SEGMENT REPORTING

3 Months Ended

Mar. 31, 2024

Segment Reporting [Abstract]

SEGMENT REPORTING

13. SEGMENT REPORTING

The Company operates through its distinct operating segments. On January 1, 2024, the Company changed its segment composition. The special opportunities strategy, historically part of the Private Equity Group, is now referred to as opportunistic credit and is presented within the Credit Group. 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 liquid credit, alternative credit, opportunistic credit, direct lending and Asia-Pacific (“APAC”) credit.

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

Private Equity Group: The Private Equity Group broadly categorizes its investment strategies as corporate private equity and APAC private equity.

Secondaries Group: The Secondaries Group invests in secondary markets across a range of alternative asset class strategies, including private equity, real estate, infrastructure and credit.

Other: Other represents a compilation of operating segments and strategic investments that seek to expand the Company’s reach and its scale in new and existing global markets but individually do not meet reporting thresholds. These results include activities from: (i) Ares Insurance Solutions (“AIS”), the Company’s insurance platform that provides solutions to insurance clients including asset management, capital solutions and corporate development; and (ii) the SPACs sponsored by the Company, among others.

The Operations Management Group (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 either equal to the costs of services provided or as a percentage of invested capital. The OMG’s revenues and expenses are not allocated to the Company’s operating 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 Ares Funds and adjusts for 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 eligible to be received on a recurring basis and not dependent on realization events from the underlying investments.

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 adjusts for 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. Placement fee adjustment represents the net portion of either expense deferral or amortization of upfront fees to placement agents that is presented to match the timing of expense recognition with the period over which management fees are expected to be earned from the associated fund for segment purposes but have been expensed in advance in accordance with GAAP. For periods in which the amortization of upfront fees for segment purposes is higher than the GAAP expense, the placement fee adjustment 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, 2024
	Credit Group		Real Assets Group		Private Equity Group		Secondaries Group		Other		Total Segments		OMG		Total
Management fees	$	510,966	$	93,814	$	34,933	$	44,421	$	9,231	$	693,365	$	—	$	693,365
Fee related performance revenues	755		—		—		2,962		—		3,717		—		3,717
Other fees	9,911		5,075		439		4		114		15,543		4,333		19,876
Compensation and benefits	(134,849)		(37,918)		(14,785)		(12,714)		(5,592)		(205,858)		(94,157)		(300,015)
General, administrative and other expenses	(34,366)		(14,453)		(5,216)		(9,068)		(1,690)		(64,793)		(50,480)		(115,273)
Fee related earnings	352,417		46,518		15,371		25,605		2,063		441,974		(140,304)		301,670
Performance income—realized	16,766		3,677		2,738		—		—		23,181		—		23,181
Performance related compensation—realized	(8,734)		(2,228)		(2,194)		—		—		(13,156)		—		(13,156)
Realized net performance income	8,032		1,449		544		—		—		10,025		—		10,025
Investment income (loss)—realized	(398)		(457)		120		—		—		(735)		—		(735)
Interest and other investment income—realized	4,930		3,835		184		210		6,409		15,568		452		16,020
Interest expense	(9,013)		(5,949)		(5,889)		(2,698)		(14,235)		(37,784)		(40)		(37,824)
Realized net investment income (loss)	(4,481)		(2,571)		(5,585)		(2,488)		(7,826)		(22,951)		412		(22,539)
Realized income	$	355,968	$	45,396	$	10,330	$	23,117	$	(5,763)	$	429,048	$	(139,892)	$	289,156
	Three months ended March 31, 2023
	Credit Group		Real Assets Group		Private Equity Group		Secondaries Group		Other		Total Segments		OMG		Total
Management fees	$	430,467	$	97,470	$	29,840	$	39,863	$	4,979	$	602,619	$	—	$	602,619
Fee related performance revenues	600		—		—		3,271		—		3,871		—		3,871
Other fees	9,149		6,462		394		—		50		16,055		4,640		20,695
Compensation and benefits	(121,900)		(37,986)		(16,626)		(13,412)		(3,140)		(193,064)		(84,967)		(278,031)
General, administrative and other expenses	(26,676)		(12,284)		(4,485)		(4,292)		(608)		(48,345)		(46,172)		(94,517)
Fee related earnings	291,640		53,662		9,123		25,430		1,281		381,136		(126,499)		254,637
Performance income—realized	7,410		6,086		17,640		—		—		31,136		—		31,136
Performance related compensation—realized	(5,881)		(3,758)		(14,220)		—		—		(23,859)		—		(23,859)
Realized net performance income	1,529		2,328		3,420		—		—		7,277		—		7,277
Investment income (loss)—realized	506		(1,772)		879		—		170		(217)		—		(217)
Interest and other investment income (expense)—realized	8,113		1,821		166		1,225		6,348		17,673		(92)		17,581
Interest expense	(8,630)		(3,896)		(4,805)		(2,305)		(5,324)		(24,960)		(26)		(24,986)
Realized net investment income (loss)	(11)		(3,847)		(3,760)		(1,080)		1,194		(7,504)		(118)		(7,622)
Realized income	$	293,158	$	52,143	$	8,783	$	24,350	$	2,475	$	380,909	$	(126,617)	$	254,292

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

	Three months ended March 31,
	2024		2023
Segment revenues
Management fees	$	693,365	$	602,619
Fee related performance revenues	3,717		3,871
Other fees	15,543		16,055
Performance income—realized	23,181		31,136
Total segment revenues	$	735,806	$	653,681
Segment expenses
Compensation and benefits	$	205,858	$	193,064
General, administrative and other expenses	64,793		48,345
Performance related compensation—realized	13,156		23,859
Total segment expenses	$	283,807	$	265,268
Segment realized net investment expense
Investment loss—realized	$	(735)	$	(217)
Interest and other investment income —realized	15,568		17,673
Interest expense	(37,784)		(24,960)
Total segment realized net investment expense	$	(22,951)	$	(7,504)

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

	Three months ended March 31,
	2024		2023
Total consolidated revenue	$	707,363	$	813,362
Performance (income) loss—unrealized	45,476		(127,713)
Management fees of Consolidated Funds eliminated in consolidation	12,453		11,601
Performance income of Consolidated Funds eliminated in consolidation	5,925		3,545
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation	113		4,843
Administrative fees(1)	(16,407)		(13,650)
OMG revenue	(4,333)		(4,640)
Principal investment income, net of eliminations	(7,050)		(22,758)
Net revenue of non-controlling interests in consolidated subsidiaries	(7,734)		(10,909)
Total consolidation adjustments and reconciling items	28,443		(159,681)
Total segment revenue	$	735,806	$	653,681

(1)Represents administrative fees from expense reimbursements that are presented within administrative, transaction and other fees within 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 expenses to segment expenses:

	Three months ended March 31,
	2024		2023
Total consolidated expenses	$	538,493	$	628,636
Performance related compensation-unrealized	64,514		(85,150)
Expenses of Consolidated Funds added in consolidation	(17,708)		(19,641)
Expenses of Consolidated Funds eliminated in consolidation	12,995		12,132
Administrative fees(1)	(16,407)		(13,277)
OMG expenses	(144,637)		(131,139)
Acquisition and merger-related expense	(10,578)		(4,955)
Equity compensation expense	(92,422)		(69,077)
Acquisition-related compensation expense(2)	(5,504)		(642)
Placement fee adjustment	(5,540)		3,232
Depreciation and amortization expense	(36,644)		(45,659)
Expense of non-controlling interests in consolidated subsidiaries	(2,755)		(9,192)
Total consolidation adjustments and reconciling items	(254,686)		(363,368)
Total segment expenses	$	283,807	$	265,268

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

(2)Represents contingent obligations (“earnouts”) resulting from the Infrastructure Debt Acquisition and the Crescent Point Acquisition that are recorded as compensation expense and are presented within compensation and benefits within 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,
	2024		2023
Total consolidated other income	$	62,178	$	56,396
Investment income—unrealized	(3,685)		(28,985)
Interest and other investment (income) loss—unrealized	(602)		208
Other income, net from Consolidated Funds added in consolidation	(79,977)		(62,917)
Other expense, net from Consolidated Funds eliminated in consolidation	902		(4,451)
OMG other (income) expense	(549)		651
Principal investment income (loss)	(2,666)		35,457
Other expense, net	131		91
Other (income) loss of non-controlling interests in consolidated subsidiaries	1,317		(3,954)
Total consolidation adjustments and reconciling items	(85,129)		(63,900)
Total segment realized net investment expense	$	(22,951)	$	(7,504)

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,
	2024		2023
Income before taxes	$	231,048	$	241,122
Adjustments:
Depreciation and amortization expense	36,644		45,659
Equity compensation expense	92,421		68,704
Acquisition-related compensation expense(1)	5,504		642
Acquisition and merger-related expense	10,578		4,955
Placement fee adjustment	5,540		(3,232)
OMG expense, net	139,755		127,150
Other expense, net	131		91
Income before taxes of non-controlling interests in consolidated subsidiaries	(3,662)		(5,671)
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(65,586)		(27,171)
Total performance (income) loss—unrealized	45,476		(127,713)
Total performance related compensation—unrealized	(64,514)		85,150
Total investment income—unrealized	(4,287)		(28,777)
Realized income	429,048		380,909
Total performance income—realized	(23,181)		(31,136)
Total performance related compensation—realized	13,156		23,859
Total investment loss—realized	22,951		7,504
Fee related earnings	$	441,974	$	381,136

(1)Represents earnouts resulting from the Infrastructure Debt Acquisition and the Crescent Point Acquisition that are recorded as compensation expense and are presented within compensation and benefits within the Company’s Condensed Consolidated Statements of Operations.