciation and amortization expense, (iii) the effects of changes arising from corporate actions, (iv) unrealized gains and losses related to carried interest, incentive fees and investment performance and (v) 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. RI is reduced by deferred placement fees, which represent the portion of placement fees that have been deferred and amortized over the expected life of each fund's life for segment purposes but have been expensed up front in accordance with GAAP. For periods in which the amortization of placement fees for segment purposes is higher than the GAAP expense, the difference represents a placement fee adjustment that is presented as a reduction to RI. 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. Total assets by segments is not disclosed because such information is not used by the Company’s chief operating decision maker in evaluating the segments.

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

	Three months ended March 31, 2022
	Credit Group		Private Equity Group		Real Assets Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	303,159	$	45,957	$	72,487	$	44,504	$	16,814	$	482,921	$	—	$	482,921
Fee related performance revenues	12,353		—		358		—		—		12,711		—		12,711
Other fees	5,766		297		7,866		—		50		13,979		5,876		19,855
Compensation and benefits	(105,696)		(19,566)		(33,637)		(11,640)		(7,401)		(177,940)		(64,067)		(242,007)
General, administrative and other expenses	(16,697)		(6,288)		(7,637)		(3,078)		(1,726)		(35,426)		(32,384)		(67,810)
Fee related earnings	198,885		20,400		39,437		29,786		7,737		296,245		(90,575)		205,670
Performance income—realized	7,363		2,212		34,293		—		—		43,868		—		43,868
Performance related compensation—realized	(4,580)		(1,786)		(22,209)		—		—		(28,575)		—		(28,575)
Realized net performance income	2,783		426		12,084		—		—		15,293		—		15,293
Investment income—realized	415		1,603		3,453		—		861		6,332		—		6,332
Interest and other investment income (expense)—realized	5,726		1,502		2,777		644		3		10,652		(284)		10,368
Interest expense	(3,414)		(3,373)		(2,389)		(465)		(5,838)		(15,479)		(167)		(15,646)
Realized net investment income (loss)	2,727		(268)		3,841		179		(4,974)		1,505		(451)		1,054
Realized income	$	204,395	$	20,558	$	55,362	$	29,965	$	2,763	$	313,043	$	(91,026)	$	222,017
	Three months ended March 31, 2021
	Credit Group		Private Equity Group		Real Assets Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	232,877	$	39,138	$	39,825	$	—	$	15,623	$	327,463	$	—	$	327,463
Fee related performance revenues	1,370		—		666		—		—		2,036		—		2,036
Other fees	5,969		108		648		—		79		6,804		—		6,804
Compensation and benefits	(81,203)		(16,848)		(20,179)		—		(4,740)		(122,970)		(44,407)		(167,377)
General, administrative and other expenses	(10,809)		(4,486)		(3,677)		—		(2,035)		(21,007)		(18,656)		(39,663)
Fee related earnings	148,204		17,912		17,283		—		8,927		192,326		(63,063)		129,263
Performance income—realized	2,446		71,218		1,281		—		—		74,945		—		74,945
Performance related compensation—realized	(2,055)		(57,026)		(776)		—		—		(59,857)		—		(59,857)
Realized net performance income	391		14,192		505		—		—		15,088		—		15,088
Investment income (loss)—realized	—		(8,898)		1,506		—		—		(7,392)		—		(7,392)
Interest and other investment income—realized	3,669		118		2,354		—		33		6,174		355		6,529
Interest expense	(1,515)		(1,453)		(1,335)		—		(2,302)		(6,605)		(90)		(6,695)
Realized net investment income (loss)	2,154		(10,233)		2,525		—		(2,269)		(7,823)		265		(7,558)
Realized income	$	150,749	$	21,871	$	20,313	$	—	$	6,658	$	199,591	$	(62,798)	$	136,793

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

	Three months ended March 31,
	2022		2021
Segment revenues
Management fees	$	482,921	$	327,463
Fee related performance revenues	12,711		2,036
Other fees	13,979		6,804
Performance income—realized	43,868		74,945
Total segment revenues	$	553,479	$	411,248
Segment expenses
Compensation and benefits	$	177,940	$	122,970
General, administrative and other expenses	35,426		21,007
Performance related compensation—realized	28,575		59,857
Total segment expenses	$	241,941	$	203,834
Segment realized net investment income (expense)
Investment income (loss)—realized	$	6,332	$	(7,392)
Interest and other investment income —realized	10,652		6,174
Interest expense	(15,479)		(6,605)
Total segment realized net investment income (expense)	$	1,505	$	(7,823)

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

	Three months ended March 31,
	2022		2021
Total consolidated revenue	$	714,999	$	658,388
Performance income—unrealized	(133,532)		(224,954)
Management fees of Consolidated Funds eliminated in consolidation	11,479		11,706
Incentive fees of Consolidated Funds eliminated in consolidation	34		1,525
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation	4,769		4,145
Administrative fees(1)	(19,475)		(9,808)
OMG revenue	(5,876)		—
Performance income (loss) reclass(2)	(14)		55
Principal investment income, net of eliminations	(8,326)		(25,100)
Net income of non-controlling interests in consolidated subsidiaries	(10,579)		(4,709)
Total consolidation adjustments and reconciling items	(161,520)		(247,140)
Total segment revenue	$	553,479	$	411,248

(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 March 31,
	2022		2021
Total consolidated expenses	$	611,684	$	525,109
Performance related compensation-unrealized	(91,198)		(160,337)
Expenses of Consolidated Funds added in consolidation	(16,077)		(17,436)
Expenses of Consolidated Funds eliminated in consolidation	11,564		13,265
Administrative fees(1)	(18,890)		(9,808)
OMG expenses	(96,451)		(63,063)
Acquisition and merger-related expense	(9,042)		(8,590)
Equity compensation expense	(53,602)		(55,649)
Acquisition-related compensation expense(2)	(48,001)		—
Placement fees	693		(297)
Depreciation and amortization expense	(38,126)		(14,100)
Expense of non-controlling interests in consolidated subsidiaries	(10,613)		(5,260)
Total consolidation adjustments and reconciling items	(369,743)		(321,275)
Total segment expenses	$	241,941	$	203,834

(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 components of the purchase agreements associated with contingent obligations resulting from the Landmark Acquisition, the Black Creek Acquisition and the Infrastructure Debt Acquisition that are recorded as compensation expense and are presented within 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 March 31,
	2022		2021
Total consolidated other income	$	57,994	$	56,785
Investment (income) loss—unrealized	7,854		(22,168)
Interest and other investment (income) loss—unrealized	(6,032)		3,950
Other income from Consolidated Funds added in consolidation, net	(66,848)		(67,316)
Other expense from Consolidated Funds eliminated in consolidation, net	(7,518)		(4,112)
OMG other expense	4,593		333
Performance (income) loss reclass(1)	14		(55)
Principal investment income	14,490		25,095
Other (income) expense, net	1,981		(473)
Other (income) loss of non-controlling interests in consolidated subsidiaries	(5,023)		138
Total consolidation adjustments and reconciling items	(56,489)		(64,608)
Total segment realized net investment income (expense)	$	1,505	$	(7,823)

(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 March 31,
	2022		2021
Income before taxes	$	161,309	$	190,064
Adjustments:
Depreciation and amortization expense	38,126		14,100
Equity compensation expense	53,017		55,649
Acquisition-related compensation expense(1)	48,001		—
Acquisition and merger-related expense	9,042		8,590
Placement fees	(693)		297
OMG expense, net	95,168		63,396
Other (income) expense, net	1,981		(473)
Net (income) expense of non-controlling interests in consolidated subsidiaries	(4,989)		689
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(47,407)		(49,886)
Total performance income—unrealized	(133,532)		(224,954)
Total performance related compensation—unrealized	91,198		160,337
Total investment (income) loss—unrealized	1,822		(18,218)
Realized income	313,043		199,591
Total performance income—realized	(43,868)		(74,945)
Total performance related compensation—realized	28,575		59,857
Total investment income—realized	(1,505)		7,823
Fee related earnings	$	296,245	$	192,326

(1)Represents components of the purchase agreements associated with contingent obligations resulting from the Landmark Acquisition, the Black Creek Acquisition and the Infrastructure Debt Acquisition that are recorded as compensation expense and are presented within compensation and benefits in the Company’s Condensed Consolidated Statements of Operations.