Ares Management Corporation

Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0 and a member of our team will be happy to help. Please standby, your meeting is about to begin. Good morning, everyone. Welcome to the Ares Management Corporation First Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. As a reminder, this conference call is being recorded on Friday, May 1, 2026. I would now like to turn the call over to Greg Mason, Co-Head of Public Markets and Investor Relations for Ares Management Corporation. Please go ahead, sir. Greg Mason: Good morning, and thank you for joining us today for our first quarter 2026 conference call. I am joined today by Michael J. Arougheti, our Chief Executive Officer, and Jarrod Morgan Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results, and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in Ares Management Corporation or any Ares Management Corporation fund. During this call, we will refer to certain non-GAAP financial measures which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our first quarter earnings presentation available on the Investor Resources section of our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measure. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared a quarterly dividend of 1.35 dollars per share on the Company’s Class A and non-voting common stock, representing an increase of over 20% from the same quarter a year ago. The dividend will be paid on June 30, 2026, to holders of record on June 16. Now I will turn the call over to Mike, who will start with some comments on the current market environment and our first quarter financial results. Michael J. Arougheti: Thank you, Greg, and good morning. We hope everybody is doing well. In the first quarter, we continued to generate strong financial results and significant growth across our key financial metrics, and we are excited and confident about the opportunities ahead for our business. Our AUM increased 18% year-over-year to 644 billion dollars, and our fee-paying AUM increased 19% to 400 billion dollars. This is translating into strong top line growth and profitability, as management fees increased 22% year-over-year, FRE grew 26%, and realized income increased 24%. We also continued to generate strong fund performance for our investors across an expanding array of investment strategies, which is helping to drive increased and more diversified investor demand across our firm. In fact, we are on track for another record year of fundraising as we raised 30 billion dollars of gross capital in Q1, which is our highest ever first quarter, and that is up 46% compared to last year’s record first quarter. Our pipeline of new institutional funds remains robust for this year and next year, with three of our largest institutional private credit funds in the market over the next twelve months, two of which have already launched with significant momentum. Our institutional franchise remains strong. Three-quarters of our 644 billion dollars of AUM is comprised of institutional capital with 14% from publicly traded closed-end funds and other sources and just over 10% from evergreen wealth products. With nearly 1,700 investment professionals across more than 55 global offices, we operate one of the largest and most diversified origination platforms in the private markets. This platform enables us to source differentiated investments throughout market cycles and to capture market share during periods of volatility. Even with the typical seasonal slowdown in the first quarter, which was further amplified by heightened geopolitical issues, our deployment was still over 32 billion dollars across the firm, which was higher than the first quarter of last year. As sponsors and business owners gain increasing comfort with the market backdrop, we are seeing our forward investment pipeline increase to a new record level with notable strength across European and U.S. Direct Lending, Alternative Credit and Infrastructure. The expansion of our platform is also driving new investment opportunities. For example, over the past two years, we have added 14 new investment products and strategies, which now total 68 billion dollars in AUM. These new additions to the platform enable us to continue to expand our global origination capabilities and help us to find supply-demand imbalances and scenarios. Our available capital continues to expand on the back of our strong fundraising, and it now stands at over 158 billion dollars. As one of the largest institutionally backed private credit providers globally, we believe that we have the most credit dry powder of any public player in the market, totaling more than 100 billion dollars. This sets us up well for continued growth in FPAUM as we invest in today’s increasingly attractive market. Now let me dive into a few key drivers of our business, starting with fundraising. In short, we continue to see strong demand from institutional investors as many are seeking to take advantage of improving market conditions across private credit, real assets and secondaries. Institutional demand is broad-based; we continue to see investors consolidating relationships with scaled platforms like Ares Management Corporation that can generate consistent performance across cycles. Within our Credit Group, we raised over 20 billion dollars in Q1, driven by strong demand across both drawdown funds and perpetual capital vehicles. In the first quarter, we held the final close for ASOF III, our latest opportunistic credit fund, raising over 8.3 billion dollars of equity commitments and nearly 10 billion dollars including related transaction vehicles. ASOF III significantly exceeded its target and the size of the prior vintage. We believe that the timing of this raise is particularly compelling as the team is seeing a large pipeline of investment opportunities. In January, we launched the third vintage of our Alternative Credit fund with a target of 6.5 billion dollars. Our Alternative Credit strategy is where we invest across the multi-trillion dollar addressable market in global asset-backed finance. Our prior Alternative Credit fund totaled 6.6 billion dollars in capital, and the current fund is experiencing strong demand from existing and new institutional investors well in excess of the target. We expect to complete the fundraise in the second quarter at its hard cap as the fund is already meaningfully oversubscribed. In U.S. Direct Lending, we are accelerating the launch of our fourth senior direct lending fund due to improving market conditions, which are offering enhanced economics, lower leverage and improved deal terms in U.S. Direct Lending investments. We anticipate a first close in late third quarter or early fourth quarter of this year. We also have some exciting structural enhancements to our main fund series, which we believe will benefit investors and enhance our fundraising capabilities in the strategy. In our third U.S. senior direct lending fund, SDL 3, we raised approximately 15.3 billion dollars in equity commitments across both levered and unlevered sleeves in the fund against a 10 billion dollar cover. The fourth vintage in the series will be a fully levered fund, and we plan to launch a new unlevered evergreen U.S. senior direct lending core product. The two products will continue to invest together just like previous vintages, but will now provide investors with both a commingled and an evergreen opportunity. Like our third fund, we would expect this fourth fund series to also exceed its 10 billion dollar cover. In Digital Infrastructure, we are raising a global data center equity fund to take advantage of the multi-decade supply-demand imbalance, as the hyperscalers drive demand for trillions of dollars of cloud and AI computing over the next five years, a significant portion of which will need to be solved by private equity and private credit. Our Digital Infrastructure group, which includes our own vertically integrated operating platform, Ada Infrastructure, has a differentiated position in the market characterized by long-standing hyperscaler relationships, significant investment and development expertise, and multiple seed projects in the pipeline in top-tier markets. We expect to hold a significant first close for our global data center fund this summer. As many of you know, we operate one of the largest real estate platforms globally, and our scale continues to drive accelerating demand across our real estate funds. In the first quarter, our eleventh U.S. Value-Add fund closed at its increased hard cap of 3.1 billion dollars in fund commitments and approximately 3 billion dollars of total capital. Similarly, our fifth Japan Logistics Development Fund is seeing very strong demand following the excellent performance of prior vintages. We expect to hold a first close this spring and ultimately reach the hard cap later this year. And in Secondaries, we are back in the market with our third real estate secondary fund and expect a first close in the back half of the year. Within our Wealth business, we had another strong quarter driven by accelerating demand in our six products outside of U.S. private credit. In fact, we raised the same amount of gross and net equity capital of 4 billion dollars and 3 billion dollars, respectively, in the first quarter as we did in the fourth quarter of last year. On a year-over-year basis, our Wealth AUM increased 54% to 68 billion dollars. We believe that our diversified product offering is enabling us to gain market share as advisors broaden their focus away from U.S. private credit toward other alternative products like infrastructure, real estate and private equity. For example, during the first quarter, our core infrastructure fund raised 1 billion dollars in equity subscriptions and now has over 3 billion dollars of AUM, and the fund just launched on its first major platform with its first capital raise on that platform closing today. We are also seeing improving flows across our two non-traded REITs, with more than 640 million dollars of inflows in the quarter, and our European direct lending wealth products had equity flows of nearly 1.2 billion dollars. Within U.S. Direct Lending, equity flows into our non-traded BDC have moderated relative to prior periods, while fund performance and underlying credit fundamentals remain strong. Since inception, the non-traded BDC has generated an annualized return of over 10% for Class I shares. Notably, the majority of repurchase requests during the most recent quarter came from a limited number of family offices and smaller institutions in select regions, and over 95% of our investors did not request redemptions. It is important to remember that these vehicles are specifically designed to align liquidity with the underlying assets. For example, the non-traded BDC’s 5% quarterly repurchase framework approximates the natural repayments of a typical U.S. direct lending portfolio. This repurchase framework is intended to provide access to attractively yielding illiquid assets while also mitigating against the risk of forced asset sales amid heightened redemption requests. Finally, we believe that we are well positioned to continue to drive strong growth regardless of redemption activity in our U.S. private credit vehicles. These two private credit wealth products account for approximately 4.5% of our overall fee-paying AUM. While we believe it is a very unlikely scenario, if these two funds were to experience 5% quarterly redemptions for a full year with no gross inflows, we estimate that, based on existing fund structures and redemption mechanics, it could impact our FPAUM by approximately 1% annually. Considering that our FPAUM increased by over 19% in the past twelve months, and our current AUM-not-yet-paying-fees available for deployment represents another 19% of future growth in FPAUM, we would expect the impact of any redemption activity to be minimal. In reality, any deployment that would have gone to these non-traded vehicles will likely be taken up by other traded and institutional funds and SMAs with limited to no impact to our current year profitability. On the investing side, overall deployment activity increased modestly compared to 2025, driven by real estate, alternative credit, European direct lending and private equity. The transaction market environment for U.S. Direct Lending was slower in the first quarter as industry-wide deal count and middle market M&A declined by 41% in Q1 2026 versus Q1 2025 due to impacts from the Iran war and changing inflation and rate expectations. During slower periods, we often gain considerable market share due to our certainty of capital and broad sourcing capabilities, and the first quarter was no exception. Over the past several weeks, we are beginning to see a pickup in new U.S. Direct Lending transaction activity as market participants adjust to changing market conditions. As Jarrod will discuss later in the call, our investment portfolios are performing well and credit fundamentals remain positive. Of course, the broader market will see defaults which will inevitably garner attention, but we are not seeing signs of an impending default cycle, and we believe that private credit players are getting well compensated for the risks with enhanced economics. We have operated our U.S. Direct Lending strategy for over 20 years, and looking at Ares’ BDC, Ares Capital Corporation, we have deployed and exited more than 70 billion dollars in capital with an asset-level realized gross IRR of 13% on all exited investments. In our view, the growth of the private credit asset class is part of a multi-decade structural evolution supported first by continued expansion of the private markets relative to the public markets; secondly, it is driven by bank consolidation, the need for tight bank regulation given the dependence on federally insured deposits and the inherent asset-liability mismatch and leverage in the banking system; and lastly, the syndicated bank loan and high yield markets have been focused on larger companies for decades, which has left a growing void for middle market companies, which comprise about one-third of our economy. The U.S. private credit market, which is funded 75% or more by institutional investors, serves as a stabilizing force in the economy when bank lending contracts or when the capital markets become constrained. For example, if you look over the last 25 years, U.S. private credit has contracted once, which was over 10 years ago, versus the banking sector, which has contracted eight times over the same period. Today, Ares Management Corporation has over 100 billion dollars in available capital to invest in credit, and we estimate that the industry has over 500 billion dollars of available capital, which is larger than the size of the entire non-traded BDC industry. While private credit has expanded at low double-digit rates over the past decade, this growth tracks in line with the growth of the 5 trillion dollar private equity sector and other private market asset classes. Also, the percentage of our economy’s GDP funded by corporate credit, including private credit, bank C&I loans, syndicated bank loans and high yield bonds, has not changed over the past decade. This indicates that the growth of private credit is not increasing the amount of leverage or credit in the economy, and is providing more consistent funding throughout business cycles. Every loan funded by private credit with comparatively less fund or balance sheet leverage should reduce risk of volatility. Software is a topic that is rightfully drawing a lot of attention, but there seems to be confusion on how to distinguish between software exposures and different software companies. Senior debt is much more protected from downside risks than equity in the capital structure and individual software companies have varying degrees of potential AI disruption risks and opportunities. In the traded loan markets, we are seeing a bifurcation in the prices of software loans between the potentially less and more impacted companies. For example, we have tracked a basket of companies focused on core operational software, systems of record and highly regulated markets where their loans have traded down 2% on average year-to-date to 98–99 dollars, versus another basket of software companies primarily focused on content generation, data analysis or productivity tools where their loans have declined 24% on average year-to-date and now trade below 65 dollars. As we have discussed in the past, Ares’ software exposure, which is 6% of overall AUM and less than 8% of our AUM in private credit, is focused on senior lending, primarily to software companies in the former basket serving the core operations of complex businesses in regulated industries with proprietary data. As you may have heard from the Ares Capital call earlier this week, we engaged one of the top three global management consulting firms to supplement our own internal analysis of our software-oriented portfolio. They conducted a nine-week independent and detailed review of the potential forward-looking AI risk in our software-oriented portfolio companies, and the study also included our relatively lower software exposure in our European direct lending portfolio. The study graded each company on a spectrum based on risk characteristics and concluded that our software-oriented portfolio is very well positioned with 86% of the portfolio with low risk of potential AI disruption. Approximately 13% of the portfolio was classified as medium risk—these companies are performing well today but have a greater need and an opportunity to adapt to AI risks to their business—and only 1% of the portfolio was categorized as having high risk of AI disruption. If the consultant’s framework, which aligns with our own rigorous underwriting views, proves directionally correct, the portion of our software exposure that is medium to high risk represents less than 2% of our U.S. and European direct lending AUM and well under 1% of our total firmwide AUM. And lastly, before turning the call over to Jarrod, I wanted to highlight the successful IPO last week of X-energy, which is a small modular nuclear reactor company. In 2022, we identified X-energy as a revolutionary company through our first SPAC, Ares Acquisition Corp. I. As we approached the de-SPAC process in 2023, high inflation and rapidly rising interest rates impacted market conditions for the transaction. We chose to support X-energy in a private transaction and the company continued to execute its strategy, including receiving support from strategic investors like Amazon. Last week, X-energy completed its IPO that was meaningfully oversubscribed, raising over 1 billion dollars at a 20% premium to the high end of the proposed range, and represented the largest equity offering ever for a nuclear company. The cost basis of our balance sheet investment is a little over 100 million dollars and, based on the recent trading price of the stock, our current fair value net of employee compensation is close to 700 million dollars. We are excited to celebrate this significant milestone with our partners at X-energy. And with that, I will turn the call over to Jarrod to provide additional details on our financial results. Jarrod? Jarrod Morgan Phillips: Thanks, Mike. Our financial results in the first quarter demonstrate the strength, durability and diversification of our platform, with continued strong growth across our key financial metrics. Importantly, these results reinforce what we believe is one of the defining characteristics of our business model, which is our ability to continue growing, often faster, through periods of market dislocation given our FRE-rich earnings profile, balance sheet-light strategy, diversity of our AUM and investment strategies, and the scale of our global platform. As we look ahead, we remain confident that we are on track to meet our financial objectives for the year. We continue to benefit from a large base of AUM that is not yet paying fees, strong fundraising momentum—especially in the institutional channel—and improving conditions for our deployment across a broader set of strategies. We believe the combination of long-duration capital, flexible investment mandates, significant dry powder, an asset-light balance sheet and a management-fee-centric model positions us well to navigate through a range of market environments while continuing to drive growth in earnings over time. Turning to our results, quarterly management fees exceeded 1 billion dollars for the first time in our firm’s history and increased 22% compared to the prior-year period. This growth continues to be driven by expansion in FPAUM, which increased 19% year-over-year due to strong underlying fundraising and deployment activity across the platform. Fee related performance revenues totaled 20 million dollars in the quarter, which were driven by APMF. As a reminder, the timing of FRPR varies by fund and investment strategy. Within Credit, we typically recognize FRPR from our Alternative Credit strategy in the third quarter, with most of the remaining credit strategies recognized in the fourth quarter. In Real Estate, FRPR is concentrated in the fourth quarter, while APMF and certain other perpetual vehicles generate FRPR on a more recurring quarterly basis. Fee-related earnings were 454 million dollars in the quarter, increasing 26% year-over-year. Our FRE margin expanded 90 basis points year-over-year to 42.4%. We continue to have good visibility into margin expansion for the full year towards the high end of our targeted range, driven by a number of factors including continued efficiencies from the GCP integration, the data center business shifting from a negative to a positive FRE contributor with the new global digital infrastructure fund paying on committed capital, and our expectations for continued strong growth in AUM and FPAUM from deployment. Turning to performance income, we generated 75 million dollars in realized net performance income, an 84% increase over the year-ago period. Interest expense increased to 51 million dollars due to normal increased Q1 seasonality. Additionally, interest income should remain around the Q1 level going forward. Realized income for the quarter was 503 million dollars, representing growth of 24% year-over-year, and after-tax realized income per share was 1.24 dollars, up 14% compared to the prior-year period. Our tax rate in the quarter totaled 13.5%, just above the midpoint of our 11% to 15% expected range for the year, in line with where we would expect the rate to be for the remainder of the year. As Mike stated, our fund performance remains strong across the platform. Over the last twelve months, we generated time-weighted returns of approximately 12% to 15% in our U.S. Direct Lending strategies, 15% in Alternative Credit, 12% in Opportunistic Credit, 9% in European Direct Lending and over 20% in APAC Credit. We continue to see strong fundamental performance in our funds, and when we look across private and public credit markets, nothing we are observing suggests we are at or near a turn in the credit cycle. Across our direct lending portfolios, we are seeing continued near 10% EBITDA growth, loan-to-value ratios in the mid-40% range, private equity funds continue to fund new transactions with majority-in-equity and improving interest coverage ratios of 2.2x. Non-accrual ratios are well below historical norms and we are generally financing much larger, more resilient businesses today versus past vintages. The relatively small number of credit issues we see are company-specific rather than indicative of broader trends. We are not seeing any credit deterioration broadly within software, as we have only one software company on non-accrual. Within Real Assets, our diversified non-traded REIT has generated a total return of approximately 12% over the last twelve months. Our infrastructure debt strategy produced gross returns of approximately 9% over the last twelve months. In Secondaries, APMF has generated a since-inception net return of over 14%, while our primary private equity strategies continue to deliver strong performance with net returns of approximately 15% in ACOF VI. Overall, these results reflect the breadth and consistency of our investment performance across strategies and continue to be a key differentiator for Ares Management Corporation as we look to drive long-term growth in AUM and earnings. In conclusion, for the year 2026, we are on track with our longer-term goals of generating compound annual growth of 16% to 20% in FRE, 20% to 25% in realized income and 20% in dividends. We anticipate continued FRE margin expansion and we expect to be within the upper end of our 0 to 150 basis points annual target this year. We are on track for another record year of fundraising, and our expansive origination platform, record levels of dry powder and flexible capital position us for strong deployment even in uncertain markets. I will now turn the call back over to Mike for his concluding remarks. Michael J. Arougheti: Thanks, Jarrod. As we step back and reflect on the events of the first quarter, we believe one of the most important takeaways is the continued strength and resilience of our institutional fundraising franchise. Last week, we held our global annual meeting for our institutional investors. We welcomed over 1,100 attendees from across the world to both highlight the breadth and depth of Ares Management Corporation’s investment platform and to expand and deepen relationships with our largest investors. We continue to see enthusiastic engagement from large, sophisticated investors who are allocating capital with a long-term perspective and are increasingly consolidating relationships with scale managers that can deliver across strategies and cycles. That demand has remained consistent despite the recent market noise, and in many cases, we are seeing investors lean in given the improving opportunity set. I think it is noteworthy that we continue to exceed our fundraising targets in most of our flagship fundraises, and in many cases, we are getting to the hard cap in a shorter amount of time than in prior vintages. We also believe that the current environment is setting up very well for enhanced deployment. Periods of uncertainty tend to create more attractive investment terms and risk-adjusted returns, and we are already seeing a broader set of opportunities across Credit, Real Assets and Secondaries. Given the ongoing impacts from geopolitical issues and certain redemptions in retail-focused funds, the current environment is offering wider spreads, higher fees and better terms. With over 150 billion dollars of available capital and a highly diversified platform, we are well positioned to take advantage of these conditions and deploy capital at more attractive risk-adjusted returns. Importantly, our business model continues to provide us with a degree of diversification, stability and flexibility. We operate leading businesses across an array of global Credit, Real Estate, Infrastructure, Secondaries and PE strategies. Our earnings are driven by management fees supported by long-duration capital and complemented by performance income that we believe will continue to grow over time. This combination enables us to remain patient and opportunistic while continuing to generate durable growth in earnings. We are excited about the many levers that we have for profitable growth and our ability to continue driving long-term shareholder value. I will remind everyone that Ares Management Corporation experienced its two fastest periods of growth during the GFC and COVID, as we were able to leverage our competitive advantages to consolidate share and as our institutional investors increased their allocations to us to take advantage of improving returns in choppy markets. As always, I want to thank our employees around the world for their continued hard work and dedication, and I want to thank our investors for their ongoing support and confidence in our platform. We will now open the call for questions. Operator: Thank you. We will go first today to Craig Siegenthaler with Bank of America. Craig Siegenthaler: Good morning, Mike and team. Hope everyone is doing well. Michael J. Arougheti: Thanks. You too, Craig. Craig Siegenthaler: You had a strong fundraising quarter in the Credit platform, and that is despite a deceleration in two of your newer retail funds that, as you said, only represent 5% of your AUM. Can you provide some perspective on the evolving demand dynamics between the institutional channel, the insurance channel, and also the retail channel within private credit? Michael J. Arougheti: Sure. Thanks for the question, Craig. I am going to step back and contextualize the answer with some things that I know I have talked to you about and others on the line. When you think about how the private credit market has been evolving and how Ares Management Corporation has chosen to participate in it, remember we actually started in private credit with Ares Capital Corporation, a traded BDC, and as we referenced on the call, that entity has a substantial public track record through cycles. If you look at the 21-plus year track record there, the return coming out of ARCC has beaten the S&P 500, the syndicated bank loan market, the high yield bond market and probably most anything else that people have invested in. It is a wonderful company and a wonderful structure. But what we learned was that because of the ebbs and flows, particularly within the retail market, it was challenging to take full advantage of cycles when they developed only in that traded BDC fund structure. And so we launched in earnest our institutional fund platform with the SDL and ACE series, which have obviously scaled with similarly strong performance. Watching those two work together, what you learn is diversification of funding is critically important to navigate cycles and drive outperformance, but also the ability to have those funds working hand in hand is performance-enhancing for both funds given our ability to continue to invest into the franchise, drive new originations, have the dry powder to support our best performing companies, etc. So you need both. Then we entered the wealth channel; we were actually last in our space to come into the market in earnest given some of the learnings we had about the procyclicality of flows sometimes within that channel, both good and bad. We have been very measured as we have thought about how to build the fund complex to capture the full complement of opportunities across the cycle within traded, non-traded and institutional. But what we have always tried to articulate is the assets are the same. As I said in the prepared remarks, if we originate a senior secured loan and we have availability of capital in each of those three pools, each of those three pools will get to participate. Not surprisingly, if you are beginning to see slowing inflows or increased redemptions in the non-traded part of our business, that does not detract from our global deployment opportunity, and those assets will find their way into other funds and therefore will not have an impact on our profitability. Insurance is something slightly different. It is important to talk about it separately because 90% plus of insurance companies’ balance sheets are investment-grade rated and high-grade. It is exciting to talk about the growth of the private high-grade market, but it is a different asset class in many respects from the traditional private credit and sub-investment-grade credit market. So when you think about the demand, you have to think about it in terms of not just the channels, Craig, but also high-grade versus sub-investment-grade. If you look at our 20 billion dollars of capital raised in our credit strategies in the quarter, I think it is indicative of what is happening in the market. We raised 20 billion dollars of capital in our credit strategies in the quarter, 5 billion dollars of which was in wealth. If you break down that 5 billion dollars in wealth further, 3 billion dollars was in our two U.S. Direct Lending funds, and about 2 billion dollars was in our European Direct Lending fund and our Sports, Media and Entertainment fund, which we would characterize as a quasi-private-credit product. Those two—Europe and SME—are actually enjoying very strong gross and net inflows as well despite the noise in U.S. Private Credit. As I referenced on the call, we are seeing our third vintage of the Opportunistic Credit fund, ASOF, hit its hard cap; we are seeing our third vintage of our ABF fund hit its hard cap and be meaningfully oversubscribed; and we talked about the early momentum that we see in the next senior direct lending vintage. Everything we are seeing on the ground is that the institutional investor is not anxious, they are not allocating away from private credit, and in fact, they are looking at this as a huge opportunity to take advantage of a dislocation and bring liquidity into the market to capture excess return. Thanks for the question. Operator: Thank you. We will go next to Alexander Blostein with Goldman Sachs. Alexander Blostein: Hey, Mike. Good morning, everybody. I was hoping we could dig a bit more into your comments around the deployment pipelines. You made a point that they are currently at a record in the Credit business. Can you expand on which parts of the Credit business you have seen the biggest incremental pickup in deployment opportunities, how the market has evolved in the last several months, especially considering that the non-traded BDCs and the evergreen vehicles for the most part have been the incremental buyer in the last few years, and how that might change the market structure and the spreads you currently see available in the States? Michael J. Arougheti: Thanks for the question, Alex. I would just comment that I do not know that they are the incremental buyer. If you look at the market structure, whether you include certain portions of high-grade private credit or not, you will see that the non-traded BDCs in aggregate—AUM, not new flows—are somewhere between 15%–20% of the overall private credit market. Because they do not operate with a significant amount of dry powder, when you look at the net flows into non-traded BDCs relative to aggregate dry powder in the institutional market, I do not think they were the incremental buyer. That goes back to our point earlier about the deployment opportunity this creates. In terms of the pipelines, the diversification of the platform really shines through in the quarter. We saw really strong deployment in our Infrastructure and Real Estate businesses; our European Direct Lending business had very strong deployment; Secondaries and Structured Solutions were very strong; ABF saw a little bit of a slowdown in the U.S. Direct Lending part of the business. I think that slowdown is more about what is happening in middle market M&A and the private equity market as they digest the war in Iran and the implications for inflation and the rate backdrop. But, as was said on the ARCC call, over the last number of weeks we have seen people pick their pencils back up and the pipeline has re-engaged. As we saw last year, there is a strong possibility that deployment will pick up in that part of the market pretty aggressively as we head into the back half of the year. It has been broad-based, which is part of the value of having the global diversification that we have. If there was one theme that I would point out that is accelerating, it is liquidity-generated opportunity—there are a lot of companies in the public and private markets that, because of the rate environment or flows, are going to need to seek creative liquidity solutions through opportunistic credit, secondaries and even direct lending and recap solutions that I think are going to drive significant deployment. We are excited about the setup, and pretty much every investment team is incredibly active right now. Operator: We will go next to Steven Chubak with Wolfe Research. Steven Chubak: Hi, good morning and thanks for taking my question. I wanted to double click into some of the comments on retail. While non-traded BDC flows have come under pressure, flows in other products you alluded to, Mike—such as infrastructure and secondaries—have been much more resilient, and some of the flows are even beginning to accelerate. What are you hearing from advisers and gatekeepers as it relates to retail appetite for strategies outside of credit? And given the fundraising pressures on the private credit side, do you still see a credible path to hitting the recently revised 2028 fundraising target of 125 billion dollars? Michael J. Arougheti: Thanks for the question. Zooming out, it is important to appreciate that development in the wealth channel is about investor access and bringing differentiated solutions to a part of the market that heretofore did not have the opportunity to invest. The large wealth platforms and large RIA and advisory platforms would tell you that their clients are meaningfully underinvested in the types of solutions that we and others like us are offering—around differentiated equity exposure, differentiated yield exposure, and tax-advantaged access to real assets. There is a major secular trend at play that will overwhelm, in my opinion, whatever periodic noise we see—whether it was the periodic noise we had in real estate a couple of years ago or the periodic noise we are seeing now in U.S. Direct Lending. As I mentioned in the prepared remarks, we have eight products in the channel—you could maybe add two more because we have two 1031 exchange platforms—that continue to see demand pull-through. While the U.S. Private Credit funds are seeing slowing demand, we are seeing increasing demand elsewhere because of the secular momentum I talked about. I would also remind people, because we put this out when we talked about our redemptions, if you look at our non-traded BDC, which is generating top-market performance, and see where redemptions were coming from, it was smaller family offices and some smaller institutions in non-U.S. regions. It was not what I would call the well-advised high net worth investor that tends to be the consumer of this product. From another angle, 95% of our investor base in the BDC did not want to redeem, and that was in addition to meaningful inflows in the period. I am not sure the redemption narrative is right, because it is not a broad-based repudiation of alts in the wealth channel. It seems to be something different. The adviser community—we spend a lot of time on education and support with individual advisers and their investors—and that is why you are not seeing broad-based requests for redemptions. It tends to be more isolated. On the 125 billion dollars, yes, we have not changed our guidance. Operator: We will go next to Patrick Davitt with Autonomous Research. Patrick Davitt: Good morning, everyone. I hear the more constructive direct lending pipeline commentary, but you cannot really see that in the hard numbers that have been put out there yet. Can you put a bit more meat around how that shadow pipeline compares to historical periods and when you think it could start converting into real announcements? Michael J. Arougheti: There is a lag, obviously. The deals that we are closing now have been in process with visibility for months. As you would expect, we have a top-down view of all of the transaction flow that is working its way through the business, including the Direct Lending business. The aggregate pipeline across the firm is at a record level, and the Direct Lending pipeline is increasing in momentum. We would hope that pulls through. A lot of times when you see things like the conflict in Iran, you get a pause as everybody evaluates, and then once people understand what we are working with, the pipeline will pick up. The longer-term catalysts are still in place—you have a significant amount of private equity invested that is aging and needs resolution through a sale transaction, refinancing or other capital structure solutions; you have an administration that is pro-business and a regulatory backdrop that is pro-M&A; and with rates stabilized, even if they are not coming down as the market anticipated a few months ago, a stable rate backdrop should be constructive for transaction activity. Last year, with the tariffs in April, you saw a similar pause—meaningful pipeline build through January–February, tariffs hit, pause, then reacceleration and it turned out to be a record deployment year. I cannot guarantee that is the case, but you do see these periodic pauses. The catalysts are intact, and the weight of money that needs to get resolved is going to drive people to the deal table. Operator: We will go next to William Raymond Katz with TD Cowen. William Raymond Katz: Thank you very much for taking the questions. Maybe one for Jarrod. On the realization side, Q1 came out a little lighter than many of us anticipated. It sounds like there is momentum not only for you but the industry at large. Can you give us a general sense of how you are thinking about the year playing through? And second, given the momentum on the FRE margins for this year, how should we think about 2027 given the significant scaling across the platform? Jarrod Morgan Phillips: Thanks, Bill. On realizations, it is similar to what Mike said. The more active the transactional backdrop, the more ability you have to pull realizations forward; the less active, you may have some extended durations. The nice thing about our European waterfalls that we have talked about in the past is they are predominantly from our credit funds. That means if the duration is extended, you are continuing to earn interest back on those, which increases your accrued balance to be recaptured later as part of the European waterfall. We just put out an 8-K when we were explaining what we thought would happen for this quarter and reiterated the same guidance we had provided for the year. Looking into next year, there is really no change there. The hardest thing for us is to peg the exact quarter, because we do not control whether a deal is refinanced or whether transaction activity results in a lot of deal turnover. The good thing is, because of the nature of these assets, you are not dependent on a market price coming to fruition through a transaction. That is one of our favorite parts about the waterfall. We are excited to have our first harvest from our first U.S. senior direct lending fund here in the first quarter. In terms of margin, we give that 0 to 150 basis points guidance on purpose as we get closer to the year. Our business is built so that as we deploy, it creates natural scale. But we do not want to take away from investment opportunity to do something like invest in the data center business, which we knew would be FRE-negative for a period of time until we launched a fund; then it will be very accretive to the firm overall and margin accretive. We want to keep flexibility for those opportunities. We expect to be well within that 0 to 150 basis points guidance and will look at opportunities through the current volatility and into the back half of the year. Operator: Thank you. We will go next to Analyst with RBC Capital Markets. Analyst: Great. Thanks and good morning everyone. Wanted to ask about the secondaries market opportunity. It sounds like we are seeing an acceleration this year versus last, and you have secondaries across four asset classes, so it is pretty built out. Can you give us an update on what you are seeing on the ground with regards to the secondary opportunity accelerating? Michael J. Arougheti: Sure. I will give context. We came into the secondaries business in earnest through the acquisition of Landmark almost six years ago. The thesis was that transformation was happening along three axes. One, a shift from LP-led to GP-led—not just sale of portfolios by LPs, but GPs using the secondary market for creative liquidity solutions, everything from NAV loans to GP prefs to minority stake sales. That evolution was going to transform the industry. Two, the installed base or primary market for other parts of the alternatives landscape—real estate, infrastructure and credit—was growing to a level that would require more robust secondary solutions. Three, we were beginning to see growth in wealth and retail that wanted to access more diversified broad-based private equity exposures than we could deliver from our core buyout business. We made that acquisition, launched into the wealth channel, scaled the product set to attack the GP-led market, and pioneered the credit secondaries business, which we have grown into a meaningful growth engine for the firm. The reason for that context is because that is exactly what is happening. Primary markets have grown and evolved; LPs and GPs alike are looking for creative liquidity; the GP-led part of the market represents half, if not more, of the current deployment opportunity and is here to stay. The combination of those trends is why you are seeing so much opportunity. Most interestingly, if you look at annual deployment in secondaries against industry dry powder, it is about a 1:1 relationship, which probably makes it the least well-capitalized segment of the alternative asset space. We like that because you tend to generate excess return where there is a supply-demand imbalance. Not only is the market opportunity growing, but fundraising has not kept pace with demand, which is one reason we are scaling nicely. Operator: We will go next to Kenneth Brooks Worthington with JPMorgan. Kenneth Brooks Worthington: Hi, good morning. Can you talk about the deployment opportunity for direct lending in Europe? I know the M&A backdrop is a little different there than in the U.S., but you have a record-size fund. What are you seeing there? Michael J. Arougheti: Europe has many of the same dynamics as the U.S. We have fully developed businesses in Credit across Europe—opportunistic, direct lending, real estate, infrastructure and more. Deployment there has been quite robust. I was pleasantly surprised with deployment in Q1 in the European market. Going into this year, some may have expected slower transaction activity, but some of the geopolitical reorganization around the world has brought more attention to investing in the Eurozone. The market opportunity is probably better than we would have expected. If the first quarter is an indication, the European Direct Lending business is in a good spot. The benefit of diversification: last year Europe had a slower year than the U.S. as the U.S. accelerated in the back half; this quarter U.S. Direct Lending is a little slower and European Direct Lending surprised to the upside. Looking top-down across the credit business, we are happy with the pace of deployment, and the pipelines in Europe are as healthy as they are here. Operator: We will go next to Michael Brown with UBS. Michael Brown: Hey, good morning—almost good afternoon. Mike, a question on software. You emphasized low LTV, near-zero non-accruals, and talked about this on the ARCC call, but much of this is a bit backward looking. Can you give color on the forward look, how you stress test the portfolio, what you see in underlying fundamentals that give you confidence that these companies will continue to operate successfully? And how are you approaching software now—leaning in or leaning back within direct lending? Any interesting opportunities in credit ops or even secondaries? Michael J. Arougheti: The most important thing is that, at least in terms of our exposure, the software portfolio is incredibly well diversified in terms of number of names; it is sponsor-backed; and it sits at roughly a 40% loan-to-value. If you look at ARCC’s current quarter as a proxy, you will see that we marked down the equity value within the software portfolio commensurate with broader markets, so the LTV in portfolio actually went up slightly. But when you are sitting at the top of the capital structure at 40% with 60% equity value below you, you have to eat through all of that equity before taking losses in your credit book. That is the most significant mitigant to loss as this plays out. The weighted average remaining maturity in our software portfolio—probably similar to the general market—is about three years, which means there will be a moment over the next couple of years where owners and lenders evaluate where each company sits, how disrupted it has been, whether it will benefit into the future, and how it gets resolved—transfer of ownership, a debt paydown, a debt repricing, etc. This will play out slowly over time. In our book now, contractual revenues are actually growing, and we are seeing EBITDA growth in the 10% range, reflecting new customer adds. As you add customers, contract length is probably outside the maturity date, so in many businesses the financial picture will not erode even if there is a view that the business model needs to adapt. We are very confident in the quality of the software book. We think we are getting well paid for the risk. As new software deals come in, there are deals getting done because people understand there are competitive moats and you can get paid incremental return because of anxiety around software. We are also using the opportunity to exit some names where we have less conviction. One reason you saw the gross-to-net number that you did in the direct lending portfolio this quarter is we took the opportunity to get out of a couple of names where we had less confidence. To oversimplify: as CEO of Ares Management Corporation, we have over 500 core systems that run our company—financial systems, cybersecurity, order and trade management systems. We are not ripping those systems out. We are putting an AI layer in to get the most efficient output from those systems and the data that sits within them. Those system providers are using AI to deliver a better product to us. Personalize it: you are probably not ripping Excel out of your computer—you are using AI to supplement a core system. Many AI opportunities will enhance rather than displace core systems. Those are the types of things we have focused on investing in. Operator: We will go next to Benjamin Elliot Budish with Barclays. Benjamin Elliot Budish: Hi. Good afternoon, and thanks for taking the question. Maybe another one for Jarrod. Typically, you give a few more guidance tidbits. Is there anything you can share around expectations for the European-style realization revenues for the year, G&A growth, and any help with expectations for FRPR? I know FRPR is a Q4 thing, but anything else to fine tune would be helpful. It sounds like margin expansion may be a bit predicated on cadence of deployment quarter to quarter, but anything else helpful? Jarrod Morgan Phillips: Thanks, Ben. I feel like I covered most of the main ones we normally give through Investor Day, etc. On G&A, that is encompassed within the margin guidance. One thing to highlight—Mike mentioned it earlier—we had an amazing AGM with over 1,100 attendees. Normally we have AGMs throughout the year. In terms of G&A, you will probably see a bit more of an increase next quarter, but that means we have that travel and AGM expense for the different strategies largely out of the third and fourth quarters. There will be a little imbalance in the trend. You can look back to 2024 as a similar time. It will be somewhere in the high single digits to low double digits type of increase in G&A for the travel and related expense. Otherwise, everything is pretty well in line with guidance we have given prior. As Mike said in prepared remarks, we feel well positioned in the current market with the breadth of the platform—there are a lot of things that are extremely active right now that will help drive us toward those goals. Operator: We will go next to Brennan Hawken with BMO Capital Markets. Mr. Hawken, your line is open. Brennan Hawken: Yes, I was—sorry about that. Mike, you spoke to credit selection impacting recent gross-to-net trends. Based on your expectations today, where do you see those trends shifting and what primary factors are going to drive that? Michael J. Arougheti: I do not think we are changing anything in the playbook, Brennan. If you look at the history of our direct lending business—we have been doing this for over 30 years, over 20 here—the model is the same: originate the broadest possible funnel and apply rigorous diligence and portfolio management to drive return. Two hallmarks of our outperformance may be underappreciated. One is our selectivity rate. In private credit portfolios across the board, we typically have a yes rate of about 5%, meaning we only do 5% of the deals we see. That is a function of high conviction on the types of things we like to invest in and those we do not. Second, in core direct lending, roughly half of deployment tends to come from incumbent relationships within the portfolio, which makes for much easier, high-conviction underwriting—companies we have lived with for years, deep relationships with management, understanding risks and opportunities, and observed performance. Those two—low selectivity and the compounding effect of incumbent relationships—are reasons for our performance. If you look at loss rates across private credit, they have all been trending close to zero. That is not by accident. We are not doing anything different now. You are probably a little more selective given market anxieties and keeping liquidity a little drier because we are heading into a spread-widening environment where we will get better economics next month than this month. That is probably driving some of it. But core underwriting tenets and how we think about outperformance have not changed. Operator: We will go next to Brian J. Mckenna with Citizens. Brian J. Mckenna: Thanks for squeezing me in. In the past, you have talked about the benefits of managing flexible pools of capital across the public and private markets. Given the first quarter volatility, did you take advantage of any dislocation across your funds? And can you remind us why having this type of AUM base is so important in delivering outperformance for your clients through cycles? Michael J. Arougheti: That is another hallmark of how we set the business up. Beyond diversification and access points, within individual fund strategies we also have flexible mandates. Our Opportunistic Credit business—where we just had that meaningful ~10 billion dollar capital raise—is a pool that can invest private and public. The closing is coming at an opportune moment as there are dislocations beginning to form in both markets. Having the ability to look at relative value in both and drive to the better risk-adjusted return is good for performance. It is not just public vs. private; it could be senior vs. junior or debt vs. equity. You are constantly looking at relative value across markets, geographies and capital structure. If you are a single-asset, single-point-in-the-capital-structure investor, everything you look at will be squeezed into that framework, which means in certain parts of the cycle you will misprice risk. We have developed with high conviction around flexibility in asset class, position and market, which has created an investment culture around relative value and risk-adjusted return that is pretty unique. Specifically to your question—yes, in parts of the public and traded credit markets, there are increasing opportunities to pivot, and I would not be surprised if we see that pick up in the next couple of months. Operator: We will go next to Analyst with Raymond James. Analyst: Hey, good afternoon. Could you go into a bit more detail on your data center business? Do you have data center AUM outside the Digital Infrastructure business? And what do you think the total market size could be for data centers in the intermediate term? Unknown Speaker: I will take that one. We have been investing in the digital space broadly for the past 10 to 15 years—everything from towers to networks to data centers—across several areas within the firm, including Real Estate, Infrastructure, Asset-Backed, as well as our Direct Lending business and Secondaries in both Real Estate and Infrastructure. This has been a longstanding investment focus for us, with over 10 billion dollars invested historically in the space. One exciting development with the GCP acquisition last year was adding the Ada digital development capability that Mike mentioned, which came with a very attractive seed portfolio for which we raised about 2.5 billion dollars last summer for initial assets in Japan, and we are currently going out with a broader fundraise to address not only the seed assets but the significant pipeline behind it. So yes, we have data center exposure elsewhere, but adding this development capability is very powerful for our future. In terms of market size, it is absolutely massive—a multi-trillion dollar market opportunity. Some of that will be in the domain of the hyperscalers themselves; however, we have sized the third-party market at around 900 billion dollars. When you look at the supply-demand imbalance in terms of capital being raised to address it, it is meaningful. We are really excited about the market opportunity ahead, and the interest in what we are doing is very strong. Michael J. Arougheti: I would add one overlay. When you are talking about data centers, it is not just data centers—it is GPUs, power and energy. We are also one of the leaders in the renewable energy and energy transition space, and you saw what we were able to do with our X-energy IPO. The digital infrastructure opportunity is pulling together all of these teams at scale to address the market opportunity. We also have a large infrastructure debt business and are one of the larger lenders to other platforms and portfolios in the institutional market. Operator: We will go next to Analyst with Jefferies. Analyst: Thanks. I wanted to follow up on your comments around the strength in institutional market demand. Is there any differentiation among that subset—Middle East or sovereign wealth—given global dynamics, or is it truly broad-based? Michael J. Arougheti: It is pretty broad-based. We are not seeing major shifts by geography or by channel. Consistent with what I said earlier, there is a consolidation theme—larger institutions doing more with fewer GP partners—so the larger platforms are net beneficiaries. When you look at gross dollars raised in the market, you are likely to see a disproportionate share going to the larger incumbent platforms in many asset classes we play in. That is the predominant takeaway. It is also important, as we talk about diversification, that you have businesses in all regions—Europe, U.S., Middle East, Asia—because from time to time those investors want to increase allocation in their home region. Being able to meet them there, not just on the fundraising side but also on the investment side, is increasingly important. Operator: Thank you. That is all the time we have for questions today. If you missed any part of today’s call, an archived replay of the conference will be available through June 1, 2026, to domestic callers by dialing 302-393 and to international callers by dialing +1 (402) 220-7206. An archived replay will also be available on the webcast link located on the homepage of the Investor Resources section of our website. Again, thanks so much for joining us, and we wish you all a great day. Goodbye. Michael J. Arougheti: Goodbye.