Ares Management (ARES) 10-K risk factor changes: FY2018 vs FY2017

| • | potential variability in our period to period earnings due primarily to mark‑to‑market valuations of our funds’ investments. As a result of this variability, the market price of [added: shares of] our [added: Class A] common [removed: shares] [added: stock] may be volatile and subject to fluctuations; the increasing demands of the investing community, including the potential for fee compression and changes to other terms, which could materially adversely affect our revenues; and |

Difficult market and political conditions may adversely affect our businesses in many ways, including by reducing the value or hampering the performance of the investments made by our funds or reducing the ability of our funds to raise or deploy capital, each of which could materially reduce our revenue, [removed: net income] [added: earnings] and cash flow and adversely affect our financial prospects and condition.

Our businesses are materially affected by conditions in the global financial markets and economic and political conditions throughout the world, such as interest rates, the availability and cost of credit, inflation rates, economic uncertainty, changes in laws (including laws relating to our taxation, taxation of our investors and the possibility of changes to regulations applicable to alternative asset managers), trade [removed: barriers,] [added: policies,] commodity prices, currency exchange rates and controls and national and international political circumstances (including [removed: wars,] [added: wars and other forms of conflict,] terrorist acts and security operations).

For example, the [removed: decision of the People’s Bank of China in January 2016 to reduce the foreign exchange value of the renminbi and subsequent slowdown in China’s industrial sector, the] June 2016 referendum in the UK in favor of exiting the EU and subsequent [added: ongoing] uncertainty regarding the timing and terms of the exit, [added: increased tensions with North Korea over its ballistic missile testing and nuclear program, uncertainty regarding U.S. recertification of] the [added: Iran nuclear framework, the] 2016 U.S. presidential and [added: 2016 and 2018] congressional [removed: election] [added: elections] and resulting [removed: uncertainty] [added: uncertainties] regarding [added: actual and] potential shifts in U.S. and foreign, trade, economic and other policies, and, more recently, concerns over increasing interest rates (particularly short-term rates) and uncertainty regarding the short- and long-term effects of tax reform in the United States, have precipitated market volatility.

As a result, although global economies experienced widespread growth in [removed: 2017,] [added: 2018,] there is a high risk of significant ongoing volatility.

Moreover, there is a risk of both sector-specific and [removed: broad based] [added: broad-based] corrections and/or downturns in the equity and credit markets.

For example, in February [added: 2018 and again in the fourth quarter of] 2018, global equity markets experienced a widespread sell-off, and bonds have also declined in value.

[added: Any of the foregoing could] have a significant impact on the markets in which we operate and a material adverse impact on our business prospects and financial condition.

Further, the transition of leadership following the 2016 U.S. presidential and [added: 2016 and 2018] congressional elections, the current U.S. political environment and the resulting uncertainties regarding actual and potential shifts in U.S. foreign, trade, economic and other policies under the [removed: new] [added: current] administration have led to further disruption, instability and volatility in the global markets.

In addition, following a sustained period of historically low interest rate levels, the Federal Reserve has raised the federal funds rate on multiple occasions since December [removed: 2015.][added: 2015, including on three separate occasions in 2018.]

Furthermore, some of the provisions under the [removed: newly enacted] [added: 2017] tax law [added: amendments] in the United States, Public Law No. 115-97 (the “Tax Cuts and Jobs Act”) could have a negative impact on the cost of financing and dampen the attractiveness of credit.

These and other conditions in the global financial markets and the global economy have resulted in, and may continue to result in, adverse consequences for us and many of our funds, each of which could adversely affect the business of such funds, restrict such funds’ investment activities, impede such funds’ ability to effectively achieve their investment objectives and result [removed: in lower returns than we anticipated at the time certain of our investments were made.]

| • | illiquidity in the market, which could adversely affect transaction volumes and the pace of realization of our funds’ investments or otherwise restrict the ability of our funds to realize value from their investments, thereby adversely affecting our ability to generate [removed: incentive] [added: performance] or other income; |

We may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, the CFTC or other U.S. governmental regulatory authorities or [removed: self-][added: self-regulatory organizations that supervise the financial markets.]

In the United Kingdom, the UK Criminal Finances Act 2017 [removed: creates] [added: created] two new separate corporate criminal [removed: offences:] [added: offenses:] failure to prevent facilitation of UK tax evasion and failure to prevent facilitation of overseas tax evasion.

The scope of the [removed: new] law and guidance is extremely wide and could have an impact on Ares’ global businesses.

Separately, the United Kingdom has implemented transparency legislation that [removed: will require] [added: requires] many large businesses to publish their UK tax strategies on their websites.

As part of the publication requirement, organizations must disclose information on tax risk management and governance, tax planning, tax risk appetite and their approach to [added: dealing with] Her Majesty’s Revenue and Customs.

These developments show that the United Kingdom is seeking to bring [removed: corporate] tax matters further into the public domain.

The OECD, which represents a coalition of member countries, has issued [removed: guidance] [added: recommendations] through its Base Erosion and Profit Shifting (“BEPS”) project that [removed: contemplates] [added: contemplate] changes to long standing international tax norms that determine each country’s jurisdiction to tax cross-border trade and profits.

[removed: In June 2017, almost 70 countries (excluding the United States) formally signed the] [added: The OECD’s] Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (the [removed: “Convention”).][added: “Convention”), which has been signed by over 80 countries (excluding the United States), came into effect on July 1, 2018.]

Whether these or other proposals will be enacted by the United States or any foreign jurisdiction and in what form is [added: in many cases still] unknown, as are the ultimate consequences of any such proposed legislation.

[removed: Newly enacted laws, such as] [added: The] Tax Cuts and Jobs [removed: Act,] [added: Act and other recently enacted laws] or regulations and future changes in the U.S. taxation of businesses may impact our effective tax rate or may adversely affect our business, financial condition and operating results.

We cannot predict how the changes in the Tax Cuts and Jobs Act, regulations, [added: technical corrections] or other guidance issued under it or conforming or non-conforming state tax rules might affect us or our business.

Investors may downsize their investment allocations to alternative asset [removed: managers, including private funds and hedge funds,] [added: managers] to rebalance a disproportionate weighting of their overall investment portfolio among asset classes.

Furthermore, while our senior [removed: professional owners] [added: professionals] have committed substantial capital to our funds, commitments from new investors may depend on the commitments made by our senior [removed: professional owners] [added: professionals] to new funds and there can be no assurance that there will be further commitments to our funds, and any future investments by them in our funds or other alternative investment categories will likely depend on the performance of our funds, the performance of their overall investment portfolios and other investment opportunities available to them.

The departure or bad acts [removed: for any reason] of any of our senior professionals, or a significant number of our other investment professionals, could have a material adverse effect on our ability to achieve our investment objectives, cause certain of our investors to withdraw capital they invest with us or elect not to commit additional capital to our funds or otherwise have a material adverse effect on our business and our prospects.

Our efforts to retain and attract investment professionals may also result in significant additional expenses, which could adversely affect our profitability or result in an increase in the portion of our performance [removed: fees] [added: income] that we grant to our investment professionals.

In the year ended December 31, [removed: 2017,] [added: 2018,] we incurred equity compensation expenses of [removed: $69.7] [added: $89.7] million, and we expect these costs to continue to increase in the future as we increase the use of equity compensation awards to attract, retain and compensate employees.

We may also cause different Private Equity Group funds to invest in a single portfolio company, for [removed: example] [added: example,] where the fund that made an initial investment no longer has capital available to invest.

[removed: On January 18, 2017,] ARCC [removed: received an order from the SEC that permits ARCC] and other business development companies and registered closed-end management investment companies managed by a subsidiary of us [added: are permitted] to co-invest in portfolio companies with each other and with affiliated investment funds [added: pursuant to an SEC order] (the “Co-investment Exemptive Order”).

While we have developed general guidelines regarding when two or more funds can invest in different parts of the same company’s capital structure and created a process that we employ to handle such conflicts if they arise, [added: our decision to permit the investments to occur in the first instance or our judgment on how to minimize the conflict could be challenged.]

We compete with a number of private equity funds, specialized funds, hedge funds, corporate buyers, traditional asset managers, real estate development companies, commercial banks, investment banks, other investment managers and other financial institutions, as well as [added: domestic and international pension funds and] sovereign wealth [removed: funds.][added: funds, and we expect that competition will continue to increase.]

[added: Moreover, if we are forced to compete with other investment] managers on the basis of price when fundraising, we may not be able to maintain our current fund fee and carried interest terms.

Poor performance of our funds would cause a decline in our revenue and results of operations, may obligate us to repay performance [removed: fees] [added: income] previously paid to us and could adversely affect our ability to raise capital for future funds.

| • | performance [removed: fees,] [added: income,] which are based on the performance of our funds; and |

As a result, our performance [removed: fees] [added: income] may be adversely affected and, all else being equal, the value of our assets under management could decrease, which may, in turn, reduce our management fees.

If a fund performs poorly, we will receive little or no performance [removed: fees] [added: income] with regard to the fund and little income or possibly losses from our own principal investment in such fund.

Furthermore, if, as a result of poor performance or otherwise, a fund does not achieve total investment returns that exceed a specified investment return threshold over the life of the fund or other measurement period, we may be obligated to repay the amount by which performance [removed: fees] [added: income] that were previously distributed or paid to us exceeds amounts to which we were entitled.

Poor performance of our publicly traded funds may result in stockholders selling their [removed: stock,] [added: stock in such vehicles,] thereby causing a decline in the stock price and limiting our ability to access capital.

| • | an investment in our Class A common stock is not an investment in our underlying funds. Moreover, valuation methodologies for certain assets can be subject to significant subjectivity, and the values of assets may never be realized. |

For example, recently expanded legislation would dramatically increase the scope and number of transactions that are subject to the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”).

If the proposal becomes law, CFIUS will have the authority to review and potentially block certain non-controlling investments in critical infrastructure and technology companies and other transactions, which may reduce the number of potential buyers and limit the ability of our funds to realize value from certain existing and future investments.

in lower returns than we anticipated at the time certain of our investments were made.

Our UK tax policy statement is published on our website.

A new mandatory automatic exchange of information regime has been implemented under EU Council Directive 2011/16/EU on administrative co-operation in the field of taxation (as amended, the “Directive on Administrative Co-operation” or the “DAC”).

The Directive on Administrative Co-operation took effect on June 25, 2018 and requires governments to obtain information in relation to reportable cross-border arrangements which meet one or more of the hallmarks contained within the Directive on Administrative Co-operation.

Although the Directive on Administrative Co-operation is stated as being aimed at “aggressive tax practices”, it is broadly drafted.

Under the Directive on Administrative Co-operation, certain information will automatically be exchanged among EU member states.

The Directive on Administrative Co-operation still needs to be enacted into law in each of the EU member states and the member states have until the end of 2019 to do this.

Furthermore, the U.S. Internal Revenue Service (the “IRS”) recently released proposed regulations implementing the anti-hybrid and the “base erosion and anti-abuse tax” (“BEAT”) provisions that were enacted as part of the Tax Cuts and Jobs Act.

We cannot predict how the changes in the Tax Cuts and Jobs Act, regulations, technical corrections or other guidance issued under it or conforming or non-conforming state tax rules might affect us or our business or the business of our portfolio companies.

In addition, certain investors have implemented or may implement restrictions against investing in certain types of asset classes, such as fossil fuels, which would affect our ability to raise new funds focused on those asset classes.

Furthermore, under the Tax Cuts and Jobs Act, investments must be held for more than three years, rather than the prior requirement of more than one year, for carried interest to be treated for U.S. federal income tax purposes as capital gain.

The longer holding period requirement may result in some or all of our carried interest being treated as ordinary income, which would materially increase the amount of taxes that our employees and other key personnel would be required to pay.

In addition, following the Tax Cuts and Jobs Act, the tax treatment of carried interest may continue to be an area of focus for policymakers and government officials, which could result in a further regulatory action by federal or state governments.

For example, certain states, including New York and California, have proposed legislation to levy additional state tax on carried interest.

Similarly, there have been changes in the United Kingdom with respect to the taxation of carried interest, including the treatment of certain carried interest returns as income, which became effective from April 6, 2016.

All of these changes may materially increase the amount of taxes that our employees and other key personnel would be required to pay and as a result may impact our ability to recruit, retain and motivate employees and key personnel in the relevant jurisdictions or may require us in certain circumstances to consider alternative or modified incentive arrangements for such employees or key personnel.

Further, we may allocate an investment opportunity that is appropriate for two or more investment funds in a manner that excludes one or more funds or results in a disproportionate allocation based on factors or criteria that we determine, such as sourcing of the transaction, specific nature of the investment, size and type of the investment, relative investment strategies and primary investment mandates, portfolio diversification concerns, contractual obligations, applicable investment limitations or guidelines and other terms of such funds, the relative amounts of capital available for investment in each fund, the duration of the investment period each fund, the nature and extent of involvement in the transaction on the part of the respective teams of investment professionals dedicated to the respective funds and other considerations deemed relevant by us.

In addition, conflicts of interest may exist in the valuation

of our investments and regarding decisions about the allocation of specific investment opportunities among us and our funds and the allocation of fees and costs among us, our funds and their portfolio companies.

Further, we may allocate an investment opportunity that is appropriate for two or more investment funds in a manner that excludes one or more funds or results in a disproportionate allocation based on factors or criteria that we determine, such as differences with respect to available capital, the size of a fund, minimum investment amounts and remaining life of a fund, differences in investment objectives or current investment strategies, such as objectives or strategies, differences in risk profile at the time an opportunity becomes available, the potential transaction and other costs of allocating an opportunity among various funds, potential conflicts of interest, including whether multiple funds have an existing investment in the security in question or the issuer of such security, the nature of the security or the transaction including the size of investment opportunity, minimum investment amounts and the source of the opportunity, current and anticipated market and general economic conditions, existing positions in an issuer/security, and prior positions in an issuer/security.

Conflicts of interest may arise in our allocation of co-investment opportunities.

As a general matter, our allocation of co-investment opportunities is entirely within our discretion and there can be no assurance that co-investments of any particular type or amount will be allocated to any of our funds or investors.

There can be no assurance that co-investments will become available and we will take into account a variety of factors and considerations we deem relevant in our sole discretion in allocating co-investment opportunities, including, without limitation, whether a potential co-investor has expressed an interest in evaluating co-investment opportunities, our assessment of a potential co-investor’s ability to invest an amount of capital that fits the needs of the co-investment and its history of participating in Ares co-investments, the size of the potential co-investor’s commitments to our funds, the length and nature of our relationship with the potential co-investor, including whether the potential co-investor has demonstrated a long-term and/or continuing commitment to the potential success of Ares or any of its funds, whether the co-investor is considered strategic to the co-investment, our assessment of a potential co-investor’s ability to commit to a co-investment opportunity within the required timeframe of the particular transaction, the economic and other terms of such co-investment (e.g., whether management fees and/or carried interest would be payable to us and the extent thereof), and such other factors and considerations that we deem relevant in our sole discretion under the circumstances.

Certain funds in different groups may invest alongside each other in the same security.

ARCC and other business development companies and registered closed-end management investment companies managed by a subsidiary of us are permitted to co-invest in portfolio companies with each other and with affiliated investment funds pursuant to the Co-investment Exemptive Order.

The different investment objectives or terms of such funds may result in a potential conflict of interest, including in connection with the allocation of investments between the funds made pursuant to the Co-investment Exemptive Order.

We, from time to time, incur fees, costs, and expenses on behalf of more than one fund.

To the extent such fees, costs, and expenses are incurred for the account or benefit of more than one fund, each such fund will typically bear an allocable portion of any such fees, costs, and expenses in proportion to the size of its investment in the activity or entity to which such expense relates (subject to the terms of each fund’s governing documents) or in such other manner as we considers fair and equitable under the circumstances such as the relative fund size or capital available to be invested by such funds.

Where a fund’s governing documents do not permit the payment of a particular expense, we will generally pay such fund’s allocable portion of such expense.

Potential conflicts will arise with respect to our decisions regarding how to allocate co-investment opportunities among our funds and investors and the terms of any such co-investments.

Our fund documents typically do not mandate specific allocations with respect to co-investments.

The investment advisers of our funds may have an incentive to provide co-investment opportunities to certain investors in lieu of others.

Co-investment arrangements may be structured through one or more of our investment vehicles, and in such circumstances, co-investors will generally bear the costs and expenses thereof (which may lead to conflicts of interest regarding the allocation of costs and expenses between such co-investors and investors in our other investment funds).

The terms of any such existing and future co-investment vehicles may differ materially, and in some instances may be more favorable to us, than the terms of certain of our funds or prior co-investment vehicles, and such different terms may create an incentive for us to allocate a greater or lesser percentage of an investment opportunity to such funds or such co-investment vehicles, as the case may

be.

Such incentives will from time to time give rise to conflicts of interest.

There can be no assurance that any conflicts of interest will be resolved in favor of any particular investment funds or investors (including any applicable co-investors).

| • | an investment in our shares is not an investment in our underlying funds. Moreover, there can be no assurance that projections respecting performance of our underlying funds or unrealized values will be achieved. |

Any of the foregoing could

The low price of oil increased default risk among borrowers that have exposure to the energy sector.

Short-term interest rates have risen by 90 to 120 basis points (bps) since the U.S. presidential election in November 2016, with 10 to 20 bps of such amount attributable to increases seen between January 1, 2018 and February 8, 2018.

regulatory organizations that supervise the financial markets.

our decision to permit the investments to occur in the first instance or our judgment on how to minimize the conflict could be challenged.

Moreover, if we are forced to compete with other investment

of the fees we receive from ARCC, including the base management fee and the ARCC Part I Fees, would also decline significantly and/or may be subject to deferral, which could have an adverse effect on our revenues and results of operations.

In September 2009, the Institutional Limited Partners Association (“ILPA”) published a set of Private Equity Principles (the “Principles”) which were revised in January 2011.

The Principles were developed to encourage discussion between limited partners and general partners regarding private equity fund partnership terms.

Specifically, the SEC staff

of CPOs.

The new rules became effective for end users on March 1, 2017.

The CFTC’s Division of Swap Dealer and Intermediary Oversight subsequently extended, until September 1, 2017 ,the time to comply with the variation margin requirements for swaps that are subject to a March 1, 2017 compliance date.

The effect of the regulations on us is not fully known at this time.

However, these rules may increase the cost of our activity in uncleared swaps and security-based swaps if we are determined to be a financial end user.

those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate federal regulator.

On June 8, 2017, the U.S. House of Representatives passed the Financial Choice Act, which includes legislation intended to repeal or replace substantial portions of the Dodd‑Frank Act.

Among other things, the proposed law would repeal the Volcker Rule limiting certain proprietary investment and trading activities by banks, eliminate the authority of regulators to designate asset managers and other large non‑bank institutions as “systemically important financial institutions” or “SIFIs,” and repeal the Department of Labor (“DOL”) “fiduciary rule” governing standards for dealing with retirement plans until the SEC issues standards for similar dealings by broker‑dealers and limiting the substance of any subsequent DOL rule to the SEC standards.

The bill was referred to the Senate, where it is unlikely to pass as proposed.

On November 16, 2017, a bipartisan group of U.S. Senators, led by Senate Banking Committee Chairman, introduced the Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Senate Regulatory Relief Bill”).

The Senate Regulatory Relief Bill would revise various post-crisis regulatory requirements and provide targeted regulatory relief to certain financial institutions.

Among the most significant of its proposed amendments to the Dodd-Frank Act are a substantial increase in the $50 billion asset threshold for automatic regulation of bank holding companies as SIFIs, an exemption from the Volcker Rule for insured depository institutions with less than $10 billion in consolidated assets and lower levels of trading assets and liabilities, as well as amendments to the liquidity leverage ratio and supplementary leverage ratio requirements.

On December 5, 2017, the Senate Banking Committee approved the Senate Regulatory Relief Bill.

If the legislation is adopted in the Senate, it remains unclear whether and how it would be reconciled with its House-passed counterpart, the Financial Choice Act, which is substantially different in scope and substance, and ultimately approved by both chambers of Congress.

The SEC, the Board of Governors of the Federal Reserve System and certain other regulatory agencies have 45 days from the date of the decision to petition the U.S. Court of Appeals for an en banc review, during which time the rule will remain effective.

If this petition is not made, or if such petition is made but denied, the U.S. Court of Appeals’ ruling will become effective seven days later with retroactive effect on all existing open-market CLOs.

Some form of transitional agreement by which UK based financial services firms can continue to operate on a cross-border basis seems likely.

However, the duration of the transitional agreement and the end-state relationship between the UK and EU remains unclear.

There is a risk that following Brexit the UK may be denied access to the single market.

This could be highly disruptive to our business and may result in us having to increase our presence in other EEA member states which would result in additional costs.

LIBOR is expected to be phased out over the coming years.

The Bank of England working group has approved SONIA as its preferred short-term interest benchmark and will take over its administration from April 2018.

The impact this change will have is uncertain.

The Benchmarks Regulation entered into force on June 30, 2016.

It aims to introduce a common framework and consistent approach to benchmark regulation across the EU by regulating producers, contributors to and users of benchmarks.

The Benchmarks Regulation will replace the current UK framework regulating LIBOR and other specified benchmarks, notably the EURIBOR.

The majority of provisions in the Benchmarks Regulation took effect on January 1, 2018.

Although there are measures in the Benchmarks Regulation which are designed to prevent certain benchmarks from being undermined by a material reduction of benchmark contributors, it is not yet clear how successful these will be.

The Benchmarks Regulation may therefore lead to unpredictable developments in relation to LIBOR and certain other benchmarks, which could affect the value of investments made by our funds.

Unless the context otherwise requires, references to “we,” “us,” “our,” [removed: “the Partnership”] and “the Company” are intended to mean the business and operations of Ares [removed: Management, L.P.] [added: Management Corporation] and its consolidated subsidiaries.

The following discussion analyzes the financial condition and results of operations of the [removed: Partnership .][added: Company.]

“Consolidated Funds” refers collectively to certain Ares‑affiliated funds, related [removed: co‑ investment] [added: co‑investment] entities and certain CLOs that are required under generally accepted accounting principles in the United States (“GAAP”) to be consolidated in our consolidated financial statements included in this Annual Report on Form 10‑K.

The following discussion and analysis should be read in conjunction with the audited, consolidated financial statements of Ares [removed: Management, L.P.] [added: Management Corporation] and the related notes included in this Annual Report on Form 10‑K.

[removed: In 2017,] [added: During the year ended December 31, 2018,] we reclassified certain expenses from OMG to our operating segments.

We have presented our reportable segments for the years ended December 31, [removed: 2016] [added: 2017] and [removed: 2015] [added: 2016] to conform to the year ended December 31, [removed: 2017] [added: 2018] presentation.

| • | Credit Group: Our Credit Group is a leading manager of credit strategies across the non-investment grade credit universe in the U.S. and Europe, with approximately [removed: $71.7] [added: $95.9] billion of assets under management and [removed: 139] [added: 156] funds as of December 31, [removed: 2017.] [added: 2018.] The Credit Group offers a range of credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, credit opportunities, [removed: structured] [added: alternative] credit investments and U.S. and European direct lending. The Credit Group provides solutions for [removed: traditional fixed income] investors seeking to access [removed: the syndicated loans] [added: public] and [removed: high yield bond] [added: private credit] markets and capitalizes on opportunities across [removed: traded corporate credit.] [added: U.S. and Europe.] It additionally provides investors access to directly originated [removed: fixed-] [added: fixed] and [removed: floating-rate] [added: floating rate] credit assets and the ability to capitalize on illiquidity premiums across the credit spectrum. The Credit Group’s syndicated loans strategy focuses on liquid, traded non-investment grade secured loans to corporate borrowers. 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. Credit opportunities is a “go anywhere” strategy seeking to capitalize on market inefficiencies and relative value opportunities across the capital structure. The [removed: structured] [added: alternative] credit strategy [removed: invests across the capital structures] [added: seeks investment opportunities that fall outside] of [removed: syndicated collateralized loan obligation vehicles (CLOs)] [added: traditional, well-defined markets such as corporate debt, real estate] and [removed: in directly-originated] [added: private equity. Alternative credit investments include certain structural features designed to protect value and minimize loss such as asset security, seniority, covenants, and cash flow prioritization. These investments include] asset-backed [removed: instruments comprised of diversified portfolios of consumer] [added: securities, specialty assets, real assets,] and [removed: commercial assets.] [added: structured credit.] We are one of the largest self-originating direct lenders to the U.S. and European middle markets, providing one-stop financing solutions for small-to-medium sized companies, which [removed: the Company believes] [added: we believe] are increasingly underserved by traditional lenders. We provide investors access to these capabilities through several vehicles, including commingled funds, separately managed accounts and a publicly traded vehicle. The Credit Group conducts its U.S. corporate lending activities primarily through ARCC, the largest business development company as of December 31, [removed: 2017,] [added: 2018,] by both market capitalization and total assets. In addition, the Credit Group manages a commercial finance business that provides asset-based and cash flow loans to small and middle-market companies, as well as asset-based facilities to specialty finance companies. The Credit Group’s European direct lending platform is one of the most significant participants in the European middle-market, focusing on self-originated investments in illiquid middle-market credits. |

| • | Private Equity Group: Our Private Equity Group [removed: has] [added: had] approximately [removed: $24.5] [added: $23.5] billion of assets under management as of December 31, [removed: 2017,] [added: 2018,] broadly categorizing its investment strategies as corporate private equity, [removed: U.S. power and energy] infrastructure and [added: power,] special [removed: situations.] [added: opportunities and energy opportunities.] As of December 31, [removed: 2017,] [added: 2018,] the group managed five corporate private equity commingled funds focused on North America and Europe and [removed: two] [added: three] focused on greater China, five commingled funds and six related co-investment vehicles focused on [removed: U.S. power and energy] infrastructure and [removed: three] [added: power, two commingled] special [removed: situations funds.] [added: opportunities funds and our first energy opportunities fund.] In [removed: its] [added: our] North American and European flexible capital strategy, [removed: the Company targets] [added: we target] opportunistic majority or shared-control investments in businesses with strong franchises and attractive growth opportunities in North America and Europe. The [removed: U.S. power and energy] infrastructure [added: and power] strategy targets [removed: U.S. energy] infrastructure-related assets across the power generation, [removed: transmission and] [added: transmission,] midstream [removed: sectors,] [added: sectors and renewables sectors] seeking attractive risk-adjusted equity returns with current cash flow and capital [added: appreciation. The special opportunities strategy seeks to invest opportunistically across a broad spectrum of distressed and opportunistic investments, including rescue direct lending, opportunistic financing, comprehensive recapitalization solutions, stressed/distressed debt and post reorganization securities. The energy opportunities strategy targets investments in the energy industry where its flexible capital can provide attractive risk-adjusted returns while mitigating commodity risk.] |

| • | Real Estate Group: Our Real Estate Group manages comprehensive [removed: public and private] equity and debt strategies, with approximately [removed: $10.2] [added: $11.3] billion of assets under management across [removed: 42] [added: 43] funds as of December 31, [removed: 2017.] [added: 2018.] Real Estate equity strategies focus on applying hands-on value creation initiatives to mismanaged and capital-starved assets, as well as new development, ultimately selling stabilized assets back into the market. The Real Estate Group manages both a value-add strategy and an opportunistic strategy. The value-add strategy seeks to create value by buying assets at attractive valuations and through active asset management of income-producing properties across the U.S. and Western Europe. The opportunistic strategy focuses on manufacturing core assets through development, redevelopment and fixing distressed capital structures across major property types in the U.S. and Europe. The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and manage commercial mortgage investments on properties that range from stabilized to requiring hands-on value creation. In addition to managing private debt funds, the Real Estate Group makes debt investments through a publicly traded commercial mortgage REIT, ACRE. |

The Operations Management Group [removed: (“OMG”)] [added: (the “OMG”)] consists of [removed: five] shared resource groups to support our operating segments by providing infrastructure and administrative support in the areas of accounting/finance, [removed: operations/information] [added: operations, information] technology, [removed: business development/corporate strategy, legal/compliance] [added: strategy] and [added: relationship management, legal, compliance and] human resources.

Our revenues [removed: consist] primarily [added: consist] of management [removed: fees and performance] fees, [added: carried interest allocation, incentive fees,] as well as [added: principal] investment [removed: income and] [added: income,] administrative expense [removed: reimbursements.][added: reimbursements and transaction fees.]

[removed: Performance] [added: Carried interest allocation and incentive] fees are based on certain specific hurdle rates as defined in the funds' applicable investment management or partnership [removed: agreements and represent either an incentive fee or carried interest.][added: agreements.]

Other income (expense) [added: typically] represents [removed: the] investment income, realized gains (losses) and unrealized appreciation (depreciation) resulting from [removed: the investments] [added: all] of [removed: the Company and the Consolidated Funds,] [added: our other investments] as well as [removed: interest expense.][added: investments of the Consolidated Funds.]

We provide administrative services to certain of our affiliated funds that are presented within administrative, transaction and other fees for GAAP [removed: reporting,] [added: reporting] but are [removed: presented net of] [added: netted against the] respective expenses for segment reporting purposes.

We also receive transaction fees from certain [removed: affiliated] funds for activities related to fund transactions, such as loan originations.

In accordance with GAAP, we are required to consolidate [removed: those] funds [removed: in which] [added: where] we [removed: hold] [added: have] a significant economic interest and substantive control rights.

However, for segment reporting purposes, we present revenues and expenses on a combined [removed: segment] basis, which [removed: shows] [added: presents] the results of our reportable segments without giving effect to the consolidation of the funds.

Accordingly, our segment revenues consist of management fees, other [removed: income,] [added: fees,] realized [removed: and unrealized] [added: net] performance [removed: fees,] [added: income] and [added: realized] net investment income.

Our segment expenses consist of compensation and benefits, [removed: net of administrative fees,] general, administrative and other expenses, [added: interest expense and realized performance income compensation,] net of administrative [removed: fees, as well as realized and unrealized performance fee compensation.][added: fees.]

[removed: Additionally, as approximately 72% of our assets under management were in funds with a contractual life of three years or more and approximately 42% were in funds with a contractual life of seven years or more as of December 31, 2017, our] [added: Our] funds have a stable base of committed capital enabling us to invest in assets with a [removed: long term] [added: long-term] focus over different points in a market cycle and to take advantage of market volatility.

However, our results of operations, including the fair value of our AUM, are affected by a variety of factors, [added: particularly in the United States and Western Europe,] including conditions in the global financial markets and the economic and political [removed: environments, particularly in the United States and Western Europe.][added: environments.]

Notwithstanding the potential opportunities represented by market volatility, future earnings, cash flows and distributions are affected by a range of factors, including realizations of our funds’ investments, which are subject to significant [removed: fluctuations from period to period.][added: fluctuations.]

In [removed: 2018,] [added: 2019,] some of the considerations informing our strategic decisions include:

| • | Our ability to fundraise and increase AUM and fee paying AUM. During the year ended December 31, [removed: 2017,] [added: 2018,] we raised [removed: $16.7 billion,] [added: $36.1 billion of gross AUM,] both in commingled and separately managed accounts, and continued to expand our investor base, raising capital from over [removed: 65] [added: 75] different funds and approximately [removed: 146] [added: 270] institutional investors, including [removed: 78] [added: 139] direct institutional investors that were new to Ares. Our fundraising efforts helped drive AUM growth of approximately [removed: 11.8%] [added: 23%] for [removed: 2017.] [added: 2018.] During [removed: 2018,] [added: 2019,] we expect that our fundraising will come from a combination of our existing and new strategies primarily in the U.S and Europe. During the year ended December 31, [removed: 2017,] [added: 2018,] we earned approximately 1.1% on our FPAUM, which was consistent with [removed: 2016.] [added: 2017.] As of December 31, [removed: 2017,] [added: 2018,] we also had [removed: $15.0] [added: $28.2] billion of AUM not yet earning fees, which represents approximately [removed: $164.4] [added: $281.3] million in annual potential management fee revenue. Of the [removed: $164.4] [added: $281.3] million, [removed: $126.1] [added: $245.5] million relates to [removed: $11.8] [added: the $24.8] billion of AUM available for future deployment. Our pipeline of potential fees, coupled with our future fundraising opportunities, gives us the potential to increase our management fees in [removed: 2018.] [added: 2019.] |

| • | Our disciplined investment approach and successful deployment of capital. Our ability to maintain and grow our revenue base is dependent upon our ability to successfully deploy the capital that our investors have committed to our investment funds. Greater competition, high valuations, cost of credit and other general market conditions have affected and may continue to affect our ability to identify and execute attractive investments. Under our disciplined investment approach, we deploy capital only when we have sourced a suitable investment opportunity at an attractive price. During the year ended December 31, [removed: 2017,] [added: 2018,] we deployed [removed: $16.4] [added: $22.4] billion of gross capital across our three investment groups compared to approximately [removed: $10.2] [added: $16.4] billion deployed in [removed: 2016.] [added: 2017.] As of December 31, [removed: 2017,] [added: 2018,] we had [removed: $25.1] [added: $38.1] billion of capital available for investment and we remain well-positioned to invest our assets opportunistically. |

| • | Our ability to invest capital and generate returns through market cycles. The strength of our investment performance affects investors’ willingness to commit capital to our funds. The flexibility of the capital we are able to attract is one of the main drivers of the growth of our AUM and the management fees we earn. Current market conditions and a changing regulatory environment have created opportunities for Ares’ businesses, particularly in the Credit Group’s direct lending funds, and in the Private Equity's special [removed: situations] [added: opportunities] funds, which utilize flexible investment mandates to manage portfolios through market cycles. [removed: As market conditions shift and default risk and interest rate risk come under greater focus, having the ability to move up and down the capital structure enables both our Credit and Private Equity Groups to reduce risk and enhance returns. Similarly, given our broad capabilities in leveraged loans, such flexibility enables our Credit Group to reduce sensitivities to changing interest rates by increasing allocations to floating rate syndicated loans. On a market value basis, more than 75% of the debt assets within our Credit Group are floating rate instruments, which we believe helps mitigate volatility associated with changes in interest rates.] |

[removed: We] [added: Since March 1, 2018, we] have [removed: filed an election with the Internal Revenue Service (“IRS”) to be] [added: been] treated as a corporation for [removed: U.S.] federal [added: and state] income tax purposes [removed: (collectively, the “Tax Election”), with an effective date of March 1, 2018] (the [removed: “Effective Date”).][added: "Tax Election").]

The Tax Election [added: and the subsequent Conversion] is intended to simplify our tax structure and expand our eligible investor universe and, in turn, enhance our liquidity and trading volume, which may, among other things, provide us with a more liquid and attractive currency for potential strategic transactions to further [removed: long term] [added: long-term] growth.

[removed: This,] [added: This fact,] combined with a reduction in the statutory federal corporate tax rate from 35% to 21%, [removed: also] presented compelling reasons to make the Tax [removed: Election in 2018.][added: Election.]

These funds represented approximately [removed: 6.4%] [added: 6.8%] of our AUM as of December 31, [removed: 2017, 3.0%] [added: 2018, 4.1%] of our management fees and [removed: 0.8%] [added: 3.6%] of our performance [removed: fees] [added: income] for the year ended December 31, [removed: 2017.][added: 2018.]

As of December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] we consolidated [removed: 10, 7] [added: 13, 10] and [removed: 5] [added: 7] CLOs, respectively, and [added: 10,] 9 [added: and 9] private [removed: funds.][added: funds, respectively.]

The consolidation of these funds had the impact of increasing interest and other income of Consolidated Funds, interest expense of Consolidated Funds, net realized and unrealized gain (loss) on investment of Consolidated Funds and [removed: net income attributable to redeemable interests] [added: non-controlling interest] in Consolidated Funds, among others, for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015.][added: 2016.]

Also, the consolidation of these funds typically has the impact of decreasing management [added: fees, carried interest allocation] and [removed: performance] [added: incentive] fees [added: reported under GAAP] to the extent [removed: such fees were] [added: these are] eliminated upon consolidation.

For the actual impact that consolidation had on our results, see the Consolidating Schedules within Note [removed: 19,] [added: 17,] “Consolidation”, to our consolidated financial statements included in this Annual Report on Form 10-K.

We generally deconsolidate funds [removed: we advise] and CLOs when we are no longer deemed to have a controlling interest in the entity.

During the year ended December 31, [removed: 2017, there were two Consolidated Funds] [added: 2018, one entity was] liquidated or dissolved and no non-VIEs experienced a significant change in ownership or control that resulted in deconsolidation during the period.

We use the following non-GAAP measures to assess and [removed: track] [added: measure] our performance:

[removed: | • |] Performance Related [removed: Earnings (PRE) |][added: Compensation.]

For the specific components and calculations of these non-GAAP measures, as well as a reconciliation of these measures to the most comparable measure in accordance with GAAP, see Note [removed: 18,] [added: 16,] “Segment Reporting,” to our consolidated financial statements included in this Annual Report on Form 10‑K.

NAV refers to the fair value of all the assets of a fund less the [removed: fair value of all] liabilities of the fund.

Ares Management Corporation is a Delaware corporation which was formerly a limited partnership formed on November 15, 2013 and which converted to a Delaware corporation effective on November 26, 2018.

Carried interest allocation and incentive fees are collectively referred to as performance income in our segment results and non-GAAP measures.

Principal investment income consists of interest and dividend income and net realized and unrealized gain (loss) from the equity method investments that we manage.

Interest expense is a component of other income (expense).

As December 31, 2018, approximately 72% of our assets under management were in funds with a remaining contractual life of three years or more, approximately 80% were in funds with an initial duration greater than seven years at time of closing, and 90% of our management fees are derived from permanent capital, CLOs and closed end funds.

The U.S. markets were volatile in the fourth quarter of 2018 as fund outflows accelerated, credit spreads widened and total returns were negative across most asset classes.

Markets were impacted by a decidedly negative sentiment from various geopolitical headlines, U.S. Treasury yield curve flattening and subsequent late cycle concerns and a sharp decline in commodity prices.

Negative sentiment was exacerbated in December 2018 by angst around Federal Reserve policy, the U.S. government shutdown and general political uncertainty, the seasonality of capital markets and concerns of a decelerating economy.

Retail fund outflows accelerated with leveraged loan funds recording a record-breaking $11.6 billion of outflows in December 2018.

Against this backdrop, the CSLLI, a leveraged loan index, returned a negative 2.3% in the fourth quarter of 2018 while the ICE BAML High Yield Master II Index, a high yield bond index, returned a negative 4.7% in the fourth quarter of 2018.

The mixed technical backdrop influenced annual results as the leveraged loan and high yield bond markets returned 1.1% and a negative 2.3%, respectively, for 2018.

European markets followed a similar path as their U.S. counterparts during the fourth quarter of 2018 as geopolitical concerns, mixed corporate earnings and increased risk aversion influenced total returns.

Brexit discussion developments, German and Italian politics and Italian rating downgrades weighed on investor sentiment and asset prices.

In addition, Europe's lowest GDP growth in the past four years of 0.2% (versus market expectations of 0.4%) combined with mixed third quarter earnings resulted in a risk aversion that impacted the leveraged loan and high yield bond markets in November 2018.

Against this backdrop, the Credit Suisse Western European Leveraged Loan Index returned a negative 1.8% while the ICE BAML European Currency High Yield Index returned a negative 3.6%.

The European leveraged loan market was one of the few asset classes to have a positive return in 2018, concluding the calendar year with a 0.55% gain.

In the U.S., the S&P 500 Index reversed all gains for the year in the fourth quarter of 2018 after significant volatility in equity and credit markets pushed the index down 13.8% to close the year down 5.2% compared to an increase of 20.8% in 2017.

Outside the U.S., global equity markets were also negatively affected during the fourth quarter of 2018 with the MSCI All Country World ex USA Index declining 11.5% in the fourth quarter of 2018, which pushed the index down 14.2% for the full year 2018 compared to the positive 27.2% gain recorded for the full year 2017.

Recent market volatility has created opportunities for our Credit group, particularly for our direct lending and alternative credit strategies, which utilize flexible investment mandates to manage portfolios throughout market cycles.

As market conditions shift and default risk and interest rate risk come under greater focus, having the ability to move up and down the capital structure enables the Credit Group to reduce risk and enhance returns.

Similarly, given our broad capabilities in leveraged loans, such flexibility enables our Credit Group to reduce sensitivities to changing interest rates by increasing allocations to floating rate leveraged loans.

On a market value basis, over 78% of the debt assets within our Credit Group are floating rate instruments, which we believe helps mitigate volatility associated with changes in interest rates.

In the U.S., the intermediated private equity auction market remained highly competitive and leveraged buyout purchase price multiples remained near historical highs during 2018.

Amid a significant expansion in the size of the corporate debt market, leverage levels continued to increase and were even higher when EBITDA-adjustments are taken into account.

These dynamics have led to a significant compression in private equity risk premiums.

We continue to believe careful company selection, a focus on high-quality assets and a differentiated view to drive value creation is of paramount importance in the current market environment.

In the U.S., 2018 commercial real estate sales volume and property values rose over last year .

The apartment and industrial sectors posted record transaction activity, bringing total sales across all property sectors to the second highest level of the current cycle at $562 billion.

The year-end 2018 spike in financial market volatility did not impact private real estate values meaningfully.

Healthy property fundamentals kept vacancy near cyclical lows despite the increase in supply activity for apartment and industrial.

In Europe, buoyed by economic growth, low interest rates, higher consumer spending, property supply and demand fundamentals were generally favorable.

Across our targeted markets in both the U.S. and Europe, we continue to find opportunity to capitalize on our deep understanding of local market and overall industry dynamics to acquire and lend to commercial real estate.

| • | Our ability to continue to achieve stable dividend payments to investors. Our dividend policy for our Class A common stock is closely aligned with our core management fee business. We intend to provide a steady quarterly dividend for each calendar year that will be based on our after-tax fee related earnings, with future potential changes based on the level and growth of our after-tax fee related earnings. Our fixed dividend is reassessed each year based upon the level and growth of our after-tax fee related earnings. As fee related earnings reflect the core earnings of our business and consists of management fees less compensation and general and administrative expenses, having our recurring dividend based on this amount removes volatility from our dividend and enables investors to receive what we believe is an attractive after-tax qualifying dividend yield. |

Conversion to a Corporation under Delaware State Law

On November 26, 2018, we completed our state law conversion from a Delaware limited partnership to a Delaware corporation (the "Conversion").

At the Effective Date, (i) each common share of the Company outstanding immediately prior to the Effective Date converted into one issued and outstanding, fully paid and nonassessable share of Class A common stock, $0.01 par value per share, of the Company, (ii) the general partner share of the Company outstanding immediately prior to the Effective Date converted into 1,000 issued and outstanding, fully paid and nonassessable shares of Class B common stock, $0.01 par value per share of the Company, (iii) the special voting share of the Company outstanding immediately prior to the Effective Date converted into one issued and outstanding, fully paid and nonassessable share of Class C common stock, $0.01 par value per share, of the Company, and (iv) each preferred share of the Company outstanding immediately prior to the Effective Date converted into one issued and outstanding, fully paid and nonassessable share of the Series A Preferred Stock.

As a result of the Conversion, except as otherwise expressly provided in the Certificate of Incorporation, our common stockholders are entitled to vote on all matters on which stockholders of a corporation are generally entitled to vote under the DGCL, including the election of our board of directors.

Holders of shares of our Class A common stock became entitled to one vote per share of our Class A common stock.

On any date on which the Ares Ownership Condition (as defined in the Certificate of Incorporation) is satisfied, holders of shares of our Class B common stock are, in the aggregate, entitled to a number of votes equal to (x) four times the aggregate number of votes attributable to our Class A common stock minus (y) the aggregate number of votes attributable to our Class C common stock.

On any date on which the Ares Ownership Condition is not satisfied, holders of shares of our Class B common stock are not entitled to vote on any matter submitted to a vote of our stockholders.

Ares Management, L.P. is a Delaware limited partnership formed on November 15, 2013.

| | |

| --- | --- |

appreciation.

The special situations strategy seeks to invest opportunistically across a broad spectrum of distressed or mispriced investments, including corporate debt, rescue capital, private asset-backed investments, post-reorganization securities and non-performing portfolios.

December 2017 marked a modestly positive end to the year for credit markets as improving economic conditions, rising corporate earnings, accommodative monetary policy and falling inflation expectations supported investor sentiment.

Despite sector specific gains experienced in November, credit spreads generally continued to tighten throughout the fourth quarter of 2017.

In response to compressing yields, investors generally sought higher yielding risk assets globally.

Similar to 2016, market participants were rewarded for a “risk-on” posture and as a result, the ICE BofAML High Yield Master II Index returned 7.48% for 2017, primarily driven by the CCC portion of the index which returned 10.59% during the year.

The leveraged loan market experienced similar return patterns with the Credit Suisse Leveraged Loan Index delivering a 4.25% total return for the full year, led by a 7.45% return for the lower tier segment of the market.

Against a backdrop of improving macroeconomic and corporate fundamentals as

well as enthusiasm over tax reform in the U.S., equities (measured by the S&P 500 Index) continued to reach record highs throughout the year and outperformed most asset classes with a year-to-date return of 21.83%.

European markets continued to show notable stability during the fourth quarter of 2017 as improving growth prospects and increased appetite for risk in the region seemed to offset geopolitical and monetary policy concerns.

As a result, the ICE BofAML European High Yield Index and the Credit Suisse Western European Leveraged Loan Index delivered strong performance for the year-to-date period, returning 6.74% and 5.32% during 2017, respectively.

Economic growth in Europe showed signs of strength as gross domestic product readings consistently beat expectations and the unemployment rate dipped to lows not seen since January 2009.

| • | Our ability to continue to achieve stable distributions to investors. Our fee related earnings represented approximately 80% of our distributable earnings for the year ended December 31, 2017. We believe that the high percentage of fee related earnings (versus performance related earnings) in our distributable earnings provides greater stability for our distributions relative to some peers. During 2017, we experienced higher relative distributable earnings compared to 2016 primarily driven by higher realized performance related earnings within the Private Equity Group, mostly as a result of market appreciation in a retail portfolio company following its initial public offering. In addition, we have historically experienced and expect to continue to experience higher realizations within our Credit Group funds during the second half compared to the first half of the year, as certain Credit Group funds, including ARCC, pay incentive fees annually when hurdles are exceeded, which are typically realized during the last six months of the year. |

See “Item 1A.

The Election for Ares Management, L.P. to be Taxed as a Corporation

Although we will be treated as a corporation for U.S. federal income tax purposes, we will remain a limited partnership under state law.

In connection with the Tax Election, effective March 1, 2018, we have amended and restated our partnership agreement to, among other things, reflect our new tax classification and change the name of our common units and preferred units to common shares and preferred shares, respectively.

The terms of such common shares and preferred shares, and the associated rights, otherwise remain unchanged.

Risk Factors–Our common shareholders do not elect our general partner or, except in limited circumstances, vote on our general partner’s directors and have limited ability to influence decisions regarding our businesses.”

Shareholders will receive a final Schedule K-1 reflecting their allocable share of the partnership’s items for the period beginning January 1, 2018 and ending on the day immediately before the Effective Date.

On and after the Effective Date, public common shareholders will not have current income tax obligations arising from their investment in Ares Management, L.P. other than on the receipt of distributions treated as dividends for tax purposes, which will be reported on Form 1099-DIV.

This change reduces the legal and tax preparation costs associated with Schedule K-1 preparation and simplifies a shareholder’s tax reporting obligations.

We expect that neither Ares Management, L.P. nor its shareholders will recognize a material amount of gain or loss as a result of the Tax Election.

On the Effective Date, the aggregate tax basis of the shares held by a shareholder will equal the aggregate tax basis in such shares immediately before the Effective Date (reduced by the shareholder’s allocable share of our liabilities) and increased by the gain, if any, recognized by such shareholder as a result of the Tax Election.

We believe that a shareholder’s holding period in the shares will generally be long-term.

There is no assurance, however, that such treatment will be respected by the IRS.

The foregoing discussion is based on our expectation that all the relevant tax requirements for non-recognition treatment will have been met.

The rules governing the U.S. federal income tax treatment of the Tax Election are complex and their application to non-U.S. shareholders, in particular, is unclear.

Accordingly, shareholders should consult their tax advisors regarding the tax treatment of the Tax Election in light of their particular situation.

Differences in Taxation of Partnerships and Corporations and Their Owners

An entity treated as a partnership for U.S. federal income tax purposes is not a taxable entity and generally incurs no U.S. federal income tax liability.

Instead, each partner is required to take into account its share of items of income, gain, loss and deduction of the partnership in computing its U.S. federal income tax liability, regardless of whether distributions are made to it by the partnership.

Distributions by an entity treated as a partnership to a partner are generally not taxable to the partnership or the partner and instead reduce a partner’s adjusted basis in its partnership interest.

An entity treated as a corporation for U.S. federal income tax purposes is a taxable entity and generally pays U.S. federal income tax on its taxable income.

The maximum U.S. federal tax rate imposed on the net income of an entity treated as a corporation was recently changed from 35% to 21% for taxable years beginning after December 31, 2017.

Such rate may be further changed in the future.

An owner of an entity treated as a corporation generally is not taxed on any income earned by the entity until the entity distributes to it either cash or property.

Our primary exposure to market risk is related to our role as general partner or investment adviser to our investment funds and the sensitivity to movements in the fair value of their investments, including the effect on management fees, [removed: performance fees] [added: carried interest allocation] and investment income.

As such, [removed: an incremental] [added: a hypothetical] 10% [removed: change] [added: decrease] in fair value of [removed: the] [added: our managed] funds’ investments as of December 31, [removed: 2017,] [added: 2018] would not have a material impact on [added: our] management fees.

We earn [removed: performance fees] [added: carried interest allocation] from [added: certain of] our funds when such funds achieve specified performance criteria.

Our [removed: performance fees] [added: carried interest allocation] will be impacted by changes in market risk factors.

| • | whether each funds’ performance [removed: fee] [added: related] distributions are subject to contingent repayment. |

As a result, the impact of changes in market risk factors on [removed: performance fees] [added: carried interest allocation] will vary widely from fund to fund.

Additionally, as a large percentage of our [removed: performance fee income is] [added: carried interest allocation are] paid to employees as performance [removed: fee] [added: related] compensation, the overall net impact to our income would be mitigated by lower compensation payments.

See Note [removed: 11,] [added: 9,] “Commitments and Contingencies,” to our consolidated financial statements included in this Annual Report on Form 10‑K for discussion on amount of performance [removed: fees,] [added: income,] net of tax, subject to contingent repayment if we assumed all existing investments were worthless.

An investment gain (loss) is realized when we redeem all or a portion of our investment or when we receive cash income, such as [removed: dividends] [added: interest] or [removed: distributions.][added: dividends.]

Changes in the fair values of our funds’ investments directly impact [added: unrealized principal] investment [removed: income.][added: income and unrealized gains on investments.]

[removed: Additionally, movements in the exchange rate impact operating expenses for our foreign offices that] are denominated in non-U.S. currencies and the revaluation of assets and liabilities denominated in non-functional currencies, including cash balances and investments.

We estimate that as of December 31, [removed: 2017 and 2016] [added: 2018] a [added: hypothetical] 10% [removed: change] [added: decline] in the rate of exchange of all foreign currencies against the U.S. dollar would result in a change in management fees of approximately [removed: $6.4 million and $5.7] [added: $10.4] million, [removed: respectively.][added: or 1% of management fees for the year ended December 31, 2018, which would largely be offset by the currency conversions of the expenses denominated in non-US dollar currencies.]

As of December 31, [removed: 2017,] [added: 2018,] we had [removed: $210.0] [added: $235.0] million of borrowings outstanding under the Credit Facility.

The Credit Facility bears interest at a variable rate based on either LIBOR or a base rate plus an applicable margin with an unused commitment [added: fee paid quarterly, which is subject to change with our underlying credit agency rating.]

Market Risk

The proportion of our management fees that are based on NAV depends on the number and type of funds in existence.

For the year ended December 31, 2018, the fund management fees that were recognized based on the NAV of the applicable funds were approximately 5%.

Effect on Carried Interest Allocation

A hypothetical incremental 10% decrease in the fair value of our investments as of December 31, 2018 would result in declines in principal investment income and unrealized gains on investments of $34.0 million and $14.9 million, respectively.

Additionally, movements in the exchange rate impact operating expenses for our foreign offices that

As of December 31, 2018, we had $235.0 million of borrowings outstanding under the Credit Facility.

Effect on Performance Fees

We do not have any material derivatives or other instruments that are directly tied to any particular market’s performance.

We had $1.1 billion of accrued performance fees on our balance sheet as of December 31, 2017.

We did not record any contingent repayment obligation on accrued performance fees as of December 31, 2017.

A 10% decrease in NAV across our funds as of December 31, 2017 would not affect the amount of accrued performance fees subject to contingent repayment.

The following table summarizes the incremental impact, including to our Consolidated Funds, of an incremental 10% change in fair value of the funds’ investments by segment as of December 31, 2017 on our investment income:

| | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- |

| | As of December 31, 2017 | | | | | | |

| | 10% Increase in Fair Value | | | | 10% Decrease in Fair Value | | |

| | (Dollars in millions) | | | | | | |

| Segment | | | | | | | |

| Credit Group | $ | 37 | | | $ | (37 | ) |

| Private Equity Group | 28 | | | | (28 | | ) |

| Real Estate Group | 9 | | | | (9 | | ) |

| Total | $ | 74 | | | $ | (74 | ) |

A 10% decrease in the rate of exchange of all foreign currencies against the U.S. dollar may have a material impact on transaction gains and losses of the Company.

We enter into currency forward contracts and other exchange traded currency options to mitigate the impact of the exchange rate risk on our management fees and investment portfolio due to the fluctuation of exchange of all foreign currencies against the U.S. dollar.

fee paid quarterly, which is subject to change with our underlying credit agency rating.

Ares is a leading global alternative asset manager with approximately [removed: $106.4] [added: $130.7] billion of assets under management and [removed: over 1,000] [added: approximately 1,100] employees in [removed: over 15] [added: 18] offices across the United States, Europe, Asia and Australia.

We offer our investors a range of investment strategies and seek to deliver attractive performance to a growing investor base that includes [removed: approximately 785] [added: over 900] direct institutional relationships and a significant retail investor base across our publicly traded and sub‑advised funds.

As shown in the chart below, over the past five and ten years, our assets under management have achieved a compound annual growth rate (“CAGR”) of 12% and [removed: 20%,] [added: 18%,] respectively.

Our AUM has grown to approximately [removed: $106.4] [added: $130.7] billion as of December 31, [removed: 2017,] [added: 2018] from approximately [removed: $18.0] [added: $25.0] billion a decade earlier.

[removed: ][added: ]

| • | Comprehensive Multi‑Asset Class Expertise and Flexible Capital: our proficiency at evaluating every level of the capital structure, from senior debt to common equity, across companies, structured assets, [added: infrastructure,] power and energy assets, and real estate projects enables us to effectively assess relative value. This proficiency is complemented by our flexibility in deploying capital in a range of structures and different market environments to maximize risk‑adjusted returns. |

| • | Differentiated Market Intelligence: our proprietary research on approximately [removed: 60] [added: 59] industries and insights from a broad, global investment portfolio enable us to more effectively diligence and structure our products and investments. |

The management of our operating businesses is currently overseen by our [added: Executive] Management [removed: Committee,] [added: Committee] which [removed: is comprised of our executive officers and other heads of various investment and operating groups,] [added: meets weekly to discuss strategy] and [removed: ultimately by the Holdco Members.][added: operational matters.]

Within this framework, we have established deep and sophisticated independent research capabilities in approximately [removed: 60] [added: 59] industries and insights from active investments in approximately [removed: 1,480] [added: 1,695] companies, [removed: 505 structured assets] [added: 483 alternative credit investments] and over [removed: 170] [added: 160] properties.

These professionals are supported by a highly sophisticated [added: business] operations [removed: management] team.

We believe [removed: this] [added: these] broad and deep [removed: platform] [added: interdependencies] and our operational infrastructure provide us with a scalable foundation to expand our product offerings, geographic scope and profitability.

We believe that our strong performance, consistent growth and high talent retention through economic cycles is due largely to the effective application of this principle across our broad organization of [removed: over 1,000] [added: approximately 1,100] employees.

We do not have a centralized investment committee and instead our investment committees are structured with overlapping membership from different investment groups to ensure consistency of [removed: approach.][added: approach and shared investment experience.]

Each of our investment groups is led by its own deep leadership team of highly accomplished investment professionals, who average [removed: 25] [added: over 24] years of experience managing investments in, advising, underwriting and restructuring companies.

This collaboration takes place on a daily basis [removed: but] [added: and] is formally promoted through sophisticated internal systems and widely attended weekly or monthly meetings.

In [removed: 2017,] [added: 2018,] we raised [removed: $16.7] [added: $36.1] billion in gross new capital for more than [removed: 65] [added: 75] different funds.

Of the [removed: $16.7] [added: $36.1] billion, [removed: $10.7] [added: $30.0] billion was raised directly from [removed: 146] [added: 270] institutional investors [removed: (68] [added: (131] existing and [removed: 78] [added: 139] new to Ares) and [removed: $6.0] [added: $6.1] billion was raised through intermediaries.

We took advantage of our diverse global platform to invest more than [removed: $16.4] [added: $22.4] billion (excluding permanent capital) globally in [removed: 2017] [added: 2018] as shown in the following [removed: table (dollars in] [added: charts (in] billions):

| [added: | U.S.] Real Estate Equity [removed: & Debt] | [removed: 0.9] | [added: E.U. Real Estate Equity] | | [added: Real Estate Debt |]

Of the [removed: $16.4] [added: $22.4] billion invested, [removed: $12.6] [added: $17.2] billion was tied to our drawdown funds.

Each of our investment groups employs a disciplined, credit-oriented investment philosophy and is managed by a seasoned leadership team of senior professionals with extensive experience investing in, advising, underwriting and restructuring companies, power and energy assets, [removed: or] [added: and] real estate properties.

[removed: ][added: ]

Our Credit Group is a leading manager of credit strategies across the non-investment grade credit universe, with approximately [removed: $71.7] [added: $95.9] billion of AUM and approximately [removed: 139] [added: 156] funds as of December 31, [removed: 2017.][added: 2018.]

The Credit Group offers [removed: a range of] [added: the following] credit strategies across the liquid and illiquid [removed: spectrum, including syndicated loans, high yield bonds, credit opportunities, structured credit investments and U.S. and European direct lending.][added: spectrum:]

We principally invest or take short positions in U.S. and European debt securities across the capital structure, including opportunistic liquid credit, [removed: special situations] and structured products.

Direct Lending: Our direct lending strategy is one of the largest self‑originating direct lenders to the U.S. and European markets, with approximately [removed: $42.4] [added: $64.8] billion of assets under management across approximately [removed: 65] [added: 78] funds [removed: or] [added: and] investment vehicles as of December 31, [removed: 2017.][added: 2018.]

U.S. Direct Lending: Our U.S. team is comprised of approximately [removed: 130] [added: 135] investment professionals in [removed: seven] [added: six] offices.

Our team maintains an active dialogue with more than [removed: 480] [added: 500] financial sponsors and provides a wide range of financing solutions to middle-market companies that typically range from $10.0 to $150.0 million in earnings before interest, tax, depreciation and amortization (“EBITDA”).

As of December 31, [removed: 2017,] [added: 2018,] our U.S. direct lending team and its affiliates advised [removed: 46] [added: 51] funds totaling, in aggregate, approximately [removed: $30.6] [added: $40.7] billion in AUM.

| • | Ares Capital Corporation: ARCC is a leading specialty finance company that provides one-stop debt and equity financing solutions to U.S. middle market companies and power generation projects. As of December 31, [removed: 2017,] [added: 2018,] ARCC was the largest business development company by both total assets and market capitalization. |

| • | [removed: Other] U.S. [removed: funds:] [added: Commingled Funds and Separate Accounts:] Outside of ARCC and its controlled affiliates, U.S. direct lending also generates fees from other funds, including Ares [added: Private Credit Solutions, which makes junior debt investments in upper middle-market companies, Ares Senior Direct Lending Fund, which directly originates loans to quality North American middle market companies through a variety of vehicles, Ares] Commercial Finance, which makes asset-based and cash flow loans to middle-market and specialty finance companies, [removed: Ares Private Credit Solutions, which makes junior debt investments in upper middle-market companies,] and separately managed accounts for large institutional investors. AUM [removed: for these other] [added: from] U.S. [removed: direct lending] [added: commingled] funds [added: and separate accounts] totaled [removed: $10.5] [added: $19.6] billion as of December 31, [removed: 2017.] [added: 2018.] |

E.U. Direct Lending: Our European team is comprised of approximately [removed: 40] [added: 45] investment professionals in [removed: five] [added: four] offices.

As of December 31, [removed: 2017,] [added: 2018,] our E.U. direct lending team advised [removed: 19] [added: 27] commingled funds and managed [removed: accounts, aggregating] [added: accounts totaling, in aggregate,] approximately [removed: $11.8] [added: $24.1] billion in AUM.

The following [removed: table presents] [added: charts present] the Credit Group’s AUM, FPAUM and number of funds as of December 31, [removed: 2017 (dollars] [added: 2018 ($] in billions):

| [removed: | AUM | | | | FPAUM | |] [added: AUM: $23.5] | [added: FPAUM: $17.1] | Number of [removed: Funds |] [added: Funds: 22] |

Our Private Equity Group has achieved compelling investment returns for a loyal and growing group of high profile limited partners [removed: and] [added: and,] as of December 31, [removed: 2017] [added: 2018,] had approximately [removed: $24.5] [added: $23.5] billion of AUM.

Our Private Equity Group broadly categorizes its investment activities into [removed: three] [added: four] strategies: Corporate Private Equity, [removed: U.S. Power and Energy] Infrastructure and [added: Power,] Special [removed: Situations.][added: Opportunities and Energy Opportunities.]

The group manages flagship funds focused primarily on North America and, to a lesser extent, Europe, special [removed: situations] [added: opportunities] funds, [removed: U.S. power and energy] infrastructure [removed: funds] and [removed: related co-investment vehicles] [added: power funds] and growth funds in China.

| • | Corporate Private Equity: Certain of our senior private equity professionals have been working together since 1990 and raised our first corporate private equity fund in 2003. Our team has grown to approximately [removed: 65] [added: 60] investment professionals based in Los Angeles, Chicago, London, Shanghai, Chengdu and Hong Kong. In the U.S. and London, we pursue four principal transactions types: prudently leveraged control buyouts, growth equity, rescue/deleveraging capital and distressed buyouts/discounted debt accumulation. This flexible capital approach, together with the broad resources of the Ares platform, widens our universe of potential investment opportunities and allows us to remain active in different markets and be highly selective in making investments across various market environments. |

| • | [removed: U.S. Power & Energy Infrastructure: Our U.S. power] [added: Infrastructure] and [removed: energy] [added: Power: Our] infrastructure [added: and power] strategy team of approximately 20 investment professionals targets assets across the U.S. power generation, [removed: transmission and] [added: transmission,] midstream sectors, [added: climate infrastructure and renewables sectors,] which seek attractive risk-adjusted equity returns with current cash flow and capital appreciation. We believe there are significant investment opportunities for us in [removed: this sector] [added: these sectors] as the United States replaces its aging infrastructure and builds new assets to meet capacity needs over the coming decades. |

The members of the Executive Management Committee are Michael Arougheti, David Kaplan, Antony Ressler, Bennett Rosenthal, Ryan Berry, R.

Kipp deVeer and Michael McFerran.

In addition, we have a Management Committee comprised of senior leadership from our investment, investor relations, marketing and business operations teams, which meets periodically to discuss investment and operating performance, fundraising and market conditions.

2018 Highlights

The charts below summarize our gross new capital commitments by investment group and strategy (in billions):


| | | |

| --- | --- | --- |

| | | |

| Credit $31.6 | Private Equity: $1.6 | Real Estate: $2.9 |

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | |

| | E.U. Direct Lending | | U.S. Direct Lending | | Syndicated Loans | | | Energy Opportunities | | Infrastructure & Power | | Special Opportunities | | | E.U. Real Estate Equity | | U.S. Real Estate Equity | | Real Estate Debt |

| | Alternative Credit | | High Yield | | Credit Opportunities | | | Corporate Private Equity | | | | | | | | | | | |


| | | |

| --- | --- | --- |

| | | |

| Credit $16.3 | Private Equity: $4.8 | Real Estate: $1.3 |

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | |

| | E.U. Direct Lending | | U.S. Direct Lending | | Syndicated Loans | | | Corporate Private Equity | | Special Opportunities | | Infrastructure & Power | | | U.S. Real Estate Equity | | E.U. Real Estate Equity | | Real Estate Debt |

| | Alternative Credit | | High Yield | | Credit Opportunities | | | Energy Opportunities | | | | | | | | | | | |

Our capital deployment in drawdown funds comprised of the following (in billions):


| | | | | | |

| --- | --- | --- | --- | --- | --- |

| | | | | | |

| | Credit | | Private Equity | | Real Estate |

The Credit Group provides solutions for investors seeking to access a range of credit assets, including syndicated loans, high yield bonds, alternative credit products and direct lending markets.

The Credit Group capitalizes on opportunities across traded and non-traded corporate, consumer and real estate debt across the U.S. and European markets.

Alternative Credit: Our alternative credit strategy seeks investment opportunities that fall outside of traditional, well-defined markets such as corporate debt, real estate and private equity.

We seek investments that include certain structural features designed to protect value and minimize loss such as asset security, seniority, covenants, and cash flow prioritization.

These investments include asset-backed securities, specialty assets, real assets, and structured credit.


| | | |

| --- | --- | --- |

| | | |

| | |

| --- | --- |

The Management Committee meets monthly to discuss asset deployment, strategy and fundraising.

2017 Highlights

| • | In our Credit Group, we raised $14.9 billion of gross capital commitments across a variety of our credit strategies comprised of $4.3 billion in Syndicated Loans, $558.0 million in High Yield, $66.0 million in Credit Opportunities and $284.0 million in Structured Credit. In our Direct Lending strategy, we raised $7.7 billion of gross capital in our U.S. |

and E.U. Direct Lending funds and $738.0 million in aggregate new debt commitments for ARCC, our publicly traded business development company, and its affiliated funds and vehicles.

| • | In our Private Equity Group, we raised $55.6 million of gross new capital commitments for an Asian private equity fund and $300.0 million of gross new capital commitments for our fifth power and infrastructure fund. |

| • | In our Real Estate Group, we raised $934.2 million of gross new capital commitments for our U.S. real estate private equity funds. Additionally, we raised $508.9 million in our real estate debt strategy. |

| Strategy | Invested Amount | | |

| Syndicated Loans | $ | 2.9 | |

| High Yield Bonds | 0.4 | | |

| Credit Opportunities | 0.3 | | |

| Structured Credit | 1.4 | | |

| U.S. Direct Lending | 3.8 | | |

| E.U. Direct Lending | 3.3 | | |

| Corporate Private Equity | 2.5 | | |

| U.S. Power & Energy Infrastructure | 0.4 | | |

| Special Situations | 0.5 | | |

| Total | $ | 16.4 | |

Of the $12.6 billion, $6.8 billion was driven by investments in E.U. and U.S. direct lending, $1.3 billion driven by investment in structured credit, $0.2 billion was driven by investments in various credit strategies, $3.4 billion was driven by investments in corporate private equity, U.S. power and energy infrastructure and special situations, and $0.9 billion was driven by investments in real estate debt and equity strategies.

The Credit Group provides solutions for fixed income investors seeking to access the syndicated loan and high yield bond markets and capitalizes on opportunities across traded corporate and structured credit.

Structured Credit: Our structured credit strategy invests across the capital structure of syndicated CLO vehicles and in directly-originated asset-backed investments comprised of diversified portfolios of consumer and commercial assets.

We seek to

construct portfolios of asset-backed investments that benefit from having downside protection, less correlation with the broader credit markets and diversification.

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Syndicated Loans | $ | 16.5 | | | $ | 15.3 | | | 35 | |

| High Yield Bonds | 4.7 | | | | 4.6 | | | | 16 | |

| Credit Opportunities | 3.3 | | | | 2.8 | | | | 10 | |

| Structured Credit | 4.8 | | | | 3.4 | | | | 13 | |

| U.S. Direct Lending | 30.6 | | | | 16.9 | | | | 46 | |

| E.U. Direct Lending | 11.8 | | | | 6.4 | | | | 19 | |

| Credit Group | $ | 71.7 | | | $ | 49.4 | | | 139 | |

| Corporate Private Equity | $ | 18.6 | | | $ | 12.1 | | | 7 | |

| U.S. Power & Energy Infrastructure | 4.4 | | | | 4.0 | | | | 11 | |

| Special Situations | 1.5 | | | | 0.8 | | | | 3 | |

| Private Equity Group funds | $ | 24.5 | | | $ | 16.9 | | | 21 | |

repositioning of assets, with a focus on control or majority‑control investments primarily in the United States and Western Europe.

| U.S. Real Estate Equity | $ | 4.6 | | | $ | 3.1 | | | 21 | |

| E.U. Real Estate Equity | 2.7 | | | | 2.0 | | | | 19 | |

| For the fiscal year ended December 31, [removed: 2017] [added: 2018] | |

ARES [removed: MANAGEMENT, L.P.][added: MANAGEMENT CORPORATION]

| [added: Series A] Preferred [removed: shares] [added: Stock, par value $0.01 per share] | New York Stock Exchange |

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Web site,] if any, every Interactive Data File required to be submitted [removed: and posted] pursuant to Rule 405 of Regulation S‑T (Section §232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit [removed: and post] such files).

| Large accelerated filer ý | Accelerated filer o | Non‑accelerated filer o [removed: (Do not check if a smaller reporting company)] | Smaller reporting company o | Emerging growth company o |

The aggregate market value of the common shares held by non‑affiliates of the registrant on June 30, [removed: 2017,] [added: 2018,] based on the closing price on that date of [removed: $18.00] [added: $20.70] on the New York Stock Exchange, was approximately [removed: $858,409,578.][added: $1,324,051,923.]

| [Item 1. [removed: Business](#sBA138AB5ECDA58B4ABE0D9EE59E2960F)] [added: Business](#s5543FEE4877D51E1815CC02F76BE498D)] | | [removed: [7](#sBA138AB5ECDA58B4ABE0D9EE59E2960F)] [added: [7](#s5543FEE4877D51E1815CC02F76BE498D)] |

| [Item 1A. Risk [removed: Factors](#sB357D3046C355DD1A4F4CF009EA73C0F)] [added: Factors](#s2AAB1F91E6435CF49FC667135519B3AC)] | | [removed: [29](#sB357D3046C355DD1A4F4CF009EA73C0F)] [added: [28](#s2AAB1F91E6435CF49FC667135519B3AC)] |

| [Item 1B. Unresolved Staff [removed: Comments](#sDD6353499CA15457B60A30D6C6FA38F4)] [added: Comments](#s966AA0CCE08258758A99DB57AF83D3CF)] | | [removed: [75](#sDD6353499CA15457B60A30D6C6FA38F4)] [added: [78](#s966AA0CCE08258758A99DB57AF83D3CF)] |

| [Item 2. [removed: Properties](#s777C49FCEF16545A872974627D808DB3)] [added: Properties](#s8EB8CF416F2E584F94BB2EFF6066F7FA)] | | [removed: [75](#s777C49FCEF16545A872974627D808DB3)] [added: [78](#s8EB8CF416F2E584F94BB2EFF6066F7FA)] |

| [Item 3. Legal [removed: Proceedings](#s15047E75001D5CBAB2A47F772A226601)] [added: Proceedings](#s6624F426C3E65F2E8B9194F84235A813)] | | [removed: [75](#s15047E75001D5CBAB2A47F772A226601)] [added: [78](#s6624F426C3E65F2E8B9194F84235A813)] |

| [Item 4. Mine Safety [removed: Disclosures](#s4B3E0EE3D8D658FBA03BEF8FF25078FE)] [added: Disclosures](#s8A118522A97F5201985D56FE31A2E485)] | | [removed: [75](#s4B3E0EE3D8D658FBA03BEF8FF25078FE)] [added: [78](#s8A118522A97F5201985D56FE31A2E485)] |

| [Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#sA2248240CA2F5E778C2D353FEFDEFE87)] [added: Securities](#sC18869705F265C4AA1E5EEA730C2E9FF)] | | [removed: [76](#sA2248240CA2F5E778C2D353FEFDEFE87)] [added: [79](#sC18869705F265C4AA1E5EEA730C2E9FF)] |

| [Item 6. Selected Financial [removed: Data](#sB9F16990C30D58F483D518695393D13C)] [added: Data](#sBFE1BA0689095E8FAA84EBD384730CD2)] | | [removed: [79](#sB9F16990C30D58F483D518695393D13C)] [added: [82](#sBFE1BA0689095E8FAA84EBD384730CD2)] |

| [Item 7. Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s1FF611AC9DFD5E0CAAEF6E97CB2E28E9)] [added: Operations](#s1B6617714C4D5B619E137DEEA4E1215F)] | | [removed: [148](#s1FF611AC9DFD5E0CAAEF6E97CB2E28E9)] [added: [85](#s1B6617714C4D5B619E137DEEA4E1215F)] |

| [Item 7A. Quantitative and Qualitative Disclosures about Market [removed: Risk](#s54B35F6F10BE5C13BA3D1394EB153AC1)] [added: Risk](#sA69069A9685059C0A4A77798BE3F2986)] | | [removed: [150](#s54B35F6F10BE5C13BA3D1394EB153AC1)] [added: [142](#sA69069A9685059C0A4A77798BE3F2986)] |

| [Item 8. Financial Statements and Supplementary [removed: Data](#s5CC8EA79D5245D228B81F8F3B8A29342)] [added: Data](#s370307DA933C5440889D01BE0F052F8A)] | | [removed: [152](#s5CC8EA79D5245D228B81F8F3B8A29342)] [added: [144](#s370307DA933C5440889D01BE0F052F8A)] |

| [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial [removed: Disclosure](#s31607B707CD45269ADAE07B459B3CBC3)] [added: Disclosure](#s3DB167525DB55ED485FE43E746B64A50)] | | [removed: [152](#s31607B707CD45269ADAE07B459B3CBC3)] [added: [144](#s3DB167525DB55ED485FE43E746B64A50)] |

| [Item 9A. Controls and [removed: Procedures](#s6F53E1CB60B6553CA42A9E507B9E00E3)] [added: Procedures](#s865A66272E935587B799A72522D785BB)] | | [removed: [153](#s6F53E1CB60B6553CA42A9E507B9E00E3)] [added: [145](#s865A66272E935587B799A72522D785BB)] |

| [Item 9B. Other [removed: Information](#sAB0CE4AFA7655EA581FB0F9A66D95A9D)] [added: Information](#s233D7D2090BD5E9D96142E87A85C5D6C)] | | [removed: [154](#sAB0CE4AFA7655EA581FB0F9A66D95A9D)] [added: [147](#s233D7D2090BD5E9D96142E87A85C5D6C)] |

| [Part [removed: III](#sA16EF9B39D0754AB9286F49C11ECD8FB)] [added: III](#sA2E46C4D9FE45F84AA797CC3A4595F0B)] | | |

| [Item 10. Directors, Executive Officers and Corporate [removed: Governance](#sC3C8C489AAFF5071A2F5340DF6FB1DDA)] [added: Governance](#s288DEA642A6A5D198F5EB4B74BFF293E)] | | [removed: [155](#sC3C8C489AAFF5071A2F5340DF6FB1DDA)] [added: [148](#s288DEA642A6A5D198F5EB4B74BFF293E)] |

| [Item 11. Executive [removed: Compensation](#sDD5A1C52CADD5EE79F852CF8FBB3DEEE)] [added: Compensation](#s70F82748CC5B570094109A25F7E78943)] | | [removed: [160](#sDD5A1C52CADD5EE79F852CF8FBB3DEEE)] [added: [148](#s70F82748CC5B570094109A25F7E78943)] |

| [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s004ACB0656F3514CB6FBB5418EF4FD23)] [added: Matters](#s04C8667556F659E9A72078407127F526)] | | [removed: [171](#s004ACB0656F3514CB6FBB5418EF4FD23)] [added: [148](#s04C8667556F659E9A72078407127F526)] |

| [Item 13. Certain Relationships and Related Transactions, and Director [removed: Independence](#s857A12B6E36A5F2AA5A8BD3FDBAD2FAA)] [added: Independence](#s5C2E8A8C7FB75DFBB5BEBC4E47083443)] | | [removed: [173](#s857A12B6E36A5F2AA5A8BD3FDBAD2FAA)] [added: [148](#s5C2E8A8C7FB75DFBB5BEBC4E47083443)] |

| [Item 14. Principal Accountant Fees and [removed: Services](#s2DE4BD717E3753C6A043D0D1579C4B9A)] [added: Services](#s85B9628A703F5ACF8B8EE803C7A1AE2C)] | | [removed: [177](#s2DE4BD717E3753C6A043D0D1579C4B9A)] [added: [148](#s85B9628A703F5ACF8B8EE803C7A1AE2C)] |

| [Item 15. Exhibits and Financial Statement [removed: Schedules](#sA789814C42955877A0CB50362FA69968)] [added: Schedules](#sAECCA74C491D540F934DF76C4AA25F2A)] | | [removed: [178](#sA789814C42955877A0CB50362FA69968)] [added: [149](#sAECCA74C491D540F934DF76C4AA25F2A)] |

| [Item 16. Summary of [removed: 10-K](#s49EA698899A25C2586CC1C1575210C50)] [added: 10-K](#s406E662B70C95C0AA47359981D79D70C)] | | [removed: [181](#s49EA698899A25C2586CC1C1575210C50)] [added: [152](#s406E662B70C95C0AA47359981D79D70C)] |

Unless the context suggests otherwise, references in this Annual Report on Form 10‑K to (1) “Ares,” [added: the "Company,"] “we,” “us” and “our” refer to our businesses, both before and after [removed: the consummation of] our [removed: reorganization into a holding partnership structure and (2) our “Predecessors” refer to Ares Holdings Inc. (“AHI”) and Ares Investments LLC (“AI”), our accounting predecessors, as well as their wholly owned subsidiaries and managed funds, in each case prior] [added: conversion] to [removed: the Reorganization.][added: a corporation.]

References in this Annual Report on Form 10-K to (1) “common [removed: units” or “common] shares” and “preferred [removed: units” or “preferred] shares” [removed: outstanding prior to March 1, 2018] refer to [added: shares of] our [added: Class A] common [removed: units] [added: stock] and [removed: preferred units,] [added: the Series A Preferred Stock,] respectively, previously outstanding prior to [removed: March 1,] [added: our conversion to a corporation effective November 26,] 2018 and (2) “common [removed: unitholders” or “common] shareholders” and “preferred [removed: unitholders” or “preferred] shareholders” [removed: prior to March 1, 2018] refer to [added: holders of shares of] our [added: Class A] common [removed: unitholders] [added: stock] and [removed: preferred unitholders,] [added: shares of the Series A Preferred Stock,] respectively, prior to [removed: March 1,] [added: our conversion to a corporation effective November 26,] 2018.

When an entity is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the entity in our consolidated financial statements on a gross basis, subject to eliminations from consolidation, including the elimination of the management fees, performance [removed: fees] [added: income] and other fees that we earn from the entity.

However, the presentation of performance [removed: fee] [added: related] compensation and other expenses associated with generating such revenues is not affected by the consolidation process.

In addition to our three segments, we have an Operations Management Group (the “OMG”) that consists of [removed: five] independent, shared resource groups to support our reportable segments by providing infrastructure and administrative support in the areas of accounting/finance, [removed: operations/information] [added: operations, information] technology, [removed: business development/corporate strategy, legal/compliance] [added: strategy] and [added: relationship management, legal, compliance and] human resources.

Our management uses this information to assess the performance of our [added: reportable segments and our OMG, and we believe that this information enhances the ability of stockholders to analyze our performance.]

For more information, see “Notes to the Consolidated Financial Statements - Note [removed: 18.][added: 16.]

When used in this Annual Report on Form [removed: 10‑K,] [added: 10-K,] unless the context otherwise requires:

| • | “ARCC Part I Fees” refers to a quarterly performance [removed: fee] [added: income] on the investment income [removed: from] [added: of] Ares Capital Corporation (NASDAQ: ARCC) [removed: (“ARCC”);] [added: (“ARCC”). Such fees from ARCC are classified as management fees as they are paid quarterly, predictable and recurring in nature, not subject to contingent repayment and are typically cash settled each quarter;] |

| • | “Ares Operating Group Unit” or an “AOG Unit” [removed: refer] [added: refers] to, collectively, a partnership unit in each of the Ares Operating Group entities; |

| • | “assets under management” or “AUM” refers to the assets we manage. For our funds other than CLOs, our AUM represents the sum of the net asset value of such funds, the drawn and undrawn debt (at the fund‑level including amounts subject to restrictions) and uncalled committed capital (including commitments to funds that have yet to commence their investment periods). For our funds that are CLOs, our AUM [removed: represents subordinated notes (equity) plus all drawn and undrawn debt tranches;] [added: is equal to initial principal amounts adjusted for paydowns;] |

| • | [removed: "available capital"] [added: “available capital” (also referred to as “dry powder”)] is comprised of uncalled committed capital and undrawn amounts under credit facilities and may include AUM that may be canceled or not otherwise available to [removed: invest (also referred to as "dry powder").] [added: invest;] |

10-K 1 aresmanagement201810-k.htm 10-K

| Class A Common Stock, par value $0.01 per share | New York Stock Exchange |

As of February 22, 2019, there were 103,001,580 of the registrant’s shares of Class A common stock outstanding,1,000 shares of the registrant's Class B common stock outstanding, and 1 share of the registrant's Class C common stock outstanding.

| [Part I](#s257DFE946EB256D6A74B87AA6F493450) | | |

| [Part II](#sD728B25CF3CE5CFD85E4720DDD16F67C) | | |

| [Part IV](#s0BECE48C1D5B5B99BD63822C945DA967) | | |

| [Signatures](#s6593626A18785BAC9A502A2966617E03) | | [153](#s6593626A18785BAC9A502A2966617E03) |

| • | “ARCC Part II Fees” refers to fees, paid annually, based on ARCC's net capital gains; |

| • | "Series A Preferred Stock" refers to the preferred stock, $0.01 par value per share, of the Company designated as 7.00% Series A Preferred Stock; and |

10-K 1 aresmanagement201710-k.htm 10-K

| | |

| --- | --- |

| Common shares representing limited partner interests | New York Stock Exchange |

As of February 15, 2018, there were 82,758,558 of the registrant’s common shares representing limited partner interests outstanding.

| [Part I](#s8CB7CFFED4505F3091985D88D880BBE5) | | |

| [Part II](#s9039DA77FC9C5558872872B78BF5C7DE) | | |

| [Part IV](#s40F7D5F428F45FE39AA44F9C0193AC37) | | |

| [Signatures](#sF3131A6E7ED357CFAA957558F5CDFBA4) | | [182](#sF3131A6E7ED357CFAA957558F5CDFBA4) |

References in this Annual Report on Form 10‑K to “our general partner” refer to Ares Management GP LLC, an entity wholly owned by Ares Partners Holdco LLC, which is in turn owned and controlled by Holdco Members.

Note that the terms of our common shares and preferred shares, and the associated rights, remain unchanged.

reportable segments and our OMG, and we believe that this information enhances the ability of shareholders to analyze our performance.

| • | “distributable earnings” or “DE”, a non-GAAP measure, is an operating metric that assesses our performance without the effects of our consolidated funds and the impact of unrealized income and expenses, which generally fluctuate with fair value changes. Among other things, this metric also is used to assist in determining amounts potentially available for distribution. However, the declaration, payment, and determination of the amount of distributions to shareholders, if any, is at the sole discretion of our Board of Directors, which may change our distribution policy at any time. Distributable earnings is calculated as the sum of fee related earnings, realized performance fees, realized performance fee compensation, realized net investment and other income, and is reduced by expenses arising from transaction costs associated with acquisitions, placement fees and underwriting costs, expenses incurred in connection with corporate reorganization and depreciation. Distributable earnings differs from income before taxes computed in accordance with GAAP as it is typically presented before giving effect to unrealized performance fees, unrealized performance fee compensation, unrealized net investment income, amortization of intangibles, and equity compensation expense. DE is presented prior to the effect of income taxes attributable to Ares Holdings, Inc. and to distributions made to our preferred shareholders, unless otherwise noted; |

| • | “fee related earnings” or “FRE”, a non-GAAP measure, refers to a component of ENI that is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is |

sufficient to cover operating expenses and to generate profits.

| • | “performance related earnings” or “PRE”, a non-GAAP measure, is used to assess our investment performance net of performance fee compensation. PRE differs from income (loss) before taxes computed in accordance with GAAP as it only includes performance fees, performance fee compensation and total investment and other income that we earn from our Consolidated Funds and non-consolidated funds; |

| • | “realized income” or “RI”, a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on tangible 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 net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate |

actions, (e) unrealized gains and losses related to performance fees and investment performance and (e) certain other items that we believe are not indicative of our tangible 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 transactions, placement fees and underwriting costs and expenses incurred in connection with corporate reorganization;

Our common shares [removed: representing limited partner interests in Ares Management, L.P. are traded on the NYSE under the symbol “ARES.” Our common shares] began trading on the NYSE on May 2, 2014.

| | [removed: 2017 | | | | | | | | 2016 |] [added: 5/2/2014] | [added: 12/31/2014] | [added: 12/31/2015] | [added: 12/31/2016] | [added: 12/31/2017] | [added: 12/31/2018] |

The number of holders of record of our [added: Class A] common [removed: shares] [added: stock] as of February [removed: 15, 2018] [added: 22, 2019] was [removed: 2.][added: two.]

This does not include the number of [removed: sharesholders] [added: shareholders] that hold shares in “street name” through banks or broker-dealers.

The table below presents purchases made by or on behalf of Ares [removed: Management, L.P.] [added: Management Corporation] or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of [removed: our common] shares [added: of our Class A Common Stock] during each of the indicated periods.

| Period | | Total Number of [removed: Common] Shares [added: of Our Class A Common Stock] Purchased(1) | | | Average Price Paid Per [added: Share of Our Class A] Common [removed: Shares] [added: Stock] | | | | Total Number of [removed: Common] Shares [added: of Our Class A Common Stock] Purchased as Part of Publicly Announced Plans or Programs | | | Maximum Number of [removed: Common] Shares [added: of Our Class A Common Stock] That May Yet Be Purchased Under the Plan or Program | |

As of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] the Company had 12,400,000 shares of Series A Preferred [removed: Equity (the “Preferred Equity”)] [added: Stock, $0.01 par value per share, designated as “7.00% Series A Preferred Stock”] outstanding.

When, as and if declared by the Company’s board of directors, [removed: distributions] [added: dividends] on the [added: Series A] Preferred [removed: Equity] [added: Stock] are paid quarterly at a rate per annum equal to 7.00%.

[removed: our general partner] [added: During 2018 and 2017, we paid quarterly dividends of approximately $21.7 million in each year to holders of record of shares of the Series A Preferred Stockholders, and in February 2019, the Company's board of directors] declared [added: a] quarterly [removed: distribution] [added: dividend] of $5.4 million in respect of the fourth quarter of [removed: 2017] [added: 2018] payable on March 31, [removed: 2018] [added: 2019] to holders of record of [removed: preferred equity] [added: shares of the Series A Preferred Stock] at the close of business on March 15, [removed: 2018.][added: 2019.]

During [removed: 2016,] [added: 2017,] we paid quarterly [removed: distributions] [added: dividends] of [removed: $0.20,] $0.28, [removed: $0.15] [added: $0.13, $0.31] and [removed: $0.20] [added: $0.41] per common share (totaling [removed: $0.83] [added: $1.13] per common share) to record holders of common shares, or approximately [removed: $67.0] [added: $92.6] million.

Our fixed [removed: distribution] [added: dividend] will be reassessed each year based upon the level and growth of our after-tax fee related earnings.

As fee related earnings reflect the core earnings of our business and consists of management fees less compensation and general and administrative expenses, having our recurring [removed: distribution] [added: dividend] based on this amount removes volatility from our [removed: distribution] [added: dividend] and enables investors to receive what we believe is an attractive after-tax qualifying [removed: distribution] [added: dividend] yield.

Our [removed: new distribution] [added: dividend] policy reflects our intention to retain net performance [removed: fees.][added: income.]

We expect to use such retained earnings for potential [removed: share] [added: stock] repurchases and to fund future growth with the objective of accelerating our fee related earnings growth per share.

However, the declaration, payment and determination of the amount of future [removed: distributions,] [added: dividends,] if any, is at the sole discretion of [removed: the] [added: our] board of [removed: directors of our general partner,] [added: directors,] which may change our [removed: distribution] [added: dividend] policy at any time.

In addition, under the Credit Facility, certain subsidiaries of the Ares Operating Group are prohibited from [removed: making distributions] [added: paying dividends] in certain circumstances, including if an Event of Default (as defined in the Credit Facility) has occurred and is continuing.

Because Ares [removed: Management, L.P.] [added: Management Corporation] is a holding company and has no material assets other than its indirect ownership of Ares Operating Group Units, we fund [removed: distributions] [added: dividends] by Ares [removed: Management, L.P.] [added: Management Corporation] on [removed: the] [added: shares of our Class A] common [removed: shares,] [added: stock,] if any, in three steps:

| • | first, we cause the Ares Operating Group entities to make distributions to their partners, including Ares [removed: Management, L.P.] [added: Management Corporation] and its direct subsidiaries. If the Ares Operating Group entities make such distributions, the partners of the Ares Operating Group entities will be entitled to receive equivalent distributions pro rata based on their partnership units in the Ares Operating Group (except as set forth in the following paragraph); |

| • | second, we cause Ares [removed: Management, L.P.’s] [added: Management Corporation’s] direct subsidiaries to distribute to Ares [removed: Management, L.P.] [added: Management Corporation] their share of such distributions, net of any taxes and amounts payable under the tax receivable agreement by such direct subsidiaries; and |

| • | third, Ares [removed: Management, L.P. distributes] [added: Management Corporation pays] such distributions to our [added: holders of our Class A] common [removed: equityholders,] [added: stock,] net of any taxes and amounts payable under the tax receivable agreement, on a pro rata basis. |

Because we and our direct subsidiaries that are corporations for U.S. federal income tax purposes may be required to pay corporate income and franchise taxes and make payments under the tax receivable agreement, the [added: dividend] amounts ultimately [removed: distributed] [added: paid] by us to [added: holders of] our [added: Class A] common [removed: shareholders] [added: stock] are expected to be generally less, on a per share basis, than the amounts distributed by the Ares Operating Group entities to their respective partners in respect of their Ares Operating Group Units.

Furthermore, by paying cash [removed: distributions] [added: dividends] rather than investing that cash in our businesses, we might risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations, new investments or unanticipated capital expenditures, should the need arise.

Although a portion of any [removed: distributions] [added: dividends] by us to [added: holders of] our [added: Class A] common [removed: shareholders] [added: stock] may include carried interest received by us, we do not intend to seek fulfillment of any contingent repayment obligation by seeking to have [added: holders of] our [added: Class A] common [removed: shareholders] [added: stock] return any portion of such [removed: distributions] [added: dividends] attributable to carried interest associated with any contingent repayment obligation.

We expect any [removed: distributions made] [added: dividends paid] out of current or accumulated earnings and profits to U.S. individuals and certain other qualifying [removed: shareholders] [added: holders of our Class A common stock] to constitute “qualified dividend” income that is generally taxed at a [added: more] favorable [removed: lower] tax rate than the ordinary income tax rate, if the requisite holding periods have been met.

If the [removed: distribution] [added: dividend] exceeds current and accumulated earnings and profits, the excess is treated as a nontaxable return of capital, reducing the [removed: shareholder’s] [added: stockholder’s] tax basis in its shares to the extent of such shareholder’s tax basis in such shares.

Because [removed: entities treated as corporations for] U.S. [removed: federal income tax purposes] [added: corporations] are taxed on their own taxable income, and because owners of such entities are taxed on any dividends [removed: distributed] [added: paid] from such entities, there are two levels of potential tax upon income earned by such entities.

Our Class A common stock is traded on the NYSE under the symbol “ARES".

We completed our conversion from a Delaware limited partnership to a Delaware corporation effective on November 26, 2018.

Our Class A common stock continued to trade on the NYSE under our existing symbol following the Conversion.

Ares Management GP LLC is the sole holder of shares of our Class B Common Stock and Ares Voting LLC is the sole holder of shares of our Class C Common Stock.

Stock Performance Graph

The following graph and table depict the total return to holders of our Class A common stock from the closing price on May 2, 2014 (the date our common shares began trading on the NYSE) through December 31, 2018, relative to the performance of the S&P 500 Index and the Dow Jones U.S. Asset Managers Index.

The graph and table assume $100 invested on May 2, 2014 and dividends received reinvested in the security or index.

The performance graph and table are not intended to be indicative of future performance.

The performance graph and table shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of the Company’s filings under the Securities Act or the Exchange Act.

Total Return Performance Table


| | | | | | | |

| --- | --- | --- | --- | --- | --- | --- |

| | | | | | | |

| ARES | $100.0 | $94.5 | $74.9 | $117.3 | $129.8 | $122.6 |

| S&P 500 | 100.0 | 111.0 | 112.5 | 126.0 | 153.5 | 146.7 |

| Dow Jones U.S. Asset Manager | 100.0 | 115.0 | 103.3 | 114.9 | 149.0 | 111.7 |

Issuer Purchases of Equity Securities

| October 1 to October 31, 2018 | | — | | | $ | — | | | — | | | — | |

| November 1 to November 30, 2018 | | — | | | $ | — | | | — | | | — | |

| December 1 to December 31, 2018 | | — | | | $ | — | | | — | | | — | |

In February 2019, our board of directors authorized the repurchase of up to $150 million of shares of our Class A common stock.

Under this stock repurchase program, shares may be repurchased from time to time in open market purchases, privately negotiated transactions or otherwise, including in reliance on Rule 10b5-1 of the Securities Act.

The program is scheduled to expire in February 2020.

Repurchases under the program, if any, will depend on the prevailing market conditions and other factors.

There is no assurance that any shares will be repurchased under the program.

Dividend Policy for the Series A Preferred Stock

Dividend Policy for Class A Common Stock

During 2018, the Company declared dividends of $0.40, $0.0933, $0.28, $0.28 and $0.28 (totaling $1.33) per share to holders of record of shares of our Class A common stockholders at the close of business on February 26, April 16, June 15, September 14, and December 17, respectively, or approximately $99.3 million.

In February 2019, the Company's board of directors declared a quarterly dividend of $0.32 per share, or approximately $33.0 million, in respect of the first quarter of 2019 payable on March 29, 2019 to holders of record of shares of our Class A Common stock at the close of business on March 15, 2019.

Our dividend policy for our Class A common stock is more closely aligned with our core management fee business.

Subject to the approval of our board of directors, we intend to pay a dividend of $0.32 per share of our Class A common stock per quarter in 2019.

The payment of cash dividends on shares of our Class A common stock is subject to compliance with DGCL.

As a result of changing the name of our common units and preferred units to common shares and preferred shares, respectively, effective March 2, 2018 our common shares and preferred shares will officially trade with such revised names on the NYSE under our existing symbols.

The following table sets forth the high and low intra‑day sales prices per share of our common shares, for the periods indicated, as reported by the NYSE.

| | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | Sales Price | | | | | | | | | | | | | | |

| | High | | | | Low | | | | High | | | | Low | | |

| First Quarter | $ | 23.25 | | | $ | 17.15 | | | $ | 15.50 | | | $ | 10.76 | |

| Second Quarter | $ | 19.80 | | | $ | 17.25 | | | $ | 15.96 | | | $ | 12.08 | |

| Third Quarter | $ | 18.85 | | | $ | 17.40 | | | $ | 19.54 | | | $ | 13.81 | |

| Fourth Quarter | $ | 20.00 | | | $ | 18.00 | | | $ | 19.20 | | | $ | 14.75 | |

| October 1 to October 31, 2017 | | — | | | $ | — | | | — | | | — | |

| November 1 to November 30, 2017 | | — | | | $ | — | | | — | | | — | |

| December 1 to December 31, 2017 | | — | | | $ | — | | | — | | | — | |

On March 2, 2017, AREC Holdings Ltd., a wholly owned subsidiary of Abu Dhabi Investment Authority (“ADIA” or “the selling shareholder”) sold 7,500,000 shares of the Company’s common shares through a public secondary offering.

The Company did not receive any of the proceeds from the offering.

The Company incurred approximately $0.7 million of expenses related to the secondary offering transaction.

The fees related to the secondary offering were non-operating expenses and are included in other income, net in the Consolidated Statements of Operations.

The selling shareholder paid the underwriting discounts and commissions and/or similar charges incurred for the sale of the common shares.

Distribution Policy for Preferred Equity

During 2017 and 2016, we paid quarterly distributions of approximately $21.7 million and $12.2 million, respectively, to our preferred equity holders of record, and in February 2018, the board of directors of

Distribution Policy for Common Shares Prior to Effectiveness of Tax Election

During 2017, we paid quarterly distributions of $0.28, $0.13, $0.31 and $0.41 per common share (totaling $1.13 per common share) to record holders of common shares, or approximately $92.6 million, and in February 2018, the board of directors of our general partner declared an additional distribution of $0.40 per common share, or approximately $33.1 million, inclusive of $0.25 per common share for the fourth of 2017 and $0.15 per common share for the first two months of the first quarter of 2018, payable on February 28, 2018 to common shareholders of record at the close of business on February 26, 2018.

We distributed to our common shareholders on a quarterly basis substantially all of Ares Management, L.P.’s share of distributable earnings, net of any applicable corporate taxes and amounts payable under the tax receivable agreement, in excess of amounts determined by our general partner to be necessary or appropriate to provide for the conduct of our businesses, to make appropriate investments in our businesses and our funds, to comply with applicable law, any of our debt instruments and preferred shares or other agreements or to provide for future distributions to our common shareholders for any ensuing quarter, subject to a base quarterly distribution target range of 80% to 90% of distributable earnings.

See “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations-Segment Analysis-Reconciliation of Certain Non‑GAAP Measures to Consolidated GAAP Financial Measures” for a reconciliation of our distributable earnings to our income before taxes presented in accordance with GAAP.

In most years, the aggregate amounts of distributions to our preferred and common shareholders did not equal our distributable earnings for that year.

Our distributable earnings were only a starting point for the determination of the amount to be distributed to our common shareholders because, as noted above, in determining the amount to be distributed, we subtracted from our distributable earnings any amounts determined by our general partner to be necessary or appropriate to provide for the conduct of our businesses, to make appropriate investments in our businesses and our funds, to comply with applicable law, any of our debt instruments or other agreements or to provide for future distributions to our preferred and common shareholders for any ensuing quarter.

Distribution Policy for Common Shares Following Effectiveness of Tax Election

In conjunction with the Tax Election, we have adopted a distribution policy that will reduce volatility of the quarterly distributions and become more closely aligned with our core management fee business.

For March 2018, the first month that we are taxed as a corporation, we declared a distribution of $0.0933 per common share, reflecting one-third of a full quarter $0.28 per share distribution.

Starting in the second quarter of 2018, we intend to pay a $0.28 per common share distribution per quarter for the remainder of 2018.

For distributions made following the effective date of March 1, 2018, investors will now receive income reported on a Form 1099-DIV instead of a Schedule K-1.

As we have historically distributed to our common shareholders substantially all of our distributable earnings, we have not retained earnings for future growth.

Under the Delaware Limited Partnership Act, Ares Management, L.P. may not make a distribution to a partner if after the distribution, all of our liabilities, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specific property of the partnership, would exceed the fair value of our assets.

If we were to make such an impermissible distribution, any limited partner who received a distribution and knew at the time of the distribution that the distribution was in violation of the Delaware Limited Partnership Act would be liable to us for the amount of

the distribution for three years from the date of such distribution.

The following tables present selected consolidated financial information and other data of the [removed: Company and its Predecessor.][added: Company.]

The [removed: Company] [added: Company, which] was formed on November 15, 2013 [added: as a partnership and converted] to [added: a Delaware corporation effective November 26, 2018, was formed to] serve as a holding [removed: partnership] [added: company] for our businesses.

We derived the following selected consolidated financial data of the Company as of December 31, [removed: 2017] [added: 2018] and [removed: 2016] [added: 2017] and for the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015] [added: 2016] from the audited consolidated financial statements included elsewhere in this Annual Report on Form 10‑K.

The selected consolidated financial data of the Company as of and for the [removed: year] [added: years] ended [added: December 31, 2015 and] 2014 [removed: was] [added: were] derived from the audited consolidated financial statements of the Company, which are not included in this Annual Report on Form 10-K.

The consolidated financial statements were prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments that we consider necessary for a fair presentation of the [removed: Predecessor’s] [added: Company’s] consolidated financial position and results of operations.

The consolidation of funds during the periods generally has the effect of grossing up reported assets, liabilities and cash flow, and has no effect on net income attributable to the [removed: Company and the Predecessor.][added: Company.]

Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations”and] [added: Operations” and] our historical consolidated financial statements and related notes included elsewhere in this Annual Report on Form [removed: 10‑K.][added: 10‑K (in thousands).]

| | For the Year Ended December 31, | | | | | | | | | | | | | | | | | | | [removed: |]

| | [removed: 2017 |] [added: 2018] | | | [removed: 2016] | [added: 2017] | | | [removed: 2015] | [added: 2016] | | | [removed: 2014] | [added: 2015] | | | [removed: 2013] | [added: 2014] | | |

| Statements of [removed: operations] [added: financial condition] data | | | | | | | | | | | | | | | | | | | | [removed: |]

| Revenues | | | | | | | | | | | | | | | | | | | | [removed: |]

| Management fees (includes ARCC Part I Fees of [added: $128,805,] $105,467, $121,181, [removed: $121,491, $118,537] [added: $121,491] and [removed: $110,511] [added: $118,537] for the years ended December 31, [added: 2018,] 2017, 2016, [removed: 2015, 2014] [added: 2015] and [removed: 2013,] [added: 2014,] respectively) | $ | [removed: 722,419] [added: 802,502] | | | $ | [removed: 642,068] [added: 722,419] | | | $ | [removed: 634,399] [added: 642,068] | | | $ | [removed: 486,477] [added: 634,399] | | | $ | [removed: 375,572 |] [added: 486,477] | |

| Administrative, transaction and other fees | [removed: 56,406 |] [added: 51,624] | | | [removed: 39,285] | [added: 56,406] | | | [removed: 29,428] | [added: 39,285] | | | [removed: 26,000] | [added: 29,428] | | | [removed: 23,283] | [added: 26,000] | | |

| Expenses | | | | | | | | | | | | | | | | | | | | [removed: |]

| Compensation and benefits | [removed: 514,109 |] [added: 570,380] | | | [removed: 447,725] | [added: 514,109] | | | [removed: 414,454] | [added: 447,725] | | | [removed: 456,372] | [added: 414,454] | | | [removed: 333,902] | [added: 456,372] | | |

| Performance [removed: fee] [added: related] compensation | [removed: 479,722 |] [added: 30,254] | | | [removed: 387,846] | [added: 479,722] | | | [removed: 111,683] | [added: 387,846] | | | [removed: 170,028] | [added: 111,683] | | | [removed: 194,294] | [added: 170,028] | | |

| General, administrative and other expenses | [removed: 196,730 |] [added: 215,964] | | | [removed: 159,776] | [added: 196,730] | | | [removed: 224,798] | [added: 159,776] | | | [removed: 166,839] | [added: 224,798] | | | [removed: 138,464] | [added: 166,839] | | |

| Transaction support expense | [removed: 275,177] [added: —] | | | | [removed: —] [added: 275,177] | | | | — | | | | — | | | | — | | | [removed: |]

| Expenses of Consolidated Funds | [removed: 39,020 |] [added: 53,764] | | | [removed: 21,073] | [added: 39,020] | | | [removed: 18,105] | [added: 21,073] | | | [removed: 66,800] | [added: 18,105] | | | [removed: 135,237] | [added: 66,800] | | |

| Total expenses | [removed: 1,504,758 |] [added: 870,362] | | | [removed: 1,016,420] | [added: 1,504,758] | | | [removed: 769,040] | [added: 1,016,420] | | | [removed: 860,039] | [added: 769,040] | | | [removed: 801,897] | [added: 860,039] | | |

| Other income (expense) | | | | | | | | | | | | | | | | | | | | [removed: |]

| Interest expense | [removed: (21,219] [added: (21,448] | | ) | | [removed: (17,981] [added: (21,219] | | ) | | [removed: (18,949] [added: (17,981] | | ) | | [removed: (8,617] [added: (18,949] | | ) | | [removed: (9,475] [added: (8,617] | | ) | [removed: |]

| Debt extinguishment expense | — | | | | — | | | | [removed: (11,641 |] [added: —] | [removed: )] | | [removed: —] | [added: (11,641] | | [added: )] | [removed: (1,862] | [added: —] | [removed: )] | |

| Other income (expense), net | [removed: 19,470] [added: (851] | | [added: )] | | [removed: 35,650] [added: 19,470] | | | | [removed: 21,680] [added: 35,650] | | | | [removed: (2,422] [added: 21,680] | | [removed: )] | | [removed: (200] [added: (2,422] | | ) | [removed: |]

| Net realized and unrealized gain (loss) on investments of Consolidated Funds | [added: (1,583 | | ) | |] 100,124 | | | | (2,057 | | ) | | (24,616 | | ) | | 513,270 | | | [removed: | 479,096 | | | |]

| Interest and other income of Consolidated Funds | [removed: 187,721 |] [added: 337,875] | | | [removed: 138,943] | [added: 187,721] | | | [removed: 117,373] | [added: 138,943] | | | [removed: 937,835] | [added: 117,373] | | | [removed: 1,236,037] | [added: 937,835] | | |

| Interest expense of Consolidated Funds | [removed: (126,727] [added: (222,895] | | ) | | [removed: (91,452] [added: (126,727] | | ) | | [removed: (78,819] [added: (91,452] | | ) | | [removed: (666,373] [added: (78,819] | | ) | | [removed: (534,431] [added: (666,373] | | ) | [removed: |]

| Income before taxes | [removed: 149,859 |] [added: 184,341] | | | [removed: 297,920] | [added: 149,859] | | | [removed: 81,484] | [added: 297,920] | | | [removed: 556,915] | [added: 81,484] | | | [removed: 872,641] | [added: 556,915] | | |

| Income tax expense (benefit) | [added: 32,202 | | | |] (23,052 | | ) | | 11,019 | | | | 19,064 | | | | 11,253 | | | [removed: | 59,263 | | | |]

| Net income | [removed: 172,911 |] [added: 152,139] | | | [removed: 286,901] | [added: 172,911] | | | [removed: 62,420] | [added: 286,901] | | | [removed: 545,662] | [added: 62,420] | | | [removed: 813,378] | [added: 545,662] | | |

| Less: Net income attributable to redeemable interests in Consolidated Funds | — | | | | — | | | | — | | | | [removed: 2,565 |] [added: —] | | | [removed: 137,924] | [added: 2,565] | | |

| Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds | [added: 20,512 | | | |] 60,818 | | | | 3,386 | | | | (5,686 | | ) | | 417,793 | | | [removed: | 448,847 | | | |]

| Less: Net income attributable to redeemable interests in Ares Operating Group entities | — | | | | [removed: 456 |] [added: —] | | | [removed: 338] | [added: 456] | | | [removed: 731] | [added: 338] | | | [removed: 2,451] | [added: 731] | | |

| Less: Net income attributable to non-controlling interests in Ares Operating Group entities | [removed: 35,915 |] [added: 74,607] | | | [removed: 171,251] | [added: 35,915] | | | [removed: 48,390] | [added: 171,251] | | | [removed: 89,585] | [added: 48,390] | | | [removed: 224,156] | [added: 89,585] | | |

| Net income attributable to Ares [removed: Management, L.P. | 76,178] [added: Management Corporation] | [added: 57,020] | | | [removed: 111,808] | [added: 76,178] | | | [removed: 19,378] | [added: 111,808] | | | [removed: 34,988] | [added: 19,378] | | | [removed: —] | [added: 34,988] | | |

| Less: [added: Series A] Preferred [removed: equity distributions] [added: Stock dividends] paid | 21,700 | | | | [removed: 12,176] [added: 21,700] | | | | [removed: —] [added: 12,176] | | | | — | | | | — | | | [removed: |]

| Net income attributable to Ares [removed: Management, L.P.] [added: Management Corporation Class A] common [removed: unitholders] [added: stockholders] | $ | [removed: 54,478] [added: 35,320] | | | $ | [removed: 99,632] [added: 54,478] | | | $ | [removed: 19,378] [added: 99,632] | | | $ | [removed: 34,988] [added: 19,378] | | | $ | [removed: — |] [added: 34,988] | |

| | As of December 31, | | | | | | | | | | | | | | | | | | | [removed: |]

| Cash and cash equivalents | $ | [removed: 118,929] [added: 110,247] | | | $ | [removed: 342,861] [added: 118,929] | | | $ | [removed: 121,483] [added: 342,861] | | | $ | [removed: 148,858] [added: 121,483] | | | $ | [removed: 89,802 |] [added: 148,858] | |

| Cash and cash equivalents of Consolidated Funds | [removed: 556,500 |] [added: 384,644] | | | [removed: 455,280] | [added: 556,500] | | | [removed: 159,507] | [added: 455,280] | | | [removed: 1,314,397] | [added: 159,507] | | | [removed: 1,638,003] | [added: 1,314,397] | | |

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| Statements of operations data | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | | | 2014 | | |

| | | | | | As Adjusted | | | | As Adjusted | | | | As Adjusted | | | | As Adjusted | | |

| Carried interest allocation | 42,410 | | | | 620,454 | | | | 494,580 | | | | 146,038 | | | | 63,884 | | |

| Incentive fees | 63,380 | | | | 16,220 | | | | 23,272 | | | | 4,577 | | | | 27,528 | | |

| Principal investment income (loss) | (1,455 | | ) | | 64,444 | | | | 55,168 | | | | 11,290 | | | | 6,527 | | |

| Total revenues | 958,461 | | | | 1,479,943 | | | | 1,254,373 | | | | 825,732 | | | | 610,416 | | |

| Net realized and unrealized gain (loss) on investments | (1,884 | | ) | | 8,262 | | | | (7,629 | | ) | | 12,913 | | | | 26,206 | | |

| Interest and dividend income | 7,028 | | | | 7,043 | | | | 4,493 | | | | 6,851 | | | | 6,639 | | |

| Total other income | 96,242 | | | | 174,674 | | | | 59,967 | | | | 24,792 | | | | 806,538 | | |

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| | | | | | As Adjusted | | | | As Adjusted | | | | As Adjusted | | | | As Adjusted | | |

| Investments | 1,326,137 | | | | 1,724,571 | | | | 1,209,793 | | | | 974,101 | | | | 336,159 | | |

| Total stockholders' equity | 587,924 | | | | 573,618 | | | | 591,612 | | | | 246,917 | | | | 283,639 | | |

The selected consolidated financial data as of and for the year ended December 31, 2013 was derived from the audited consolidated financial statements of the Predecessor, which are not included in this Annual Report on Form 10-K.

For the period ended December 31, 2013, non-controlling interests in Ares Operating Group entities represent equity interests and net income attributable to various minority non-control oriented strategic investment partners, including the Predecessor’s historical results.

The net income attributable to controlling interests in the Predecessor, from January 1, 2014 to April 30, 2014, is presented together with net income attributable to non-controlling interests in Ares Operating Group entities within the Consolidated Statements of Operations.

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| | | | | | | | | | | | | | | | | | (Predecessor) | | | |

| | (Dollars in thousands) | | | | | | | | | | | | | | | | | | | |

| Performance fees | 636,674 | | | | 517,852 | | | | 150,615 | | | | 91,412 | | | | 79,800 | | | |

| Total revenues | 1,415,499 | | | | 1,199,205 | | | | 814,442 | | | | 603,889 | | | | 478,655 | | | |

| Net realized and unrealized gain on investments | 67,034 | | | | 28,251 | | | | 17,009 | | | | 32,128 | | | | 8,922 | | | |

| Interest and dividend income | 12,715 | | | | 23,781 | | | | 14,045 | | | | 7,244 | | | | 5,996 | | | |

| Debt extinguishment gain of Consolidated Funds | — | | | | — | | | | — | | | | — | | | | 11,800 | | | |

| Total other income | 239,118 | | | | 115,135 | | | | 36,082 | | | | 813,065 | | | | 1,195,883 | | | |

| Statements of financial condition data | | | | | | | | | | | | | | | | | | | | |

| Investments | 647,335 | | | | 468,471 | | | | 468,287 | | | | 174,052 | | | | 89,438 | | | |

| Total controlling interest in Ares Management, L.P. | 274,857 | | | | 292,851 | | | | 246,917 | | | | 283,639 | | | | 525,678 | | | |

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, [removed: 2017.][added: 2018.]

Based upon that evaluation and subject to the foregoing, our principal executive officers and principal financial officer concluded that, as of December 31, [removed: 2017,] [added: 2018,] the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

There have been no changes in our internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended December 31, [removed: 2017] [added: 2018] that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a [added: material] misstatement of our consolidated financial statements would be prevented or detected.

Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, [removed: 2017.][added: 2018.]

To the [added: Stockholders and] Board of Directors [removed: and Unitholders] of Ares [removed: Management, L.P.][added: Management Corporation]