Ares Management : European-style Waterfall Funds and Performance Income Teach-in

European-style Waterfall Funds and Performance Income Teach-in

Jarrod Phillips

Chief Financial Officer

Disclaimer

The information contained in this presentation is summary information that is intended to be considered in the context of Ares Management Corporation (NYSE: ARES) ("Ares") filings with the Securities and Exchange Commission ("SEC") and other public announcements that Ares may make, by press release or otherwise, from time to time. These materials contain information about Ares, its affiliated funds and certain of their respective personnel and affiliates, information about their respective historical performance and general information about the market. You should not view information related to the past performance of Ares and its affiliated funds or information about the market, as indicative of future results, the achievement of which cannot be assured. Certain Ares Funds may be offered through our affiliate, Ares Management Capital Markets LLC ("AMCM"), a broker-dealer registered with the SEC, and a member of FINRA and SIPC. Any discussion of specific Ares entities is provided solely to demonstrate such entities' role within the Ares organization and their contribution to the business, operations and financial results of Ares. This presentation does not constitute, and shall not be construed as, an offer to buy or sell, or the solicitation of an offer to buy or sell, any securities, investment funds, vehicles or accounts, investment advice, or any other service by Ares of any of its affiliates or subsidiaries. Any offer or solicitation with respect to any securities that may be issued by Ares will be made only by means of definitive offering memoranda or prospectus, which will be provided to prospective investors and will contain material information that is not set forth herein, including risk factors relating to any such investment.

Nothing in these materials should be construed as a recommendation to invest in any securities that may be issued by Ares or as legal, accounting or tax advice. None of Ares, its affiliated funds or any affiliate of Ares or its affiliated funds makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and nothing contained herein shall be relied upon as a promise or representation whether as to the past or future performance. Certain information set forth herein includes estimates, projections and targets and involves significant elements of subjective judgment and analysis. Further, such information, unless otherwise stated, is before giving effect to management and incentive fees and deductions for taxes. No representations are made as to the accuracy of such estimates, projections or targets or that all assumptions relating to such estimates, projections or targets have been considered or stated or that such estimates, projections or targets will be realized.

This presentation contains "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, that are subject to risks and uncertainties. Forward-looking statements can be identified by the use of forward-looking words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates," "foresees" or negative versions of those words, other comparable words or other statements that do not relate to historical or factual matters. Actual outcomes and results could differ materially from those suggested by this presentation due to the impact of many factors beyond the control of Ares, as well as those described in the "Risk Factors" section of our filings with the SEC. These factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in our periodic filings. Any such forward-looking statements are made pursuant to the safe harbor provisions available under applicable securities laws and speak only as of the date of this presentation. Ares assumes no obligation to update or revise any such forward-looking statements except as required by law.

An investment in Ares will be discrete from an investment in any funds or other investment programs managed by Ares and the results or performance of such other investment programs is not indicative of the results or performance that will be achieved by Ares or such investment programs. Moreover, neither the realized returns nor the unrealized values attributable to one Ares fund are directly applicable to an investment in any other Ares fund. An investment in Ares may be volatile and can suffer from adverse or unexpected market moves or other adverse events. Investors may suffer the loss of their entire investment.

Management uses certain non-GAAP financial performance measures to evaluate Ares' performance and that of its business segments. Management believes that these measures provide investors with a greater understanding of Ares' business and that investors should review the same supplemental non-GAAP financial measures that management uses to analyze Ares' performance. The measures described herein represent those non-GAAP measures used by management, in each case, before giving effect to the consolidation of certain funds that Ares consolidates with its results in accordance with GAAP. These measures should be considered in addition to, and not in lieu of, Ares' financial statements prepared in accordance with GAAP. Amounts and percentages may reflect rounding adjustments and consequently totals may not appear to sum.

Some funds managed by Ares or its affiliates may be unregistered private investment partnerships, funds or pools that may invest and trade in many different markets, strategies and instruments and are not subject to the same regulatory requirements as mutual funds, including mutual fund requirements to provide certain periodic and standardized pricing and valuation information to investors. Fees vary and may potentially be high. In addition, in light of the various investment strategies of such other investment partnerships, funds and/or pools, it is noted that such other investment programs may have portfolio investments inconsistent with those of the strategy or investment vehicle proposed herein.

Certain historical amounts within this presentation were prepared to conform with our accounting policies that were implemented in each of the respective historical years. Therefore, historical amounts may be prepared under different accounting policies than currently implemented.

The statements contained in this presentation are made as of December 31, 2022, unless another time is specified in relation to them, and access to this presentation at any given time shall not give rise to any interpretation that there has been no change in the facts set forth in this presentation since that date.

Note: For Additional Important Disclosure Information, please refer to the Footnotes in this presentation.

REF: AM-02183

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Introduction

• Due to its high proportion of credit-oriented funds,1 Ares has a significant and growing amount of European-style waterfall funds ("EU-style,European-style or European"). These funds pay performance income, if earned, after all contributed capital and a preferred rate on such contributed capital is returned to investors
• Ares saw a sharp increase in European-style waterfall funds in 2017-2018 and they now account for ~$53 billion and ~$100 billion of Ares' Incentive Generating Assets Under Management ("IGAUM") and Incentive Eligible Assets Under Management ("IEAUM"), respectively, as of the end of 2022
• The majority of European-style waterfall funds at Ares are in credit strategies, but they also include other private debt, real assets and equity funds across our other groups
• Approximately 90% of Ares' invested European-style AUM is currently incentive generating2
• Ares' Realized Income does not account for the future earnings potential from the growth in these European-style waterfall funds

This presentation will provide additional visibility and clarity around the potential growth of Ares' European-style

funds and their potential for future realized net performance income

1. Note that "Credit Oriented Funds" includes all strategies within our Credit Group and other strategies that invest primarily in debt securities such as Special Opportunities (ASOF) and related funds within our Private Equity Group, Ares SSG credit strategies within our Strategic Initiatives Group and Infrastructure Debt (IDF V) and Real Estate Enhanced Income (AREEIF) within our Real Assets Group.
2. There is no guarantee that such activities will continue to occur at this level or at all.

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European-style Funds are Increasing Within Our AUM and Net Accrued Performance Income

Over the past five years, we have been building a long-term pipeline of future earnings from European-style funds

Net Accrued Performance Income1

($ in millions)

$824

Growth of Incentive Eligible AUM

($ in billions)

$100 European

65%

+53% CAGR

$234 42%

European

$74 FRPR/Other2

	+21%	35%
58%	CAGR

20182022

American
$30									$30 American
		$26
		$22
		2018	2019	2020	2021	2022
					American		European				FRPR/Other

As of December 31, 2022. There can be no guarantee that Ares can or will sustain such growth. Please refer to page 5 for additional details on European and American-style waterfall funds.

1. Certain funds totaling $13.5 billion in IEAUM (SDL I, SDL II and various Credit funds) generate incentive fees in a manner more akin to an EU-style waterfall than an American-style and do not generate performance income until after all contributed capital and a preferred rate on such contributed capital is returned to investors.
2. These are Perpetual Capital funds that are eligible for Fee Related Performance Revenues ("FRPR"). Please see definitions in Ares' Q4-22 Earnings Presentation. "Other" funds relates to funds that generate incentive fees, generally on an annual basis, that do not meet the definition of FRPR, American- or European-style carried interest.

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European vs. American-style Waterfall Fund Distributions

American-style

European-style

• Investment-by-Investmentwaterfall
• Generally used for private equity style funds
• If the fund is above its preferred return, managers may receive carried interest as each investment is realized, so long as that particular investment returns the contributed capital + associated preferred rate related to such investment
• Monetizations are often driven by M&A activity and can be more volatile based on market trends
• Realized loss carry forward or interim or end of fund clawback if early investment or subsequent investments underperform, respectively

• Fund level waterfall
• Managers may only receive carried interest once 100% of contributions + the preferred rate is returned to investors. Distributions to cover tax obligations may be made earlier
• Generally, more LP friendly as investors receive their contributed capital plus preferred return before GPs receive carry
• Historically used for credit and European-domiciled funds, but becoming more common across other funds
• As credit funds typically generate consistent cash flows and have maturity dates on loans, the timing and amounts are more predictable

Represents generic attributes of American and European-style waterfall carry funds. Specific terms related to fund performance calculations may be different for each fund agreement.

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