Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

AMC is a Delaware corporation. Unless the context otherwise requires, references to “Ares,” “we,” “us,” “our,” and the “Company” are intended to mean the business and operations of AMC and its consolidated subsidiaries. The following discussion analyzes the financial condition and results of operations of the Company. “Consolidated Funds” refers collectively to certain Ares funds, co-investment entities, CLOs and special purpose acquisition companies 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. Additional terms used by the Company are defined in the Glossary and throughout the Management's Discussion and Analysis 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 AMC and the related notes included in this Annual Report on Form 10-K.

This section of the Annual Report on Form 10-K discusses activity as of and for the years ended December 31, 2021 and 2020. For discussion on activity for the year ended December 31, 2019 and period-over-period analysis on results for the year ended December 31, 2020 to 2019, refer to Part II, “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020.

Amounts and percentages presented throughout our discussion and analysis of financial condition and results of operations may reflect rounded results in thousands (unless otherwise indicated) and consequently, totals may not appear to sum. In addition, illustrative charts may not be presented at scale.

Trends Affecting Our Business

We believe that our disciplined investment philosophy across our distinct but complementary investment groups contributes to the stability of our performance throughout market cycles. For the year ended December 31, 2021, approximately 95% of our management fees were derived from perpetual capital vehicles and other long-dated funds. Our funds have a stable base of committed capital enabling us to invest in assets with a 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, particularly in the United States and Western Europe, including conditions in the global financial markets and the economic and political environments.

Through the first three quarters of the year, performance across global capital markets continued its positive trajectory as inflationary concerns and the spread of the COVID-19 Delta variant were overshadowed by improving corporate credit fundamentals and strengthening market demand. In the fourth quarter, global capital markets experienced increased volatility as fears around the Omicron variant and its unknown characteristics created investor uncertainty. However, these fears were assuaged towards quarter-end, and U.S. high yield and leveraged loan prices bounced back alongside equities in the largest price increase of the year. Despite direct remarks from the Federal Reserve and significant yield curve flattening in the fourth quarter, U.S. high yield bonds posted positive returns amid record corporate profits, moderating primary market activity and the expectation for future growth. Specifically, the ICE BAML High Yield Master II Index, a high yield bond index, returned 5.4% for 2021 as compared to a return of 6.2% for the prior year. Meanwhile, the Credit Suisse Leveraged Loan Index (“CSLLI”), a leveraged loan index, returned 5.4% for 2021 compared to a return of 2.8% for the prior year. Ongoing retail inflows, strong CLO origination and robust demand amid rising interest rate risk continued to provide a supportive technical backdrop in the asset class.

European leveraged loans rallied alongside its U.S. counterparts; however, European high yield bonds generated negative quarterly returns as concerns surrounding the Omicron variant and inflationary pressures put downward pressure on the asset class. The ICE BAML European Currency High Yield Index returned 3.3% for 2021 compared to a return of 2.9% for the prior year, while the Credit Suisse Western European Leveraged Loan Index returned 4.6% for 2021 compared to a return of 2.4% for the prior year.

In 2021, global equity markets continued to rebound from 2020 COVID-19 levels, with the S&P 500 Index nearing all-time highs at year end. In the U.S., the S&P 500 Index returned 26.9% for 2021 compared to 18.4% the prior year. Outside of the U.S., the MSCI All Country World ex USA Index returned 13.2% for 2021 compared to a return of 10.7% the prior year. Private equity market activity remained strong throughout 2021 and finished the year off strong. Private equity activity was buoyed by elevated valuations, record amounts of uninvested capital, a robust private equity secondary market and low interest rates. Periods of volatility may be on the horizon due to continued heightened inflation, rising energy prices, supply chain disruptions new COVID-19 variants and geopolitical tension, including the escalation of hostilities between Russia and Ukraine. Continued asset selectivity, portfolio construction/diversification and a differentiated view to drive value creation are instrumental in delivering attractive returns to investors.

The “re-opening” of economies across Europe, the U.S., and the U.K. pushed real estate markets towards recovery in 2021. The easing of pandemic restrictions coupled with monetary and fiscal stimulus helped fuel economic growth that then drove improvement in real estate demand. Leasing activity for the year was higher across all major property types although retail and office properties remain challenged as COVID-19 altered tenant preferences. Rent trends improved over the year with industrial and residential rents hitting new highs in the second half of 2021. Higher inflation globally helped nominal real estate rent growth and values, although higher interest rates caused by the prospect of monetary tightening are likely to raise financing costs incrementally. Over the fourth quarter, Pan-European and U.S. real estate deal activity recovered to its pre-pandemic level signaling a near-complete return of transactional liquidity. The FTSE EPRA/NAREIT Developed Europe and the FTSE NAREIT All Equity REITs indices returned 15.0% and 37.3%, for 2021 compared to a negative return of 13.1% and a negative 8.4%, respectively, for the prior year.

In 2021, some of the considerations pertaining to our strategic decisions included:

Our ability to fundraise and increase AUM and fee paying AUM. During the year ended December 31, 2021, we raised $76.8 billion of gross AUM, both in commingled funds and SMAs, and continued to expand our investor base, raising capital from over 135 different investment vehicles and 427 institutional investors, including 175 direct institutional investors that were new to Ares. Our fundraising efforts helped drive AUM growth of approximately 55% for 2021. During 2022, we expect that our fundraising will come from a combination of our existing and new strategies in the U.S., Europe and Asia Pacific. As of December 31, 2021, we also had $57.9 billion of AUM not yet paying fees, which represents approximately $568.4 million in annual potential management fee revenue. Of the $568.4 million, $517.1 million relates to $53.0 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 2022.
Our ability to attract new capital and investors with our broad multi asset class product offering. Our ability to attract new capital and investors in our funds is driven, in part, by the extent to which they continue to see the alternative asset management industry generally, and our investment products specifically, as an attractive vehicle for capital appreciation and income generation. We continually seek to create avenues to meet our investors’ evolving needs by offering an expansive range of investment funds, developing new products and creating managed accounts and other investment vehicles tailored to our investors’ goals. We continue to expand our distribution channels, expanding into the retail channel through our global wealth management offerings, as well as the needs of traditional institutional investors, such as pension funds, sovereign wealth funds, and endowments. If market volatility persists or increases, investors may seek absolute return strategies that seek to mitigate volatility. We offer a variety of investment strategies depending upon investors’ risk tolerance and expected returns.
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, 2021, we deployed $81.0 billion of gross capital across our investment groups compared to $39.9 billion deployed in 2020. As of December 31, 2021, we had $90.4 billion of capital available for investment and we remain well-positioned to invest our assets opportunistically, compared to $56.3 billion as of December 31, 2020.
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, which utilize flexible investment mandates to manage portfolios through market cycles.

See “Item 1A. Risk Factors” included in this Annual Report on Form 10-K for a discussion of the risks our businesses are subject to.

Recent Transactions

In January 2022, Ares Finance Co. IV LLC, an indirect subsidiary of Ares, issued $500.0 million of 3.650% senior notes with a maturity date of February 2052.

On February 10, 2022, Ares completed the acquisition of AMP Capital’s Infrastructure Debt platform, one of the largest infrastructure debt investment platforms globally with approximately $8.0 billion in assets under management as of December 31, 2021.

Managing Business Performance

Operating Metrics

We measure our business performance using certain operating metrics that are common to the alternative asset management industry, which are discussed below.

Assets Under Management

AUM refers to the assets we manage and is viewed as a metric to measure our investment and fundraising performance as it reflects assets generally at fair value plus available uncalled capital.

The tables below present rollforwards of our total AUM by segment ($ in millions):





























	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total AUM
Balance at 12/31/2020	$	145,472	$	27,439	$	14,808	$	—	$	9,261	$	196,980
Acquisitions	—		—		13,719		19,513		—		33,232
Net new par/equity commitments	29,961		8,199		6,174		2,331		2,143		48,808
Net new debt commitments	22,149		200		4,671		—		29		27,049
Capital reductions	(2,715)		(9)		(311)		—		(29)		(3,064)
Distributions	(3,999)		(5,216)		(1,974)		(2,306)		(235)		(13,730)
Redemptions	(2,465)		—		(70)		—		—		(2,535)
Change in fund value	4,307		7,547		4,146		2,581		454		19,035
Balance at 12/31/2021	$	192,710	$	38,160	$	41,163	$	22,119	$	11,623	$	305,775
Average AUM(1)	$	167,623	$	31,609	$	25,865	$	20,463	$	10,397	$	255,957

	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total AUM
Balance at 12/31/2019	$	110,543	$	25,166	$	13,207	$	—	$	—	$	148,916
Acquisitions	2,693		—		—		—		9,114		11,807
Net new par/equity commitments	24,233		6,189		2,263		—		205		32,890
Net new debt commitments	7,527		—		437		—		—		7,964
Capital reductions	(431)		(136)		(372)		—		—		(939)
Distributions	(2,485)		(4,410)		(1,212)		—		(207)		(8,314)
Redemptions	(2,176)		(5)		—		—		—		(2,181)
Change in fund value	5,568		635		485		—		149		6,837
Balance at 12/31/2020	$	145,472	$	27,439	$	14,808	$	—	$	9,261	$	196,980
Average AUM(2)	$	123,434	$	25,582	$	14,180	$	—	$	9,186	$	172,382

(1) Represents a five-point average of quarter-end balances for each period, except for Secondary Solutions, which represents the average calculated using AUM on the date of the Landmark Acquisition and on each subsequent quarter-end.
(2) Represents a five-point average of quarter-end balances for each period; except for Strategic Initiatives, which represents the average calculated using Ares SSG’s AUM on the date of the SSG Acquisition and on each subsequent quarter-end, and the average calculated using Ares Insurance Solutions’ AUM on the date of the acquisition of Aspida Life Re and the subsequent quarter-end.

The components of our AUM are presented below as of ($ in billions):


			AUM: $305.8						AUM: $197.0


			FPAUM						Non-fee paying(1)						AUM not yet paying fees

(1) Includes $11.8 billion and $9.0 billion of AUM of funds from which we indirectly earn management fees as of December 31, 2021 and 2020, respectively and includes $3.4 billion and $2.4 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021 and 2020, respectively.

Please refer to “— Results of Operations by Segment” for a more detailed presentation of AUM by segment for each of the periods presented

Fee Paying Assets Under Management

FPAUM refers to AUM from which we directly earn management fees and is equal to the sum of all the individual fee bases of our funds that directly contribute to our management fees.

The tables below present rollforwards of our total FPAUM by segment ($ in millions):






























	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total
Balance at 12/31/2020	$	88,017	$	21,172	$	10,252	$	—	$	6,596	$	126,037
Acquisitions	—		—		7,155		16,839		—		23,994
Commitments	10,497		3,003		3,720		1,352		(130)		18,442
Subscriptions/deployment/increase in leverage	27,496		2,624		3,050		116		1,677		34,963
Capital reductions	(1,647)		—		(162)		—		(380)		(2,189)
Distributions	(5,630)		(2,629)		(1,135)		(264)		(1,151)		(10,809)
Redemptions	(2,724)		—		(86)		—		—		(2,810)
Change in fund value	1,381		5		1,467		262		175		3,290
Change in fee basis	—		(2,990)		(142)		59		—		(3,073)
Balance at 12/31/2021	$	117,390	$	21,185	$	24,119	$	18,364	$	6,787	$	187,845
Average FPAUM(1)	$	100,603	$	19,973	$	15,789	$	17,329	$	6,704	$	160,398

	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total
Balance at 12/31/2019	$	71,880	$	17,040	$	7,963	$	—	$	—	$	96,883
Acquisitions	2,596		—		—		—		6,426		9,022
Commitments	5,230		4,238		1,735		—		—		11,203
Subscriptions/deployment/increase in leverage	13,609		1,585		1,222		—		716		17,132
Capital reductions	(1,660)		—		(51)		—		(25)		(1,736)
Distributions	(3,657)		(1,196)		(520)		—		(472)		(5,845)
Redemptions	(2,128)		—		—		—		—		(2,128)
Change in fund value	2,187		(36)		327		—		—		2,478
Change in fee basis	(40)		(459)		(424)		—		(49)		(972)
Balance at 12/31/2020	$	88,017	$	21,172	$	10,252	$	—	$	6,596	$	126,037
Average FPAUM(2)	$	79,140	$	18,085	$	9,239	$	—	$	6,518	$	112,982

(1) Represents a five-point average of quarter-end balances for each period, except for Secondary Solutions, which represents the average calculated using FPAUM on the date of the Landmark Acquisition and on each subsequent quarter-end.
(2) Represents a five-point average of quarter-end balances for each period; except for Strategic Initiatives, which calculates the average using Ares SSG’s FPAUM on the date of the SSG Acquisition and on each subsequent quarter-end, and the average using Ares Insurance Solutions’ FPAUM on the date of the acquisition of Aspida Life Re and the subsequent quarter-end.

The charts below present FPAUM by its fee basis ($ in billions):


			FPAUM: $187.8						FPAUM: $126.0


			Invested capital/other(1)						Market value(2)						Capital commitments						Collateral balances (at par)

(1)Other consists of ACRE's FPAUM, which is based on ACRE’s stockholders’ equity.

(2)Includes $43.7 billion and $24.5 billion from funds that primarily invest in illiquid strategies as of December 31, 2021 and 2020, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

Please refer to “— Results of Operations by Segment” for detailed information by segment of the activity affecting total FPAUM for each of the periods presented.

Incentive Eligible Assets Under Management, Incentive Generating Assets Under Management and Available Capital

IEAUM generally represents the NAV plus uncalled equity or total assets plus uncalled debt, as applicable, of our funds from which we are entitled to receive carried interest and incentive fees, excluding capital committed by us and our professionals (from which we do not earn carried interest and incentive fees). With respect to ARCC's AUM, only ARCC Part II Fees may be generated from IEAUM.

IGAUM generally represents the AUM of our funds that are currently generating carried interest and incentive fees on a realized or unrealized basis. It represents the basis on which we are entitled to receive carried interest and incentive fees. The basis is typically the NAV or total assets of the fund, excluding amounts on which we do not earn carried interest and incentive fees, such as capital committed by us and our professionals. ARCC is only included in IGAUM when ARCC Part II Fees are being generated.

The charts below present our IEAUM and IGAUM by segment ($ in billions):


			Credit						Private Equity						Real Estate						Secondary Solutions						Strategic Initiatives

The charts below present our available capital and AUM not yet paying fees by segment ($ in billions):


			Credit						Private Equity						Real Estate						Secondary Solutions						Strategic Initiatives

The chart below presents our perpetual capital AUM by segment ($ in billions):


			Credit						Real Estate						Strategic Initiatives

As of December 31, 2021, perpetual capital AUM included 73% from perpetual capital - commingled funds and 27% from perpetual capital - managed accounts. As of December 31, 2020, perpetual capital AUM included 64% from perpetual capital - commingled funds and 36% from perpetual capital - managed accounts.

Management Fees By Type

We view the duration of funds we manage as a metric to measure the stability of our future management fees. For the years ended December 31, 2021 and 2020, 95% of management fees were earned from perpetual capital or long-dated funds. The charts below present the composition of our segment management fees by the initial fund duration:


			Long-Dated Funds(1)						Perpetual Capital - Commingled Funds						Perpetual Capital - Managed Accounts						Other

(1) Long-dated funds generally have a contractual life of five years or more at inception.

Fund Performance Metrics

Fund performance information for our investment funds considered to be “significant funds” is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. Our significant funds are commingled funds that contributed at least 1% of our total management fees or represented at least 1% of the Company’s total FPAUM for the past two consecutive quarters. In addition to management fees, each of our significant funds may generate carried interest and incentive fees upon the achievement of performance hurdles. The fund performance information reflected in this discussion and analysis is not indicative of our overall performance. An investment in Ares is not an investment in any of our funds. Past performance is not indicative of future results. As with any investment, there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these funds or our other existing and future funds will achieve similar returns.

We do not present fund performance metrics for significant funds with less than two years of investment performance from the date of the fund's first investment, except for those significant funds that pay management fees on invested capital, in which case investment performance will be presented on the earlier of (i) the one-year anniversary of the fund's first investment or (ii) such time that the fund has invested at least 50% of its capital.

To further facilitate an understanding of the impact a significant fund may have on our results, we present our drawdown funds as either harvesting investments or deploying capital to indicate the fund's stage in its life cycle. A fund harvesting investments is generally not seeking to deploy capital into new investment opportunities, while a fund deploying capital is generally seeking new investment opportunities.

Components of Consolidated Results of Operations

Revenues

Management Fees. The investment adviser of our funds generally receive an annual management fee based on a percentage of the fund’s capital commitments, contributed capital, net asset value or invested capital during the investment period, which may then change at the end of the investment period, and for certain of our SMAs, we receive an annual management fee based on a percentage of invested capital, contributed capital or net asset value throughout the term of the SMA. We also may receive special fees, including agency and arrangement fees. In certain circumstances we are contractually required to offset certain amounts of such special fees against future management fees relating to the applicable fund.

The investment adviser of each of our CLOs typically receives annual management fees based on the gross aggregate collateral balance for CLOs, at par, adjusted for cash and defaulted or discounted collateral. The management fees of CLOs accounted for approximately 3% of our total management fees on a consolidated basis and 6% on an unconsolidated basis for the year ended December 31, 2021.

The management fees we receive from our drawdown style funds are typically payable on a quarterly basis over the life of the fund and do not fluctuate with the changes in investment performance of the fund. The investment management agreements we enter into with clients in connection with contractual SMAs may generally be terminated by such clients with reasonably short prior written notice. Typically, terminations do not require liquidation of the SMAs and such SMAs will continue to exist until the underlying investments are liquidated. The management fees we receive from our SMAs are generally paid on a periodic basis (typically quarterly, subject to the termination rights described above) and are based on either invested capital or on the net asset value of the separately managed account.

We receive management fees in accordance with the investment advisory and management agreements we have with the publicly-traded vehicles and non-traded REITs we manage. Base management fees we receive from ARCC are paid quarterly and proportionately increase or decrease based on ARCC’s total assets (reduced by cash and cash equivalents). Part I Fees from ARCC are also generally paid quarterly and proportionately increase or decrease based on ARCC’s net investment income (before Part I Fees from ARCC and ARCC Part II Fees, subject to a fixed hurdle rate). Part I Fees from CADC are also generally paid quarterly and proportionately increase or decrease based on CADC’s net investment income, subject to a fixed hurdle rate. We classify Part I Fees as management fees as they are predictable and recurring in nature, and not subject to contingent repayment. Management fees we receive from ARDC are generally paid monthly and proportionately increase or decrease based on the closed-end fund's total assets minus liabilities (other than liabilities relating to indebtedness). Management fees we receive from ACRE are generally paid quarterly based on ACRE’s stockholders’ equity. Management fees we receive from AREIT and AIREIT are generally paid monthly based on a percentage of fund’s net asset value. Our investment management agreements of our publicly-traded vehicles and non-traded REITs from which we receive management fees must be reviewed or approved annually by their boards of directors (including a majority of its independent directors).

Details regarding our management fees by strategy are presented below:

Credit Group:

Syndicated Loans and High Yield Bonds: Typical management fees range from 0.35% to 0.50% of par plus cash or of NAV. The syndicated loan funds have an average management contract term from the closing date of 13.7 years as of December 31, 2021 and the fee ranges generally remain unchanged at the close of the re-investment period. In certain cases, CLOs may be called upon demand by subordinated noteholders prior to the management contract term expiration date. The funds in the high-yield strategy generally represent open-ended managed accounts, which typically do not include investment period termination or management contract expiration dates.

*•*Multi-Asset Credit: Typical management fees range from 0.50% to 1.50% of NAV. The funds in this strategy are generally open-ended or managed account structures, which typically do not have investment period termination or management contract expiration dates. The funds in this strategy include ARDC, a publicly-traded closed-end fund, which does not have an investment period termination date, and other perpetual capital vehicles as of December 31, 2021.

Alternative Credit: Typical management fees range from 0.50% to 1.50% of NAV, gross asset value, committed capital or invested capital. The funds in this strategy (excluding perpetual capital vehicles) had an average management contract term from the closing date of 7.6 years as of December 31, 2021.

*•*U.S. and European Direct Lending: Typical management fees range from 0.75% to 1.50% of invested capital, NAV or total assets (in certain cases, excluding cash and cash equivalents). Following the expiration or termination of the investment period, the fee basis for certain closed-end funds and managed accounts in this strategy generally change either to the aggregate cost or to market value of the portfolio investments. In addition, management fees include the Part I Fees. The funds in this strategy (excluding ARCC, CADC and other perpetual capital vehicles) had an average management contract term from the closing date of 8.2 years as of December 31, 2021.

Private Equity Group:

*•*Corporate Private Equity: Typical management fees range from 1.20% to 2.00% of total capital commitments during the investment period. The management fees for corporate private equity funds generally step down to between 0.75% and 1.25% of the aggregate adjusted cost of unrealized portfolio investments following the earlier to occur of:

(i) the expiration or termination of the investment period and (ii) the activation of a successor fund. The funds in this strategy had an average management contract term from the closing date of 10.4 years as of December 31, 2021.

*•*Infrastructure and Power: Typical management fees range from 1.00% to 1.50% of total capital commitments during the investment period. Certain funds pay a lower management fee rate on committed capital which increases when such capital is invested. The infrastructure and power funds generally step down the fee base to the aggregated adjusted cost of unrealized portfolio investments, while retaining the same fee rate, following the expiration or termination of the investment period. The funds in this strategy had an average management contract term from the closing date of 10.3 years as of December 31, 2021.

*•*Special Opportunities: Typical management fees range from 1.00% to 1.50% of invested capital or the aggregate cost basis of unrealized portfolio investments. The management fees for special opportunities funds generally step down to between 1.00% to 1.25% of the invested capital or the aggregate cost basis of unrealized portfolio investments following the expiration or termination of the investment period. The funds in this strategy had an average management contract term from the closing date of 10.2 years as of December 31, 2021.

Real Estate Group:

*•*Real Estate Equity and Debt: Typical management fees range from 0.50% to 1.50% of invested capital, stockholders’ equity, net asset value, total capital commitments or a combination thereof. Certain funds pay a lower management fee rate on committed capital which increases when such capital is invested. Following the expiration or termination of the investment period the basis on which management fees are earned for certain closed-end funds, managed accounts and co-investment vehicles in this strategy changes from committed capital to invested capital with no change in the management fee rate. The funds in these strategies (excluding ACRE, the non-traded REITs and other perpetual capital vehicles) had an average management contract term from the closing date of 9.0 years as of December 31, 2021.

Secondary Solutions Group:

*•*Private Equity, Real Estate and Infrastructure Secondaries: Typical management fees range from 0.50% to 1.00% of capital commitments, NAV of the underlying funds, called capital plus unfunded commitments or NAV plus unfunded commitments. Funds in each strategy are comprised of closed-end funds with either investment period termination or management contract termination dates and certain open-end accounts that generally do not have termination dates. The funds in these strategies had an average management contract term from the closing date of 12.9 years as of December 31, 2021.

Strategic Initiatives:

*•*Asian Special Situations: Typical management fees range from 1.15% to 2.00% of total capital commitments, the aggregate cost basis of unrealized portfolio investments or a combination thereof. Certain funds pay a lower management fee rate on committed capital which increases when such capital is invested. The funds in this strategy are comprised of closed-end funds, with investment period termination or management contract termination dates. The funds also include co-investment accounts with fees ranging from 0.50% to 1.50%, which generally do not include investment period termination or management contract termination dates. The funds in this strategy with termination dates had an average management contract term from the closing date of 7.3 years as of December 31, 2021.

Asian Secured Lending: Typical management fees range from 1.40% to 1.50% of the aggregate cost basis of unrealized portfolio investments. The funds in this strategy are comprised of closed-end funds with investment period termination or management contract termination dates. The funds also include co-investment accounts which generally do not include investment period termination or management contract termination dates. The funds in this strategy had an average management contract term from the closing date of 6.4 years as of December 31, 2021.
Ares Insurance Solutions: Typical management fees are 0.30% of the daily weighted average market value of the assets. Ares Insurance Solutions managed vehicles include Aspida Life Re, which is a perpetual capital vehicle.

Incentive Fees. The general partners, managers or similar entities of certain of our funds receive performance-based fees. These fees are generally based on the net appreciation per annum of the applicable fund, subject to certain net loss carry-forward provisions, high-watermarks and/or preferred returns. Such performance-based fees may also be based on a fund’s cumulative net appreciation to date, in some cases subject to a high-watermark or a preferred return. Incentive fees are realized at the end of a measurement period, typically quarterly or annually. Realized incentive fees are generally higher during the second half of the year due to the nature of certain Credit Group funds that typically realize incentive fees at the end of the

calendar year. Once realized, such incentive fees are not subject to repayment. Cash from the realizations is typically received in the period subsequent to the measurement period. Incentive fees are composed of both fee related performance revenues and performance revenues.

Fee Related Performance Revenues. Fee related performance revenues refers to incentive fees from perpetual capital vehicles that are (i) measured and expected to be received on a recurring basis and (ii) not dependent on realization events from the underlying investments. Certain vehicles are subject to hold back provisions that limits the amount paid in a particular year. Such hold back amounts may be paid in subsequent years subject to their extended performance conditions.

Additional details regarding our fee related performance revenues are presented below:

Credit Group:

Multi-Asset Credit and Alternative Credit: Typical fee related performance revenues represent 6% to 20% of each incentive eligible fund’s profits, subject to a preferred return of approximately 5% to 7% per annum.
U.S. and European Direct Lending: Typical fee related performance revenues represent 10% to 15% of each incentive eligible fund’s profits and are subject to a preferred return rate of approximately 5% to 8% per annum.

Real Estate Group:

*•*Real Estate Equity: Fee related performance revenues we receive from AREIT and AIREIT are based on a 12.5% of the total investment return per annum of each fund, including income and net appreciation, subject to certain net loss carry-forward provisions and a hurdle rate of 5% per annum.

*•*Real Estate Debt: Fee related performance revenues we receive from ACRE are based on a percentage of the difference between ACRE’s core earnings (as defined in ACRE’s management agreement) and an amount derived from the weighted average issue price per share of ACRE’s common stock in its public offerings multiplied by the weighted average number of shares of common stock outstanding.

Performance Revenues: Performance revenues refers to incentive fees that do not meet the criteria of fee related performance revenues.

Additional details regarding our performance revenues are presented below:

Credit Group:

*◦*Syndicated Loans and High Yield Bonds: Typical performance revenues represent 10% to 20% of each incentive eligible fund’s profits, subject to hurdle rates of approximately 3% to 12% per annum.

*◦*Multi-Asset Credit and Alternative Credit: Typical performance revenues represent 12.5% to 20% of each incentive eligible fund’s profits, subject to a preferred return of approximately 5% to 7% per annum.

*◦*U.S. and European Direct Lending: Typical performance revenues represent 10% to 15% of each incentive eligible fund’s profits and are subject to a preferred return rate of approximately 5% to 8% per annum. We are entitled to receive incentive fees in accordance with the investment advisory and management agreements we have with ARCC. We may receive ARCC Part II Fees, which are not paid unless ARCC achieves cumulative aggregate realized capital gains (net of cumulative aggregate realized capital losses and aggregate unrealized capital depreciation). For ARCC, incentive fees represent 20% of the cumulative aggregate realized capital gains (net of cumulative aggregate realized losses and aggregate unrealized capital depreciation) and such fees are presented within performance revenues.

Real Estate Group:

*◦*Real Estate Equity: Performance revenues represent 15% to 18% of each incentive eligible fund’s profits, subject to hurdle rates of approximately 6% to 8% per annum.

Performance Income. We may receive performance income from our funds that may be either performance revenue, which is a component of incentive fees described above, or a special allocation of income, which we refer to as carried interest. Performance income is recorded by us when specified investment returns are achieved by the fund.

Carried Interest Allocation. The general partner or an affiliate of certain of our funds may be entitled to receive carried interest from a fund. Carried interest entitles the general partner (or an affiliate) to a special allocation of income and gains from a fund, and is typically structured as a net profits interest in the applicable fund. Carried interest allocation is recognized based on changes in valuation of our funds’ investments that exceed certain preferred returns as set forth in each respective partnership agreement. Carried interest allocation is based on the amount that would be due to us pursuant to the fund partnership agreement at each period end as if the funds were liquidated at such date. Accordingly, the amount of carried interest recognized as carried interest allocation reflects our share of the fair value gains and losses of the associated funds’ underlying investments measured at their then-current fair values relative to the fair values as of the end of the prior period. Carried interest is generally calculated and paid on a “realized gain” basis, and the general partner of a fund is generally entitled to a carried interest between 10% and 20% of the net realized income and gains (generally taking into account unrealized losses) generated by such fund. Net realized income or loss is not netted between or among funds.

Funds generally follow either an American-style waterfall or European-style waterfall. For American-style waterfalls, the general partner is entitled to receive carried interest after a fund investment is realized if the investors in the fund have received distributions in excess of the capital contributed for such investment and all prior realized investments (plus allocable expenses), as well as the preferred return. For European-style waterfalls, the general partner is entitled to receive carried interest if the investors in the fund have received distributions in an amount equal to all prior capital contributions plus a preferred return.

For most funds, the carried interest is subject to a preferred return ranging from 5% to 8%, after which there is typically a catch-up allocation to the general partner. Generally, if at the termination of a fund (and in some cases at interim points in the life of a fund), the fund has not achieved investment returns that exceed the preferred return threshold or the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, the general partner will be obligated to repay an amount equal to the extent the previously distributed carried interest exceeds the amounts to which the general partner is entitled. These repayment obligations may be related to amounts previously distributed to us and our senior professionals and are generally referred to as contingent repayment obligations.

Contingent repayment obligations operate with respect to only a given fund’s net investment performance and carried interest of other funds are not netted for determining this contingent obligation. Although a contingent repayment obligation is several to each person who received a distribution, and not a joint obligation, and our professionals who receive carried interest have guaranteed repayment of such contingent obligation, the governing agreements of our funds generally provide that, if a recipient does not fund his or her respective share, we may have to fund such additional amounts beyond the amount of carried interest we retained, although we generally will retain the right to pursue remedies against those carried interest recipients who fail to fund their obligations.

Certain funds may make distributions to their partners to provide them with cash sufficient to pay applicable federal, state and local tax liabilities attributable to the fund's income that is allocated to them. These distributions are referred to as tax distributions and are not subject to contingent repayment obligations.

Additional details regarding our carried interest are presented below:

Credit Group:

Multi-Asset Credit and Alternative Credit: Typical carried interest represents 15% to 20% of each carried interest eligible fund’s profits, subject to a preferred return of approximately 6% to 8% per annum.
U.S. and European Direct Lending: Typical carried interest represents 10% to 20% of each carried interest eligible fund’s profits and are subject to a preferred return rate of approximately 5% to 8% per annum.

Private Equity Group:

Private Equity funds: Carried interest represents 15% to 20% of each carried interest eligible fund’s profits, subject to a preferred return of approximately 7% to 8% per annum.

Real Estate Group:

*•*Real Estate funds: Typical carried interest represents 10% to 20% of each carried interest eligible fund’s profits, subject to a preferred return of approximately 8% to 10% per annum.

Secondary Solutions Group:

Private Equity and Real Estate Secondaries funds: Typical carried interest represents 10% to 12.5% of each carried interest eligible fund’s profits, subject to a preferred return of approximately 8% per annum.

Strategic Initiatives:

*•*Asian Secured Lending: Carried interest represents 20% of each carried interest eligible fund’s profits, subject to a preferred return of approximately 7% per annum.

For detailed discussion of contingencies on carried interest, see “Note 10. Commitments and Contingencies,” to our audited consolidated financial statements and “Item 1A. Risk Factors—We may need to pay “clawback” or “contingent repayment” obligations if and when they are triggered under the governing agreements with our funds” included in this Annual Report on Form 10-K.

Principal Investment Income (Loss). Principal investment income (loss) consists of interest and dividend income and net realized and unrealized gains (losses) on equity method investments that we manage. Interest and dividend income are recognized on an accrual basis to the extent that such amounts are expected to be collected. A realized gain (loss) may be recognized when we redeem all or a portion of our investment or when we receive a distribution of capital. Unrealized gains (losses) on investments result from appreciation (depreciation) in the fair value of our investments, as well as reversals of previously recorded unrealized appreciation (depreciation) at the time the gain (loss) on an investment becomes realized.

Administrative, Transaction and Other Fees. Other fees primarily include revenue from administrative services provided to certain of our affiliated funds. We may receive fees from certain affiliated funds based on income to those funds from loan originations that we refer to as transaction-based fees. In addition, we generate various property-related fees, such as acquisition, development and property management, and fees from the distribution of shares in our non-traded REITs.

Expenses

Compensation and Benefits. Compensation generally includes salaries, bonuses, health and welfare benefits, payroll related taxes, equity-based compensation and Part I Fee incentive compensation expenses. Compensation cost relating to the issuance of restricted units is measured at fair value at the grant date, reduced for actual forfeitures, and expensed over the vesting period on a straight-line basis. Bonuses are accrued over the service period to which they relate. Compensation and benefits expenses are typically correlated to the operating performance of our segments, which is used to determine incentive-based compensation for each segment. Certain of our senior partners are not paid an annual salary or bonus, instead they only receive distributions based on their ownership interest when declared by our board of directors. We use changes in headcount, which represents the full-time equivalency of active employees during each period, to analyze changes in compensation and benefits. Incremental changes in fair value of certain contingent liabilities established in connection to the Landmark Acquisition and Black Creek Acquisition are recognized ratably over the service period and are also presented within compensation and benefits.

Performance Related Compensation. Performance related compensation includes compensation directly related to carried interest allocation and incentive fees, generally consisting of percentage interests that we grant to our professionals. Depending on the nature of each fund, the performance related compensation generally represents 60-80% of the carried interest allocation and incentive fees recognized by us. We have an obligation to pay our professionals a portion of the carried interest allocation or incentive fees earned from certain funds. The performance related compensation payable is calculated based upon the recognition of carried interest allocation and is not paid to recipients until the carried interest allocation is received. Performance related compensation may include allocations to charitable organizations as part of our philanthropic initiatives.

Although changes in performance related compensation are directly correlated with changes in carried interest allocation and incentive fees reported within our segment results, this correlation does not always exist when our results are reported on a fully consolidated basis in accordance with GAAP. This discrepancy is caused when carried interest allocation and incentive fees earned from our Consolidated Funds is eliminated upon consolidation and performance related compensation is not.

General, Administrative and Other Expenses. General and administrative expenses include costs primarily related to occupancy, professional services, travel, communication and information services, placement fees, depreciation, amortization and other general operating items.

Expenses of Consolidated Funds. Consolidated Funds’ expenses consist primarily of costs incurred by our Consolidated Funds, including professional services fees, research expenses, trustee fees, travel expenses and other costs associated with organizing and offering these funds.

Other Income (Expense)

Net Realized and Unrealized Gains (Losses) on Investments. A realized gain (loss) may be recognized when we redeem all or a portion of our investment or when we receive a distribution of capital. Unrealized gains (losses) on investments result from the change in appreciation (depreciation) in the fair value of our investments.

Interest and Dividend Income. Interest and dividend income is primarily generated from investments in products that we manage and other strategic investments. Interest and dividend income are both recognized on an accrual basis to the extent that such amounts are expected to be collected.

Interest Expense. Interest expense includes interest related to our Credit Facility, which has a variable interest rate based upon a credit spread that is adjusted with changes to corporate credit ratings, and to our senior and subordinated notes, each of which have fixed coupon rates.

Other Income (Expense), Net. Other income (expense), net consists of transaction gains (losses) on the revaluation of assets and liabilities denominated in non-functional currencies and other non-operating and non-investment related activity, such as bargain purchase gain, change in fair value of contingent obligations, loss on disposal of assets, among other items.

Net Realized and Unrealized Gains (Losses) on Investments of Consolidated Funds. Realized gains (losses) may arise from dispositions of investments held by our Consolidated Funds. Unrealized gains (losses) are recorded to reflect the change in appreciation (depreciation) of investments held by the Consolidated Funds due to changes in fair value of the investments.

Interest and Other Income of Consolidated Funds. Interest and other income of Consolidated Funds primarily includes interest and dividend income generated from the underlying investments of our Consolidated Funds.

Interest Expense of Consolidated Funds. Interest expense primarily consists of interest related to our Consolidated CLOs’ loans payable and, to a lesser extent, revolving credit lines, term loans and notes of other Consolidated Funds. The interest expense of the Consolidated CLOs is solely the responsibility of such CLOs and there is no recourse to us if the CLO is unable to make interest payments.

Income Taxes. AMC is a corporation for U.S. federal income tax purposes and is subject to U.S. federal, state and local corporate income taxes at the entity level on its share of net taxable income. In addition, the AOG entities and certain of AMC's subsidiaries operate in the United States as partnerships or disregarded entities for U.S. federal income tax purposes and as corporate entities in certain non-U.S. jurisdictions. These entities, in some cases, are subject to U.S. state or local income taxes or non-U.S. income taxes. Our effective tax rate is impacted by AMC’s net taxable income and the applicable U.S. federal, state and local income taxes as well as, in some cases, non-U.S. income taxes. Net taxable income is based on AMC’s ownership of the AOG entities. As such, our effective tax rate will be directly impacted by changes in AMC’s ownership of the AOG entities and changes to statutory rates in the United States and other non-U.S. jurisdictions and, to a lesser extent, income taxes that are recorded for certain affiliated funds and co-investment entities that are consolidated in our financial results.

The majority of our Consolidated Funds are not subject to income tax as the funds’ investors are responsible for reporting their share of income or loss. To the extent required by federal, state and foreign income tax laws and regulations, certain funds may incur income tax liabilities.

Redeemable and Non-Controlling Interests. Net income (loss) attributable to non-controlling interests in Consolidated Funds represents the income (loss) related to ownership interests that third parties hold in entities that are consolidated into our consolidated financial statements.

Net income (loss) attributable to redeemable and non-controlling interests in AOG entities represents income (loss) attributable to the owners of AOG Units that are not held by AMC. In connection with the SSG Acquisition, the former owners of SSG retained an ownership interest in certain AOG entities that is reflected as redeemable interests in AOG entities. Net income (loss) attributable to redeemable interest in AOG entities is allocated based on the ownership percentage attributable to the redeemable interest.

For additional discussion on components of our consolidated results of operations, see “Note 2. Summary of Significant Accounting Policies,” to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Consolidation and Deconsolidation of Ares Funds

In February 2021, AAC consummated its initial public offering that raised capital of $1.0 billion. Prior to the completion of a business combination, the sponsor, a wholly owned subsidiary, owns the majority of the Class B ordinary shares outstanding of AAC. We consolidate AAC under the voting interest model and reflect the results of the SPAC as a Consolidated Fund.

Consolidated Funds represented approximately 5% of our AUM as of December 31, 2021, 3% of our management fees and less than 1% of our carried interest and incentive fees for the year ended December 31, 2021. As of December 31, 2021, we consolidated 23 CLOs, 10 private funds and one SPAC, and as of December 31, 2020, we consolidated 21 CLOs and nine private funds.

The activity of the Consolidated Funds is reflected within the consolidated financial statement line items indicated by reference thereto. The impact of the Consolidated Funds also typically will decrease management fees, carried interest allocation and incentive fees reported under GAAP to the extent these amounts are eliminated upon consolidation.

The assets and liabilities of our Consolidated Funds are held within separate legal entities and, as a result, the liabilities of our Consolidated Funds are typically non-recourse to us. Generally, the consolidation of our Consolidated Funds has a significant gross-up effect on our assets, liabilities and cash flows but has no net effect on the net income attributable to us or our stockholders' equity, except where a reallocation of ownership occurs based on specific redemption or liquidation preference terms. The net economic ownership interests of our Consolidated Funds, to which we have no economic rights, are reflected as redeemable and non-controlling interests in the Consolidated Funds in our consolidated financial statements. Redeemable interest in Consolidated Funds represent the shares issued by AAC that are redeemable for cash by the public shareholders in connection with AAC’s failure to complete a business combination or tender offer associated with stockholder approval provisions.

We generally deconsolidate funds and CLOs when we are no longer deemed to have a controlling interest in the entity. During the year ended December 31, 2021, we deconsolidated one CLO as a result of significant change in ownership and during the year ended December 31, 2020, we deconsolidated one private fund as a result of liquidation/dissolution and one CLO experienced a significant change in ownership that resulted in deconsolidation of the entity during the period.

The performance of our Consolidated Funds is not necessarily consistent with, or representative of, the combined performance trends of all of our funds.

For the actual impact that consolidation had on our results and further discussion on consolidation and deconsolidation of funds, see “Note 17. Consolidation” to our consolidated financial statements included herein.

Results of Operations

Consolidated Results of Operations

We consolidate funds and entities where we are deemed to hold a controlling financial interest. The Consolidated Funds are not necessarily the same entities in each year presented due to changes in ownership, changes in limited partners' or investor rights, and the creation and termination of funds and entities. The consolidation of these funds and entities had no effect on net income attributable to us for the periods presented. As such, we separate the analysis of the Consolidated Funds and evaluate that activity in total. The following table and discussion sets forth information regarding our consolidated results of operations ($ in thousands):



	Year ended December 31,	Favorable (Unfavorable)
		2021		2020		$ Change		% Change
Revenues
Management fees		$	1,611,047	$	1,150,608	$	460,439	40	%
Carried interest allocation		2,073,551		505,608		1,567,943		NM
Incentive fees		332,876		37,902		294,974		NM
Principal investment income		99,433		28,552		70,881		248
Administrative, transaction and other fees		95,184		41,376		53,808		130
Total revenues		4,212,091		1,764,046		2,448,045		139
Expenses
Compensation and benefits		1,162,633		767,252		(395,381)		(52)
Performance related compensation		1,740,786		404,116		(1,336,670)		NM
General, administrative and other expenses		444,178		258,999		(185,179)		(71)

Expenses of Consolidated Funds		62,486		20,119		(42,367)		(211)
Total expenses		3,410,083		1,450,486		(1,959,597)		(135)
Other income (expense)
Net realized and unrealized gains (losses) on investments		19,102		(9,008)		28,110		NM
Interest and dividend income		9,865		8,071		1,794		22
Interest expense		(36,760)		(24,908)		(11,852)		(48)
Other income, net		14,402		11,291		3,111		28
Net realized and unrealized gains (losses) on investments of Consolidated Funds		77,303		(96,864)		174,167		NM
Interest and other income of Consolidated Funds		437,818		463,652		(25,834)		(6)
Interest expense of Consolidated Funds		(258,048)		(286,316)		28,268		10
Total other income		263,682		65,918		197,764		NM
Income before taxes		1,065,690		379,478		686,212		181
Income tax expense		147,385		54,993		(92,392)		(168)
Net income		918,305		324,485		593,820		183

Less: Net income attributable to non-controlling interests in Consolidated Funds		120,369		28,085		92,284		NM
Net income attributable to Ares Operating Group entities		797,936		296,400		501,536		169
Less: Net loss attributable to redeemable interest in Ares Operating Group entities		(1,341)		(976)		(365)		(37)
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		390,440		145,234		245,206		169
Net income attributable to Ares Management Corporation		408,837		152,142		256,695		169
Less: Series A Preferred Stock dividends paid		10,850		21,700		(10,850)		(50)
Less: Series A Preferred Stock redemption premium		11,239		—		(11,239)		NM
Net income attributable to Ares Management Corporation Class A and non-voting common stockholders		$	386,748	$	130,442	256,306		196

NM - Not Meaningful

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Consolidated Results of Operations of the Company

Management Fees. Management fees increased by $460.4 million, or 40%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by higher FPAUM from capital deployment in direct lending funds. Management fees also increased by $97.9 million and $40.5 million in connection with the Landmark Acquisition and Black Creek Acquisition, respectively, that were completed during 2021. In addition, the full year impact of the SSG Acquisition that closed in the third quarter of 2020 increased management fees by $39.7 million for the year ended December 31, 2021 when compared to the year ended December 31, 2020. For detail regarding the fluctuations of management fees within each of our segments see “—Results of Operations by Segment.”

Carried Interest Allocation. Carried interest allocation increased by $1,567.9 million to $2,073.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The activity was principally composed of the following ($ in millions):










	Year ended December 31, 2021		Primary Drivers	Year ended December 31, 2020		Primary Drivers
Credit funds	$	336.1	Primarily from four direct lending funds and one alternative credit fund with $17.3 billion of IGAUM generating returns in excess of their hurdle rates. PCS, Ares Capital Europe IV, L.P. (“ACE IV”) and Ares Capital Europe V, L.P. (“ACE V”) generated carried interest allocation of $57.9 million, $99.8 million and $49.0 million, respectively. The carried interest allocation generated by these funds was driven by net investment income on an increasing invested capital base. Ares Capital Europe III, L.P. (“ACE III”) generated carried interest allocation of $42.7 million primarily driven by net investment income during the period. In addition, Ares Pathfinder Fund, L.P. (“Pathfinder”) generated carried interest allocation of $47.1 million that was driven by market appreciation of various investments.	$	146.3	Primarily from four direct lending funds and one alternative credit fund with $12.0 billion of IGAUM generating returns in excess of their hurdle rates. PCS and ACE IV generated carried interest allocation of $48.9 million and $51.5 million, respectively, driven by net investment income on an increasing invested capital base. Net investment income for the year was muted by net unrealized losses on investments that were primarily incurred during the first quarter of 2020 due to the market volatility driven by the COVID-19 pandemic. In addition, Pathfinder generated carried interest allocation of $16.0 million primarily driven by net investment income during the period.
Private equity funds	1,210.3		Ares Corporate Opportunities Fund IV, L.P. (“ACOF IV”) generated carried interest allocation of $207.6 million primarily due to market appreciation of its investment in The AZEK Company (“AZEK”) driven by its higher stock price. In addition, market appreciation across several portfolio company investments, primarily operating in the services and technology, retail and healthcare industries, generated carried interest allocation of $666.1 million from Ares Corporate Opportunities Fund V, L.P. (“ACOF V”), $225.5 million from Ares Special Opportunities Fund, L.P. (“ASOF”) and $70.6 million from ACOF VI.	304.7		ACOF IV generated carried interest allocation of $285.7 million primarily due to market appreciation of its investment in AZEK following its initial public offering. In addition, market appreciation across several investments generated carried interest allocation of $102.6 million for ASOF. Market depreciation across several energy sector investments led to the reversal of unrealized carried interest allocation of $75.1 million for ACOF V.
Real estate funds	296.7		Market appreciation from properties within real estate equity funds, primarily driven by gains generated across several industrial and multifamily assets, generated carried interest allocation of $24.2 million from Ares U.S. Real Estate Opportunity Fund III, L.P. (“AREOF III”), $40.5 million from US Real Estate Fund VIII, L.P. (“US VIII”), $83.4 million from US Real Estate Fund IX, L.P. ("US IX"), $14.8 million from Ares European Real Estate Fund IV, L.P. (“EF IV”) and $69.9 million from Ares European Real Estate Fund V SCSp. ("EF V").	54.6		Market appreciation from properties within real estate equity funds primarily driven by gains generated across several industrial and multi-family assets of US IX in the amount of $19.9 million. In addition, there were gains generated in multiple funds from the sale of a pan-European logistics portfolio at a higher price than the December 31, 2019 valuation.
Secondary solutions funds	230.5		Market appreciation of certain investments held in Landmark Equity Partners XVI, L.P. (“LEP XVI”) and Landmark Real Estate Partners VIII, L.P. (“LREP VIII”) that generated carried interest allocation of $122.2 million and $56.4 million, respectively.	—		N/A

Carried interest allocation	$	2,073.6		$	505.6

Incentive Fees. Incentive fees increased by $295.0 million to $332.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The activity was principally composed of the following ($ in millions):







	Year ended December 31, 2021		Primary Drivers	Year ended December 31, 2020		Primary Drivers
Credit funds	$	168.2	Incentive fees that crystallized during the period from 22 direct lending funds, including $25.6 million from ARCC Part II Fees, from one alternative credit fund and from one CLO as a result of restructuring activity.	$	37.1	Incentive fees that crystallized during the period from seven direct lending funds and two alternative credit funds. The number of funds generating incentive fees was affected by the overall economic environment during the year.
Real estate funds	164.7		Incentive fees that crystallized during the period from funds from the Black Creek Acquisition, including $63.3 million from a U.S. real estate equity fund, $15.3 million from Ares Real Estate Income Trust, Inc. (“AREIT”) and $81.2 million from Ares Industrial Real Estate Income Trust, Inc. (“AIREIT”). We recognized 100% of the incentive fees earned from AREIT and AIREIT, of which 50% was paid to the sellers during the year ended December 31, 2021 in connection with the terms of the Black Creek Acquisition. We will retain 100% of incentive fees earned from these funds in subsequent periods.	0.8		Incentive fees generated from ACRE.
Incentive fees	$	332.9		$	37.9

Principal Investment Income. Principal investment income increased by $70.9 million, or 248%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The activity for the year ended December 31, 2021 was primarily driven by market appreciation of various investments within ACOF IV, ACOF VI and within various funds in our U.S. real estate equity, private equity secondaries, real estate secondaries and special opportunities strategies. The COVID-19 pandemic caused extreme volatility during 2020. The global equity and credit markets experienced significant downturns in the first quarter of 2020 that continued to rebound in 2021. The year ended December 31, 2020 also included gains from a higher fair value of our investments in ACOF IV, primarily driven by higher asset appreciation of AZEK recognized in connection with the partial sale, and in an infrastructure and power fund, primarily from higher asset appreciation and subsequent sale of an investment in a wind project.

Administrative, Transaction and Other Fees. Administrative, transaction and other fees increased by $53.8 million, or 130%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to new fee streams following the completion of the Black Creek Acquisition. Black Creek serves as an integrated property development and real estate investment management specialist, generating various property-related fees, such as acquisition, development and property management, and the distribution of shares in our non-traded REITs. These fees collectively contributed $17.9 million for the year ended December 31, 2021, which represents the amount generated in the period following the completion of the Black Creek Acquisition. We also earn fees from the Black Creek funds that we manage for administrative and other services, which contributed $11.2 million for the year ended December 31, 2021. In addition, certain private credit funds pay administrative fees on invested capital and an increase in deployment resulted in an increase to this fee base. Administrative fees from private funds increased by $4.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase for the year ended December 31, 2021 compared to the year ended December 31, 2020 was also driven by higher transaction fees of $5.0 million for certain funds as a result of increased originations.

Compensation and Benefits. Compensation and benefits increased by $395.4 million, or 52%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by (i) headcount growth to support the expansion of our business, (ii) strategic initiatives and acquisitions, and (iii) higher incentive compensation and equity compensation attributable to improved operating performance and margin expansion from scaling our business. Average headcount for the year-to-date period increased by 30% to 1,771 professionals for the 2021 period from 1,364 professionals for the same period in 2020.

Headcount growth attributable to the Landmark Acquisition and Black Creek Acquisition contributed $81.5 million in recurring employment related costs to the year ended December 31, 2021. The performance-based, acquisition-related compensation arrangements (“earnouts”) that were established in connection with the Landmark Acquisition and Black Creek Acquisition also contributed $66.9 million to the year ended December 31, 2021. The earnouts are based on the achievement of revenue targets for certain funds. As both earnouts are subject to the continued and future services of senior professionals and advisors, they are required to be recorded as compensation expense and recognized ratably over the respective service periods.

See “Note 10. Commitments and Contingencies” for a further description of the contingent liabilities related to these arrangements.

Compensation and benefits were further driven by an increase in Part I Fees compensation of $25.4 million for the year ended December 31, 2021, when compared to the same period in 2020. Part I Fees compensation is driven by Part I Fees revenue earned during the respective periods.

The following table presents equity compensation expense based on the different types of restricted unit awards. Amounts presented include recurring expense, accelerated expense recognized in connection with the achievement of a performance condition and reversal of previously recognized expense resulting from forfeitures ($ in thousands):



	Year ended December 31,			Favorable (Unfavorable)
		2021			2020		$ Change		% Change
Non-recurring awards:
Multi-year future grants		$	35,996		$	—	$	(35,996)	NM
Performance-based awards		22,785			3,514		(19,271)		NM
Performance-based awards - accelerated		43,426			3,750		(39,676)		NM
Other non-recurring awards		22,920			26,636		3,716		14
Total non-recurring awards		125,127			33,900		(91,227)		(269)
Recurring annual awards:
Discretionary awards		65,055			49,981		(15,074)		(30)
Bonus awards		47,010			39,105		(7,905)		(20)
Total recurring annual awards		112,065			89,086		(22,979)		(26)
Equity compensation expense, net		$	237,192		$	122,986	(114,206)		(93)

NM - Not Meaningful

Equity compensation expense increased by $114.2 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to performance-based restricted units granted to certain executive officers in the first quarter of 2021 and to the approval of multi-year future grant awards to these executive officers, as well as to certain other senior leaders, that will be granted during the first quarter of 2022, 2023 and 2024. The 2021 periods included accelerated expense from the performance-based restricted awards from the vesting of Tranche I, II, III and IV of the performance-based restricted units as a result of meeting the applicable performance condition of $55.00, $60.00, $65.00 and $75.00 per share, respectively. Additional equity compensation expense was incurred for the year ended December 31, 2021 from an increase in units awarded as part of the recurring annual award programs. The year ended December 31, 2020 included accelerated expense from the vesting of restricted units granted to our Chief Executive Officer as a result of achieving the applicable performance conditions of $35.00 per share.

For detail regarding the fluctuations of compensation and benefits within each of our segments see “—Results of Operations by Segment.”

Performance Related Compensation. Performance related compensation increased by $1,336.7 million to $1,740.8 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Changes in performance related compensation are directly associated with the changes in carried interest allocation and incentive fees described above and may include performance allocations to charitable organizations as part of our philanthropic initiatives.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $185.2 million, or 71%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The Landmark Acquisition and Black Creek Acquisition have contributed $76.8 million in general, administrative and other expenses to the year ended December 31, 2021. These expenses were driven by amortization expense of $47.1 million for the year ended December 31, 2021 related to the intangible assets recorded in connection with the Landmark Acquisition and the Black Creek Acquisition. These expenses were also driven by placement fees of $9.6 million primarily in connection to new commitments to an open-ended industrial real estate fund. The impact from the Landmark Acquisition and Black Creek Acquisition has been excluded from the discussion below.

Placement fees for the year ended December 31, 2021 increased by $61.9 million, primarily due to new commitments to PCS II, SDL II, Ares Climate Infrastructure Partners, L.P. (“ACIP”) and our second special opportunities fund. In addition, the SSG Acquisition during the second half of 2020 resulted in an increase in amortization expense of $17.8 million for the year ended December 31, 2021 when compared to the same period in 2020. Certain expenses have also increased during the current

period, including occupancy costs to support our growing headcount and information services and information technology to support the expansion of our business. Collectively, these expenses increased by $9.1 million for the year ended December 31, 2021, when compared to the same period in 2020. The increase was also driven by higher professional service fees of $8.6 million for the year ended December 31, 2021, largely as a result of due diligence and legal expenses related to our recent acquisitions and higher recruiting fees to support the expanding platform.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the second half of 2021. We, however, recognized cost savings when comparing the years ended December 31, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services from the modified remote working environment, decreased by $2.8 million for the year ended December 31, 2021, when compared to the same period in 2020. Despite the significant addition in headcount and the number of funds that we manage, these expenses were $17.6 million lower for the year ended December 31, 2021 when compared to the pre-pandemic period in 2019, primarily driven by $14.4 million of travel expenses and $2.2 million of marketing expenses.

Net Realized and Unrealized Gains (Losses) on Investments. Net realized and unrealized gains (losses) on investments increased from a loss of $9.0 million for the year ended December 31, 2020 to a gain of $19.1 million for the year ended December 31, 2021. The activity for the year ended December 31, 2021 was primarily attributable to unrealized gains on certain strategic initiative related investments and on our U.S. CLO investments. The activity for the year ended December 31, 2020 was primarily attributable to unrealized losses recognized on certain strategic initiative related investments and an unrealized loss from market depreciation of properties held by AREA Sponsor Holdings LLC.

Interest Expense. Interest expense increased by $11.9 million, or 48%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The issuance of the 2051 Subordinated Notes on the last day of the second quarter increased interest expense by $9.4 million for the year ended December 31, 2021. The issuance of the 2030 Senior Notes late in the second quarter of 2020 increased interest expense by $6.1 million for the year ended December 31, 2021. The increase for the year ended December 31, 2021 was partially offset by a lower average outstanding balance of the Credit Facility when compared to the same period in 2020.

Other Income, Net. Other income, net increased by $3.1 million, or 28%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. Other income, net for the year ended December 31, 2021 included a $42.3 million bargain purchase gain from the Black Creek Acquisition. The bargain purchase gain resulted from the fair value of the identifiable tangible and intangible assets that we acquired exceeding the purchase consideration. The purchase agreement with Black Creek contains provisions that required us to record separate contingent consideration liabilities that are (i) dependent on the achievement of revenue targets for certain Black Creek funds and (ii) obligated us to pay the sellers 50% of the incentive fees realized for certain Black Creek funds for the year ended December 31, 2021. Other income, net includes $23.2 million from the revaluation of these contingent considerations for the year ended December 31, 2021. See “Note 10. Commitments and Contingencies” for a further description of the contingencies.

Other income, net also included transaction gains (losses) associated with currency fluctuations impacting the revaluation of non-functional currency balances and was based on the fluctuations in currency exchange rates for the years ended December 31, 2021 and 2020. Transaction losses during the year ended December 31, 2021 were primarily attributable to the British pound strengthening against Euro, while transaction gains during the year ended December 31, 2020 were primarily attributable to the British pound weakening against the U.S. dollar.

Income Tax Expense Income tax expense increased by $92.4 million, or 168%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The changes in the comparative periods are primarily a result of increases in taxable income and weighted average daily ownership. The weighted average daily ownership for AMC common stockholders increased from 54.0% for the year ended December 31, 2020 to 58.5% for the year ended December 31, 2021. The changes in ownership were primarily driven by the issuance of Class A common stock in connection with stock option exercises, vesting of restricted stock awards and private and public offerings of Class A and non-voting common stock. The increase in the weighted average daily ownership for the AMC common stockholders was partially offset by the issuance of AOG Units in connection with the Landmark Acquisition and the Black Creek Acquisition that increased the ownership of AOG Units not held by AMC.

Redeemable and Non-Controlling Interests. Net income (loss) attributable to redeemable and non-controlling interests in AOG entities represents results attributable to the holders of AOG Units and other ownership interests that are not held by AMC. In connection with the SSG Acquisition, the former owners of SSG retained an ownership interest in a subsidiary of an

AOG entity that is reflected as redeemable interest in AOG entities. Net income (loss) attributable to redeemable interest in AOG entities is allocated based on the ownership percentage for periods presented.

Net income (loss) attributable to non-controlling interests in AOG entities is generally allocated based on the weighted average daily ownership of the other AOG unitholders, except for income (loss) generated from certain joint venture partnerships. Net income (loss) is allocated to other strategic distribution partners with whom we have established joint ventures based on the respective ownership percentages and based on the activity of certain membership interests. For the years ended December 31, 2021 and 2020, net income of $23.8 million and net loss of $3.2 million, respectively, was allocated based on ownership percentages of the strategic distribution partners and the activity of those membership interests.

Net income attributable to non-controlling interests in AOG entities increased by $245.2 million, or 169%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The changes in the comparative periods are a result of the respective changes in income before taxes and weighted average daily ownership. While income before taxes increased, the weighted average daily ownership for the non-controlling AOG unitholders decreased from 46.0% for the year ended December 31, 2020 to 41.5% for the year ended December 31, 2021.

Consolidated Results of Operations of the Consolidated Funds

The following table presents the results of operations of the Consolidated Funds ($ in thousands):



	Year ended December 31,			Favorable (Unfavorable)
		2021			2020		$ Change		% Change
Expenses of the Consolidated Funds		$	(62,486)		$	(20,119)	$	(42,367)	(211)%
Net realized and unrealized gains (losses) on investments of Consolidated Funds		77,303			(96,864)		174,167		NM
Interest and other income of Consolidated Funds		437,818			463,652		(25,834)		(6)
Interest expense of Consolidated Funds		(258,048)			(286,316)		28,268		10
Income before taxes		194,587			60,353		134,234		222
Income tax expense of Consolidated Funds		(88)			(118)		30		25
Net income		194,499			60,235		134,264		223
Less: Revenues attributable to Ares Management Corporation eliminated upon consolidation		76,300			36,725		39,575		108
Less: Other expense, net attributable to Ares Management Corporation eliminated upon consolidation		(2,170)			(4,575)		2,405		53
Net income attributable to non-controlling interests in Consolidated Funds		$	120,369		$	28,085	92,284		NM

NM - Not Meaningful

The results of operations of the Consolidated Funds primarily represents activity from certain CLOs that we are deemed to control. Expenses primarily reflect professional fees that were incurred as a result of debt issuance costs related to the issuance of new, refinanced or restructured CLOs. These fees were expensed in the period incurred, as CLO debt is recorded at fair value on our Consolidated Statements of Financial Condition. For the year ended December 31, 2021, expenses were driven by professional fees incurred from the issuance of three new U.S. CLOs and the restructure of our European CLO legal entities. For the year ended December 31, 2020, expenses were primarily driven by the issuance of two European CLO. Net realized and unrealized gains fluctuated for the comparative periods, primarily due to a significant change in the value of loans held by the CLOs. The CSLLI returned 5.4% for 2021 when compared to 2.8% for the prior year. The decrease in interest expense was attributable to lower interest rates from refinanced CLOs since the third quarter of 2020 and from the deconsolidation of one CLO as a result of significant change in ownership during the year ended December 31, 2020, which was partially offset by newly issued CLOs at lower interest rates during the year ended December 31, 2021.

Revenues and other expense attributable to AMC represents management fees, incentive fees, principal investment income and administrative, transaction and other fees that are attributable to AMC’s proportional share in the activity of the Consolidated Funds and is eliminated from the respective components of AMC's results upon consolidation. The price fluctuations associated with the COVID-19 pandemic previously mentioned resulted in an increase in principal investment income and a decrease in other expense.

Segment Analysis

For segment reporting purposes, revenues and expenses are presented before giving effect to the results of our Consolidated Funds and the results attributable to non-controlling interests of joint ventures that we consolidate. As a result, segment revenues from management fees, fee related performance revenues, performance income and investment income are different than those presented on a consolidated basis in accordance with GAAP. Revenues recognized from Consolidated

Funds are eliminated in consolidation and results attributable to the non-controlling interests of joint ventures have been excluded by us. Furthermore, expenses and the effects of other income (expense) are different than related amounts presented on a consolidated basis in accordance with GAAP due to the exclusion of the results of Consolidated Funds and the non-controlling interests of joint ventures.

Non-GAAP Financial Measures

We use the following non-GAAP measures to make operating decisions, assess performance and allocate resources:

Fee Related Earnings (“FRE”)
Realized Income (“RI”)

These non-GAAP financial measures supplement and should be considered in addition to and not in lieu of, the results of operations, which are discussed further under “—Components of Consolidated Results of Operations” and are prepared in accordance with GAAP. Beginning in the fourth quarter of 2021, fee related performance revenues, together with fee related performance compensation, has been presented within FRE because it represents incentive fees from perpetual capital vehicles that is measured and received on a recurring basis and is not dependent on realization events from the underlying investments. Fee related performance revenues and fee related performance compensation were previously presented within realized net performance income. Historical periods have been modified to conform to the current period presentation. The following table sets forth FRE and RI by reportable segment and OMG ($ in thousands):



	Year ended December 31,	Favorable (Unfavorable)
		2021		2020		$ Change		% Change
Fee Related Earnings:
Credit Group		$	719,111	$	507,834	$	211,277	42%
Private Equity Group		114,879		109,064		5,815		5
Real Estate Group		99,107		33,719		65,388		194
Secondary Solutions Group		65,868		—		65,868		NM
Strategic Initiatives		32,235		17,371		14,864		86
Operations Management Group		(318,892)		(236,757)		(82,135)		(35)
Fee Related Earnings		$	712,308	$	431,231	281,077		65
Realized Income:
Credit Group		$	808,985	$	538,683	$	270,302	50%
Private Equity Group		162,207		212,695		(50,488)		(24)
Real Estate Group		140,447		58,192		82,255		141
Secondary Solutions Group		67,333		—		67,333		NM
Strategic Initiatives		23,167		16,915		6,252		37
Operations Management Group		(319,202)		(244,529)		(74,673)		(31)
Realized Income		$	882,937	$	581,956	300,981		52

NM - Not Meaningful

Income before provision for income taxes is the GAAP financial measure most comparable to RI and FRE. The following table presents the reconciliation of income before taxes as reported in the Consolidated Statements of Operations to RI and FRE of the reportable segments and OMG ($ in thousands):


	Year ended December 31,
		2021		2020
Income before taxes		$	1,065,690	$	379,478
Adjustments:
Depreciation and amortization expense		106,705		40,662
Equity compensation expense		237,191		122,986
Acquisition-related compensation expense(1)		66,893		—
Acquisition-related incentive fees(2)		(47,873)		—
Acquisition and merger-related expense		21,162		11,194
Deferred placement fees		78,883		19,329
Other (income) expense, net		(19,886)		10,207
Net (income) expense of non-controlling interests in consolidated subsidiaries		(23,397)		3,817
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations		(120,457)		(28,203)
Total performance (income) loss—unrealized		(1,744,056)		7,554
Total performance related compensation—unrealized		1,316,205		(11,552)
Total net investment (income) loss—unrealized		(54,123)		26,484
Realized Income		882,937		581,956
Total performance income—realized		(474,427)		(524,229)
Total performance related compensation—realized		328,583		399,462
Total investment income—realized		(24,785)		(25,958)
Fee Related Earnings		$	712,308	$	431,231

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

(2)Represents a component of the purchase price from incentive fees associated with one-time contingent consideration recorded in connection with the Black Creek Acquisition. 100% of the fees recognized in 2021 is presented within incentive fees in the Company’s Consolidated Statements of Operations of which 50% is included on an unconsolidated basis for segment reporting purposes.

For the specific components and calculations of these non-GAAP measures, as well as a reconciliation of the reportable segments to the most comparable measures in accordance with GAAP, see “Note 16. Segment Reporting”, to our audited consolidated financial statements included in this Annual Report on Form 10-K. Discussed below are our results of operations for our reportable segments and OMG.

Results of Operations by Segment

Credit Group—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of the Credit Group's FRE ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)
			2021		2020		$ Change		% Change
Management fees			$	1,070,608	$	841,138	$	229,470	27%
Fee related performance revenues			86,480		22,160		64,320		290
Other fees			27,103		18,644		8,459		45
Compensation and benefits			(410,394)		(320,111)		(90,283)		(28)
General, administrative and other expenses			(54,686)		(53,997)		(689)		(1)
Fee Related Earnings			$	719,111	$	507,834	211,277		42

Management Fees. The chart below presents Credit Group management fees and effective management fee rates ($ in millions):

Management fees on existing direct lending funds increased primarily from deployment of capital with Pathfinder, ACE IV, ACE V and SDL, collectively generating additional fees of $63.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Management fees from ARCC, excluding Part I Fees described below, increased by $36.6 million over the period primarily due to an increase in the average size of ARCC's portfolio. The remaining increases in management fees from funds in existence in both periods was primarily driven by deployment of capital in other direct lending funds and SMAs. Part I Fees increased primarily due to an increase in pre-incentive fee net investment income generated by ARCC and CADC, driven by an increase in originations and in the average size of their portfolios. Management fees from CLOs also increased primarily due to the net addition of three CLOs for the year ended December 31, 2021 compared

to the year ended December 31, 2020. The launch of PCS II during the fourth quarter of 2020 and SDL II during 2021 also contributed to the increase in management fees, generating fees of $17.3 million for the year ended December 31, 2021.

The decrease in effective management fee rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was driven by the decrease in Part I Fees' contribution to the effective management fee rate due to the proportional increase in fees from other credit funds.

Fee Related Performance Revenues. Fee related performance revenues increased by $64.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to fee related performance revenues from direct lending SMAs driven by increased deployment, which resulted in higher net investment income on a larger invested capital base, together with a recovery of valuations following the significant downturns experienced in the global credit markets at the onset of the COVID-19 pandemic in 2020.

Other Fees. Other fees increased by $8.5 million, or 45%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by administrative fees from private funds. Certain private credit funds pay administrative fees on invested capital and an increase in deployment resulted in an increase to the fee basis. The increase was also driven by higher transaction fees for certain funds as a result of increased originations.

Compensation and Benefits. Compensation and benefits increased by $90.3 million, or 28%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by (i) an increase in fee related performance compensation of $39.4 million from direct lending SMAs, (ii) higher Part I Fees compensation of $25.4 million, (iii) higher incentive compensation attributable to improved operating performance and margin expansion from scaling our business and (iv) headcount growth and merit increases for the year ended December 31, 2021, when compared to the same period in 2020. The increase in compensation and benefits was further driven by the increase in payroll related taxes of $5.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily attributable to the vesting of non-recurring equity compensation awards. The increase in salaries and benefits is partially offset by lower discretionary payments of $7.0 million made during the year ended December 31, 2021 when compared to the same period in 2020.

Average headcount for the year-to-date period increased by 6% to 433 investment and investment support professionals for the 2021 period from 409 professionals for the same period in 2020 as we added additional investment professionals to support our growing U.S. and European direct lending platforms.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $0.7 million, or 1%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. In connection with our fundraising efforts, placement fees increased by $4.5 million for the year ended December 31, 2021 when compared to the same periods in 2020. The increase was primarily associated with new commitments to PCS II, ACE V, SDL II and an alternative credit fund. Certain expenses have also increased during the current period, including information services and information technology to support the expansion of our business. Collectively, these expenses increased by $1.9 million for the year ended December 31, 2021 when compared to the same period in 2020.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the second half of 2021. We, however, recognized cost savings when comparing the years ended December 31, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services from the modified remote working environment, decreased by $2.2 million for the year ended December 31, 2021, when compared to the same period in 2020.

During 2020, we also recorded $3.2 million in one-time expenses related to expense concessions made to a limited number of funds.

Realized Income:

The following table presents the components of the Credit Group's RI ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)
			2021		2020		$ Change		% Change
Fee Related Earnings			$	719,111	$	507,834	$	211,277	42%
Performance income—realized			207,446		70,148		137,298		196
Performance related compensation—realized			(131,900)		(44,582)		(87,318)		(196)
Realized net performance income			75,546		25,566		49,980		195
Investment income (loss)—realized			1,989		(2,309)		4,298		NM
Interest and other investment income—realized			20,377		16,314		4,063		25
Interest expense			(8,038)		(8,722)		684		8
Realized net investment income			14,328		5,283		9,045		171
Realized Income			$	808,985	$	538,683	270,302		50

NM - Not Meaningful

Realized net performance income for the years ended December 31, 2021 and 2020 was primarily attributable to tax distributions on direct lending funds with European-style waterfalls, driven by net investment income on an increasing invested capital base of those funds. The tax distributions were made to provide cash sufficient to pay tax liabilities attributable to the funds’ taxable income that is allocated to its carry participants prior to the funds making carried interest distributions. Realized net performance income for the year ended December 31, 2021 also included performance revenues from eight direct lending funds, including ARCC Part II fees of $25.6 million. Realized net performance income for the year ended December 31, 2020 was also attributable to performance revenues for two alternative credit funds that crystallized during the period.

Realized net investment income for the years ended December 31, 2021 and 2020 was primarily attributable to interest income generated from our CLO investments and income recognized in connection with distributions from a commercial finance fund. Realized net investment income for the year ended December 31, 2021 also included income recognized in connection with distributions from an alternative credit fund, while the year ended December 31, 2020 included a term loan investment that generated interest income.

Credit Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Credit Group. Accrued net performance income excludes net performance income realized but not yet received as of the reporting date ($ in thousands):



	As of December 31,
	2021						2020
	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income		Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income
ACE III	$	99,551	$	59,731	$	39,820	$	77,959	$	46,776	$	31,183
ACE IV	146,580		90,879		55,701		93,462		57,946		35,516
ACE V	51,482		30,889		20,593		2,435		1,461		974
PCS	132,050		77,780		54,270		101,656		60,084		41,572
Other credit funds	165,770		110,409		55,361		97,803		60,437		37,366
Total Credit Group	$	595,433	$	369,688	$	225,745	$	373,315	$	226,704	$	146,611

The following table presents the change in accrued performance income for the Credit Group ($ in thousands):












		As of December 31, 2020		Activity during the period						As of December 31, 2021
	Waterfall Type	Accrued Performance Income		Change in Unrealized		Realized		Other Adjustments		Accrued Performance Income
Accrued Carried Interest
ACE III	European	$	77,959	$	42,712	$	(21,789)	$	669	$	99,551
ACE IV	European	93,462		99,813		(47,414)		719		146,580
ACE V	European	2,435		49,047		—		—		51,482
PCS	European	101,656		57,857		(28,363)		900		132,050
Other credit funds	European	97,545		86,368		(23,129)		4,723		165,507
Other credit funds	American	258		5		—		—		263
Total accrued carried interest		373,315		335,802		(120,695)		7,011		595,433
ARCC Part II Fees	Incentive	—		25,569		(25,569)		—		—
Other credit funds	Incentive	—		61,182		(61,182)		—		—
Total Credit Group		$	373,315	$	422,553	$	(207,446)	$	7,011	$	595,433

Credit Group—Assets Under Management

The tables below present rollforwards of AUM for the Credit Group ($ in millions):




























	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 12/31/2020	$	27,967	$	2,863	$	2,953	$	12,897	$	56,516	$	42,276	$	145,472

Net new par/equity commitments	1,179		858		2,090		5,788		14,891		5,155		29,961
Net new debt commitments	3,647		—		100		—		15,021		3,381		22,149
Capital reductions	(632)		—		—		—		(1,935)		(148)		(2,715)
Distributions	(98)		—		16		(633)		(1,832)		(1,452)		(3,999)
Redemptions	(295)		(270)		(211)		(1,221)		(168)		(300)		(2,465)
Change in fund value	(277)		181		264		593		3,356		190		4,307
Balance at 12/31/2021	$	31,491	$	3,632	$	5,212	$	17,424	$	85,849	$	49,102	$	192,710
Average AUM(1)	$	29,428	$	3,193	$	3,977	$	15,255	$	69,331	$	46,439	$	167,623

	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 12/31/2019	$	22,320	$	3,492	$	2,611	$	7,571	$	48,431	$	26,118	$	110,543
Acquisitions	2,693		—		—		—		—		—		2,693
Net new par/equity commitments	551		451		470		5,516		4,036		13,209		24,233
Net new debt commitments	2,406		—		—		—		4,002		1,119		7,527
Capital reductions	(121)		—		—		—		(144)		(166)		(431)
Distributions	(69)		—		(16)		(376)		(1,181)		(843)		(2,485)
Redemptions	(282)		(1,163)		(276)		(354)		(101)		—		(2,176)
Change in fund value	469		83		164		540		1,473		2,839		5,568
Balance at 12/31/2020	$	27,967	$	2,863	$	2,953	$	12,897	$	56,516	$	42,276	$	145,472
Average AUM(1)	$	25,312	$	2,911	$	2,703	$	9,375	$	51,548	$	31,585	$	123,434

(1) Represents a five-point average of quarter-end balances for each period.

The components of our AUM for the Credit Group are presented below ($ in billions):


			AUM: $192.7						AUM: $145.5


						FPAUM						AUM not yet paying fees						Non-fee paying(1)

(1) Includes $11.8 billion and $9.0 billion of AUM of funds from which we indirectly earn management fees as of December 31, 2021 and 2020, respectively and includes $0.9 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021 and 2020.

Credit Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Credit Group ($ in millions):






























	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 12/31/2020	$	27,171	$	2,861	$	2,457	$	6,331	$	32,337	$	16,860	$	88,017

Commitments	3,961		858		1,916		1,659		2,103		—		10,497
Subscriptions/deployment/increase in leverage	715		—		398		2,641		14,342		9,400		27,496
Capital reductions	(583)		—		(18)		—		(790)		(256)		(1,647)
Distributions	(51)		—		(83)		(646)		(3,469)		(1,381)		(5,630)
Redemptions	(295)		(267)		(206)		(1,092)		(143)		(721)		(2,724)
Change in fund value	(591)		180		250		(151)		1,748		(55)		1,381

Balance at 12/31/2021	$	30,327	$	3,632	$	4,714	$	8,742	$	46,128	$	23,847	$	117,390
Average FPAUM(1)	$	28,265	$	3,192	$	3,473	$	7,670	$	37,198	$	20,805	$	100,603

	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 12/31/2019	$	21,458	$	3,495	$	2,144	$	4,340	$	27,876	$	12,567	$	71,880
Acquisitions	2,596		—		—		—		—		—		2,596
Commitments	3,364		438		468		469		491		—		5,230
Subscriptions/deployment/increase in leverage	15		13		91		2,282		6,892		4,316		13,609
Capital reductions	(139)		—		(59)		(227)		(934)		(301)		(1,660)
Distributions	(49)		—		(41)		(481)		(2,371)		(715)		(3,657)
Redemptions	(283)		(1,127)		(278)		(306)		(93)		(41)		(2,128)
Change in fund value	209		82		132		254		476		1,034		2,187
Change in fee basis	—		(40)		—		—		—		—		(40)
Balance at 12/31/2020	$	27,171	$	2,861	$	2,457	$	6,331	$	32,337	$	16,860	$	88,017
Average FPAUM(1)	$	24,510	$	2,901	$	2,193	$	5,110	$	29,653	$	14,773	$	79,140
													pa
(1) Represents a five-point average of quarter-end balances for each period.

The charts below present FPAUM for the Credit Group by its fee basis ($ in billions):


			FPAUM: $117.4						FPAUM: $88.0


			Invested capital						Market value(1)						Collateral balances (at par)

(1)Includes $27.4 billion and $20.7 billion from funds that primarily invest in illiquid strategies as of December 31, 2021 and 2020, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

Credit Group—Fund Performance Metrics as of December 31, 2021

ARCC contributed approximately 45% of the Credit Group’s total management fees for the year ended December 31, 2021. In addition, seven other significant funds, ACE III, ACE IV, ACE V, CADC, PCS, SDL and an open-ended secured finance fund, collectively contributed approximately 21% of the Credit Group’s management fees for the year ended December 31, 2021.

The following table presents the performance data for our significant funds that are not drawdown funds in the Credit Group as of December 31, 2021 ($ in millions):


					Returns(%)(1)
	Year of Inception	AUM		Year-To-Date		Since Inception(2)		Primary Investment Strategy
Fund				Gross	Net	Gross	Net
ARCC(3)	2004	$	24,114		N/A	22.0	N/A	12.1	U.S. Direct Lending
CADC(4)	2017	3,129			N/A	8.9	N/A	6.7	U.S. Direct Lending
Open-ended secured finance fund(5)	2018	2,126			3.6	3.0	3.2	2.6	Alternative Credit

(1)Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses.

(2)Since inception returns are annualized.

(3)Net returns are calculated using the fund's NAV and assume dividends are reinvested at the closest quarter-end NAV to the relevant quarterly ex-dividend dates. Additional information related to ARCC can be found in its financial statements filed with the SEC, which are not part of this report.

(5)Gross returns do not reflect the deduction of management fees or other expenses. Net returns are calculated by subtracting the applicable management fees and other expenses from the gross returns on a monthly basis. This fund is a master/feeder structure and its AUM and returns include activity from its' investment in an affiliated Ares fund. Returns presented in the table are expressed in U.S. Dollars and are for the master fund, excluding the share class hedges. The year-to-date and since inception returns (gross / net) for the pound sterling hedged Cayman feeder, the fund's sole feeder, are as follows: 3.3% / 2.7% and 1.9% / 1.3%.

The following table presents the performance data of our significant drawdown funds as of December 31, 2021 ($ in millions):


	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Funds Harvesting Investments
ACE III(7)	2015	$	5,114	$	2,822	$	2,507		$	1,023		$	2,489		$	3,512		1.5x	1.4x	11.9	8.6	European Direct Lending
PCS	2017	3,849		3,365		2,649			1,188			2,232			3,420			1.3x	1.2x	13.4	9.7	U.S. Direct Lending
Funds Deploying Capital
ACE IV Unlevered(8)	2018	10,654		2,851		2,399			315			2,421			2,736			1.2x	1.1x	8.9	6.4	European Direct Lending
ACE IV Levered(8)		4,819		4,008		697			4,195			4,892			1.3x			1.2x	13.3	9.7
SDL Unlevered	2018	5,826		922		740			131			689			820			1.1x	1.1x	9.7	7.3	U.S. Direct Lending
SDL Levered		2,045		1,641		445			1,531			1,976			1.3x			1.2x	18.9	14.1
ACE V Unlevered(9)	2020	15,445		7,026		2,097			16			2,205			2,221			1.1x	1.1x	13.4	10.2	European Direct Lending
ACE V Levered(9)		6,376		1,898		29			2,050			2,079			1.1x			1.1x	21.9	16.4

(1)Realized value represents the sum of all cash distributions to all partners and if applicable, exclude tax and incentive distributions made to the general partner.

(2)Unrealized value represents the fund's NAV reduced by the accrued incentive allocation, if applicable. There can be no assurance that unrealized values will be realized at the valuations indicated.

(3)The gross multiple of invested capital (“MoIC”) is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC is before giving effect to management fees, carried interest and other expenses, as applicable, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(4)The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes those interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The net MoIC is after giving effect to management fees and carried interest, other expenses and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest and other expenses, as applicable, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Gross fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and, if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees and carried interest, other expenses and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)ACE III is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and MoIC presented in the table are for the Euro denominated feeder fund. The gross and net IRR for the U.S. dollar denominated feeder fund are 12.8% and 9.5%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.6x and 1.4x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE III are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(8)ACE IV is made up of four parallel funds, two denominated in Euros and two denominated in pound sterling: ACE IV (E) Unlevered, ACE IV (G) Unlevered, ACE IV (E) Levered and ACE IV (G) Levered. The gross and net IRR and MoIC presented in the table are for ACE IV (E) Unlevered and ACE IV (E) Levered. Metrics for ACE IV (E) Levered are inclusive of a U.S. dollar denominated feeder fund, which has not been presented separately The gross and net IRR for ACE IV (G) Unlevered are 10.4% and 7.5%, respectively. The gross and net MoIC for ACE IV (G) Unlevered are 1.2x and 1.2x, respectively. The gross and net IRR for ACE IV (G) Levered are 14.6% and 10.6%, respectively. The gross and net MoIC for ACE IV (G) Levered are 1.3x and 1.2x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE IV Unlevered and ACE IV Levered are for the combined levered and unlevered parallel funds and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(9)ACE V is made up of four parallel funds, two denominated in Euros and two denominated in pound sterling: ACE V (E) Unlevered, ACE V (G) Unlevered, ACE V (E) Levered, and ACE V (G) Levered. The gross and net MoIC presented in the chart are for ACE V (E) Unlevered and ACE V (E) Levered. Metrics for ACE V (E) Unlevered are inclusive of a Japanese yen denominated feeder fund, which has not been presented separately. Metrics for ACE V (E) Levered are inclusive of a U.S. dollar denominated feeder fund, which has not been presented separately. The gross and net IRR for ACE V (G) Unlevered are 13.0% and 9.8%, respectively. The gross and net MoIC for ACE V (G) Unlevered are 1.1x and 1.1x, respectively. The gross and net IRR for ACE V (G) Levered are 21.2% and 15.4%, respectively. The gross and net MoIC for ACE V (G) Levered are 1.1x and 1.1x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE V Unlevered and ACE V Levered are for the combined levered and unlevered parallel funds and are converted to U.S. dollars at the prevailing quarter-end exchange rate. IRRs are presented on a non-annualized basis.

Private Equity Group—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of the Private Equity Group's FRE ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)

		2021		2020		$ Change		% Change
Management fees		$	231,282	$	221,160	$	10,122	5%
Other fees		1,126		178		948		NM
Compensation and benefits		(92,485)		(90,129)		(2,356)		(3)
General, administrative and other expenses		(25,044)		(22,145)		(2,899)		(13)
Fee Related Earnings		$	114,879	$	109,064	5,815		5

NM - Not Meaningful

Management Fees. The chart below presents Private Equity Group management fees and effective management fee rates ($ in millions):

Management fees increased primarily due to additional commitments and one-time catch up fees. Excluding one-time catch up fees of $2.5 million, management fees from ACOF VI increased by $62.1 million for the year ended December 31, 2021 compared to year ended December 31, 2020, offset by a decrease in management fees of $73.9 million from ACOF V due to the step down in fee rate and change in fee base from committed capital to invested capital in the first quarter of 2021 as a result of ACOF VI beginning to pay fees in the fourth quarter of 2020. Excluding one-time catch up fees of $4.0 million, management fees from ACIP increased by $11.4 million over the comparative period. Management fees from ASOF increased by $21.0 million from the prior period, driven by increased deployment.

The decrease in effective management fee rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by the step down in fee rate to 0.75% for ACOF V, partially offset by increased deployment in ASOF that has a higher fee rate than the Private Equity Group’s average effective management fee rate.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $2.9 million, or 13%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. In connection with our fundraising efforts, placement fees increased by $4.6 million for the year ended December 31, 2021 when compared to the same period in 2020. The increase was primarily associated with new commitments to ASOF, ACOF VI and ACIP. Certain expenses have also increased during the current period, including professional service fees, information services and information technology to support the expansion of our business. Collectively, these expenses increased by $1.2 million for the year ended December 31, 2021 when compared to the same period in 2020.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the second half of 2021. We, however, recognized cost savings when comparing the years ended December 31, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services from the modified remote working environment, decreased by $0.8 million for the year ended December 31, 2021, when compared to the same period in 2020.

For the year ended December 31, 2020, we also recorded $1.6 million in costs associated with the launch of ACOF VI and ASOF.

Realized Income:

The following table presents the components of the Private Equity Group's RI ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)
		2021		2020		$ Change		% Change
Fee Related Earnings		$	114,879	$	109,064	$	5,815	5%
Performance income—realized		171,637		392,635		(220,998)		(56)
Performance related compensation—realized		(137,576)		(315,905)		178,329		56
Realized net performance income		34,061		76,730		(42,669)		(56)
Investment income—realized		9,259		29,100		(19,841)		(68)
Interest and other investment income—realized		12,819		5,987		6,832		114
Interest expense		(8,811)		(8,186)		(625)		(8)
Realized net investment income		13,267		26,901		(13,634)		(51)
Realized Income		$	162,207	$	212,695	(50,488)		(24)

Realized net performance income and realized net investment income for the year ended December 31, 2021 was primarily attributable to realizations from monetization of ACOF IV’s investment in Farrow & Ball following the sale of the company and to realizations from partial sales of ACOF IV’s position in AZEK. Realized net investment income for the year ended December 31, 2021 was also attributable to the monetization of various assets in an infrastructure and power fund and a special opportunities fund, offset by a realized loss recognized in connection with an Asian corporate private equity fund’s sale of its investment in a dairy farm company.

Realized net performance income and realized net investment income for the year ended December 31, 2020 were primarily attributable to realizations from the sale of ACOF III's remaining position in Floor & Decor Holdings, Inc., from the partial sale of ACOF IV's position in AZEK and from the monetization of ACOF IV's investment in National Veterinary Associates, Valet Living and a healthcare services company. Realized net investment income for the year ended December 31, 2020 was also attributable to the monetization of an infrastructure and power fund's investment in a wind project. Realized net investment income for the year ended December 31, 2020 included realized losses from ACOF III and ACOF IV due to its investment in a luxury retailer undergoing a reorganization and from the corporate private equity continuation fund due to its investment in a retail portfolio company exacerbated by the impact of the COVID-19 pandemic on the sector.

Private Equity Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Private Equity Group ($ in thousands):



	As of December 31,
	2021						2020
	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income		Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income
ACOF III	$	43,510	$	34,808	$	8,702	$	55,022	$	44,018	$	11,004
ACOF IV	387,901		310,321		77,580		345,748		276,598		69,150
ACOF V	666,074		532,859		133,215		—		—		—
ACOF VI	73,261		58,608		14,653		2,624		2,099		525

ASOF	338,857		237,200		101,657		113,313		79,319		33,994
EIF V	62,592		46,787		15,805		54,086		40,429		13,657
Other funds	37,837		24,790		13,047		175		175		—
Total Private Equity Group	$	1,610,032	$	1,245,373	$	364,659	$	570,968	$	442,638	$	128,330

The following table presents the change in accrued carried interest for the Private Equity Group ($ in thousands):


		As of December 31, 2020		Activity during the period						As of December 31, 2021
	Waterfall Type	Accrued Carried Interest		Change in Unrealized		Realized		Other Adjustments		Accrued Carried Interest
ACOF III	American	$	55,022	$	(5,320)	$	(6,192)	$	—	$	43,510
ACOF IV	American	345,748		207,598		(165,445)		—		387,901
ACOF V	American	—		666,074		—		—		666,074
ACOF VI	American	2,624		70,637		—		—		73,261

ASOF	European	113,313		225,544		—		—		338,857
EIF V	European	54,086		8,506		—		—		62,592
Other funds	European	—		11,298		—		368		11,666
Other funds	American	175		25,996		—		—		26,171
Total Private Equity Group		$	570,968	$	1,210,333	$	(171,637)	$	368	$	1,610,032

Private Equity Group—Assets Under Management

The tables below present rollforwards of AUM for the Private Equity Group ($ in millions):




























	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 12/31/2020	$	18,233	$	5,721	$	3,485	$	27,439

Net new par/equity commitments	1,554		4,876		1,769		8,199
Net new debt commitments	—		200		—		200
Capital reductions	(9)		—		—		(9)
Distributions	(3,613)		(670)		(933)		(5,216)

Change in fund value	5,474		1,638		435		7,547
Balance at 12/31/2021	$	21,639	$	11,765	$	4,756	$	38,160
Average AUM(1)	$	20,375	$	7,345	$	3,889	$	31,609

	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 12/31/2019	$	18,406	$	3,527	$	3,233	$	25,166

Net new par/equity commitments	3,964		1,800		425		6,189

Capital reductions	(11)		(125)		—		(136)
Distributions	(4,096)		(150)		(164)		(4,410)
Redemptions	(5)		—		—		(5)
Change in fund value	(25)		669		(9)		635
Balance at 12/31/2020	$	18,233	$	5,721	$	3,485	$	27,439
Average AUM(1)	$	17,532	$	4,753	$	3,297	$	25,582


(1) Represents a five-point average of quarter-end balances for each period.

The components of our AUM for the Private Equity Group are presented below ($ in billions):


			AUM: $38.2						AUM: $27.4


			FPAUM						Non-fee paying(1)						AUM not yet paying fees

(1) Includes $1.4 billion and $1.1 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021 and 2020, respectively.

Private Equity Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Private Equity Group ($ in millions):






























	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 12/31/2020	$	14,770	$	2,723	$	3,679	$	21,172

Commitments	1,579		—		1,424		3,003
Subscriptions/deployment/increase in leverage	556		1,849		219		2,624

Distributions	(1,623)		(356)		(650)		(2,629)

Change in fund value	6		—		(1)		5
Change in fee basis	(2,815)		—		(175)		(2,990)
Balance at 12/31/2021	$	12,473	$	4,216	$	4,496	$	21,185
Average FPAUM(1)	$	12,718	$	3,388	$	3,867	$	19,973

	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 12/31/2019	$	11,968	$	1,720	$	3,352	$	17,040

Commitments	3,838		—		400		4,238
Subscriptions/deployment/increase in leverage	38		1,547		—		1,585

Distributions	(584)		(544)		(68)		(1,196)

Change in fund value	(36)		—		—		(36)
Change in fee basis	(454)		—		(5)		(459)
Balance at 12/31/2020	$	14,770	$	2,723	$	3,679	$	21,172
Average FPAUM(1)	$	12,357	$	2,292	$	3,436	$	18,085

(1) Represents a five-point average of quarter-end balances for each period.

The charts below present FPAUM for the Private Equity Group by its fee basis ($ in billions):


			FPAUM: $21.2						FPAUM: $21.2


						Invested capital									Capital commitments

Private Equity Group—Fund Performance Metrics as of December 31, 2021

Three significant funds, ACOF V, ASOF and ACOF VI, collectively contributed approximately 62% of the Private Equity Group’s management fees for the year ended December 31, 2021.

The following table presents the performance data of our significant drawdown funds as of December 31, 2021($ in millions):


	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)


Funds Deploying Capital
ACOF V	2017	$	9,285	$	7,850	$	7,381		$	2,915		$	8,528		$	11,443		1.6x	1.4x	16.9	12.1	Corporate Private Equity
ASOF	2019	5,452		3,518		4,892			2,354			4,354			6,708			1.7x	1.5x	55.2	43.1	Special Opportunities
ACOF VI	2020	6,159		5,743		2,706			230			2,983			3,213			1.2x	1.1x	N/A	N/A	Corporate Private Equity

(1)Realized value represents the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments. Realized value excludes any proceeds related to bridge financings.

(2)Unrealized value represents the fair market value of remaining investments. Unrealized value does not take into account any bridge financings. There can be no assurance that unrealized investments will be realized at the valuations indicated.

(3)For the corporate private equity, the gross MoIC is calculated at the investment-level and is based on the interests of all partners. The gross MoIC is before giving effect to management fees, carried interest, as applicable, and other expenses. For the special opportunities funds, the gross MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC is before giving effect to management fees, carried interest as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. The gross MoICs for the corporate private equity and special opportunities funds are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the gross MoIC would be 1.5x for ACOF V, 1.1x for ACOF VI, and 1.6x for ASOF.

(4)The net MoIC for ASOF is calculated at the fund-level. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. The net MoIC for the corporate private equity funds is calculated at the investment level. For all funds, the net MoIC is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance fees. The net MoIC is after giving effect to management fees and carried interest, other expenses and credit facility interest expenses, as applicable.

(5)For the corporate private equity, the gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. The cash flow dates used in the gross IRR calculation are assumed to occur at month-end. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses. For the special opportunities funds the gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRRs reflect returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The gross IRRs for the corporate private equity and special opportunities funds are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the gross IRRs would be 16.8% for ACOF V, "N/A" for ACOF VI, and 53.7% for ASOF.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the net IRR calculation are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, carried interest as applicable, and other expenses and exclude commitments by the general partner and non-fee paying limited partners who do not pay either management fees or carried interest. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

Real Estate Group—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of the Real Estate Group's FRE ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)

		2021		2020		$ Change		% Change
Management fees		$	168,838	$	97,680	$	71,158	73%
Fee related performance revenues		51,399		827		50,572		NM
Other fees		12,982		974		12,008		NM
Compensation and benefits		(113,350)		(53,511)		(59,839)		(112)
General, administrative and other expenses		(20,762)		(12,251)		(8,511)		(69)
Fee Related Earnings		$	99,107	$	33,719	65,388		194

NM - Not Meaningful

Management Fees. The chart below presents Real Estate Group management fees and effective management fee rates ($ in millions):

Management fees increased for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the Black Creek Acquisition, additional commitments and one-time catch up fees. Excluding one-time catch up fees of $7.0 million, management fees from Ares European Property Enhancement Partners III, SCSp. (“EPEP III”) increased by $11.5 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Excluding one-time catch up fees of $2.9 million, management fees from AREOF III increased by $3.8 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Management fees from real estate debt funds increased by $6.9 million for the period primarily due to the continued fundraising and subsequent deployment within these open-ended funds. Management fees included $2.0 million of one-time fees for the year ended December 31, 2020, driven by our Real Estate Group completing the sale of its stake in a 40-property pan-European logistics portfolio.

The decrease in effective management fee rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to deployment in real estate debt funds with effective management fee rates below 0.75% and to certain funds previously managed by Black Creek with effective management fee rates below 0.75%. The decrease in effective management fee rate is partially offset by an increase in management fees from real estate equity funds. Our most recent real estate equity funds pay a fee on committed capital that increases once that capital is invested. As a result, our effective management fee rate decreases immediately following capital raising and increases as capital is subsequently deployed.

Fee Related Performance Revenues. Fee related performance revenues increased by $50.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to fee related performance revenues generated from the management contracts that we acquired from the Black Creek Group, including AREIT and AIREIT. In connection with the Black Creek Acquisition, we acquired the investment management contracts that entitle us to 100% of the incentive fees earned from AREIT and AIREIT. The purchase agreement stipulated that approximately 50% of the incentive fees earned from AREIT and AIREIT for the year ended December 31, 2021, representing those fees generated prior to the completion of the Black Creek Acquisition, are payable to the sellers. We presented the portion of the fees retained by us during the year ended December 31, 2021 within fee related performance revenues, which will increase to 100% in subsequent years.

Other Fees: Other fees increased by $12.0 million to $13.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase primarily represents fees that were generated under the investment management agreements that we acquired from Black Creek Group, including property-related fees, such as acquisition, development and property management.

Compensation and Benefits. Compensation and benefits increased by $59.8 million, or 112%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in salaries and benefits was primarily driven by (i) fee related performance compensation of $30.2 million and (ii) compensation and benefit expenses of $16.8 million associated with the investment and investment support professionals hired as part of the Black Creek Acquisition. The increase in salaries and benefits was also driven by headcount growth from the U.S. real estate equity team and by higher incentive compensation attributable to improved operating performance and margin expansion from scaling our business.

Average headcount for the year-to-date period increased by 68% to 170 investment and investment support professionals for the 2021 period from 101 professionals for the same period in 2020, including 60 professionals from the Black Creek Acquisition.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $8.5 million, or 69%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The change was principally driven by an increase in expenses of $3.4 million, primarily occupancy costs and information technology to support the expanding platform following the Black Creek Acquisition and travel, entertainment and marketing sponsorships expenses from the Black Creek Group. The increase was also driven by a non-recurring integration costs of $3.1 million and by an increase in placement fees of $1.1 million, primarily associated with new commitments to AREOF III and a real estate debt fund.

Realized Income:

The following table presents the components of the Real Estate Group's RI ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)

		2021		2020		$ Change		% Change
Fee Related Earnings		$	99,107	$	33,719	$	65,388	194%
Performance income—realized		95,270		61,446		33,824		55
Performance related compensation—realized		(59,056)		(38,975)		(20,081)		(52)
Realized net performance income		36,214		22,471		13,743		61
Investment income—realized		4,687		3,146		1,541		49
Interest and other investment income—realized		5,947		4,056		1,891		47
Interest expense		(5,508)		(5,200)		(308)		(6)
Realized net investment income		5,126		2,002		3,124		156
Realized Income		$	140,447	$	58,192	82,255		141

Realized net performance income for the year ended December 31, 2021 was primarily attributable to performance revenues from a former Black Creek U.S. real estate equity fund generated by market appreciation of industrial assets and tax distributions from real estate equity funds driven by asset sales and operating income. Realized net performance income and realized net investment income for the year ended December 31, 2021 was also attributable to the sale of multiple properties held in U.S. real estate equity funds. Realized net investment income for the year ended December 31, 2021 also included distributions from real estate debt vehicles, driven by operating income during the period.

Realized net performance income and realized net investment income for the year ended December 31, 2020 was primarily attributable to the sale of a 40-property pan-European logistics portfolio held within multiple European real estate funds and to tax distributions from real estate equity funds. Realized net investment income for the year ended December 31, 2020 was also attributable to interest income generated in U.S. real estate equity and real estate debt funds.

Real Estate Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Real Estate Group. Accrued net performance income excludes net performance income realized but not yet received as of the reporting date ($ in thousands):



	As of December 31,
	2021						2020
	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income		Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income
US VIII	$	88,112	$	56,391	$	31,721	$	57,074	$	36,527	$	20,547
US IX	110,074		68,246		41,828		26,704		16,556		10,148
EF IV	70,600		42,361		28,239		55,829		33,498		22,331
EF V	69,946		48,962		20,984		—		—		—
AREOF III	24,204		14,523		9,681		—		—		—
Other real estate funds	105,845		65,596		40,249		61,962		38,535		23,427
Other fee generating funds(1)	3,777		—		3,777		2,786		—		2,786
Total Real Estate Group	$	472,558	$	296,079	$	176,479	$	204,355	$	125,116	$	79,239

(1)Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

The following table presents the change in accrued performance income for the Real Estate Group ($ in thousands):












		As of December 31, 2020		Activity during the period						As of December 31, 2021
	Waterfall Type	Accrued Performance Income		Change in Unrealized		Realized		Other Adjustments		Accrued Performance Income
Accrued Carried Interest
US VIII	European	$	57,074	$	40,455	$	(9,417)	$	—	$	88,112
US IX	European	26,704		83,370		—		—		110,074
EF IV	American	55,829		14,771		—		—		70,600
EF V	American	—		69,945		—		1		69,946
AREOF III	European	—		24,204		—		—		24,204
Other real estate funds	European	29,518		14,945		(7,587)		—		36,876
Other real estate funds	American	32,444		49,031		(12,598)		92		68,969
Other fee generating funds(1)	European	426		17		93		(536)		—
Other fee generating funds(1)	American	2,360		1,417		—		—		3,777
Total accrued carried interest		204,355		298,155		(29,509)		(443)		472,558

Other real estate funds	Incentive	—		65,761		(65,761)		—		—
Total Real Estate Group		$	204,355	$	363,916	$	(95,270)	$	(443)	$	472,558

(1)Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

Real Estate Group—Assets Under Management

The tables below present rollforwards of AUM for the Real Estate Group ($ in millions):




























	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 12/31/2020	$	4,404	$	4,811	$	5,593	$	14,808
Acquisitions	13,719		—		—		13,719
Net new par/equity commitments	3,180		1,974		1,020		6,174
Net new debt commitments	1,134		203		3,334		4,671
Capital reductions	—		—		(311)		(311)
Distributions	(1,216)		(612)		(146)		(1,974)
Redemptions	(63)		—		(7)		(70)
Change in fund value	3,519		451		176		4,146
Balance at 12/31/2021	$	24,677	$	6,827	$	9,659	$	41,163
Average AUM(1)	$	12,157	$	5,724	$	7,984	$	25,865

	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 12/31/2019	$	3,793	$	4,588	$	4,826	$	13,207

Net new par/equity commitments	854		699		710		2,263
Net new debt commitments	—		—		437		437
Capital reductions	—		—		(372)		(372)
Distributions	(314)		(820)		(78)		(1,212)

Change in fund value	71		344		70		485
Balance at 12/31/2020	$	4,404	$	4,811	$	5,593	$	14,808
Average AUM(1)	$	4,142	$	4,639	$	5,399	$	14,180

(1) Represents a five-point average of quarter-end balances for each period.

The components of our AUM for the Real Estate Group are presented below ($ in billions):


			AUM: $41.2						AUM: $14.8


			FPAUM						Non-fee paying(1)						AUM not yet paying fees

(1) Includes $0.4 billion and $0.3 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021 and 2020, respectively

Real Estate Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Real Estate Group ($ in millions):






























	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 12/31/2020	$	3,659	$	4,088	$	2,505	$	10,252
Acquisitions	7,155		—		—		7,155
Commitments	2,463		1,053		204		3,720
Subscriptions/deployment/increase in leverage	1,555		346		1,149		3,050
Capital reductions	—		—		(162)		(162)
Distributions	(484)		(332)		(319)		(1,135)
Redemptions	(63)		—		(23)		(86)
Change in fund value	1,539		(234)		162		1,467
Change in fee basis	(137)		(5)		—		(142)
Balance at 12/31/2021	$	15,687	$	4,916	$	3,516	$	24,119
Average FPAUM(1)	$	8,277	$	4,461	$	3,051	$	15,789

	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 12/31/2019	$	2,635	$	3,792	$	1,536	$	7,963

Commitments	1,056		606		73		1,735
Subscriptions/deployment/increase in leverage	118		184		920		1,222
Capital reductions	—		(18)		(33)		(51)
Distributions	(112)		(331)		(77)		(520)

Change in fund value	—		241		86		327
Change in fee basis	(38)		(386)		—		(424)
Balance at 12/31/2020	$	3,659	$	4,088	$	2,505	$	10,252
Average FPAUM(1)	$	3,337	$	3,961	$	1,941	$	9,239

(1) Represents a five-point average of quarter-end balances for each period.

The charts below present FPAUM for the Real Estate Group by its fee basis ($ in billions):


			FPAUM: $24.1						FPAUM: $10.2


			Market value(1)						Capital commitments						Invested capital/other(2)

(1)Amounts represent FPAUM from funds that primarily invest in illiquid strategies. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

(2)Other consists of ACRE's FPAUM, which is based on ACRE’s stockholders’ equity.

Real Estate Group—Fund Performance Metrics as of December 31, 2021

Four significant funds, EF V, AREIT, AIREIT and an open-ended industrial real estate fund, collectively contributed approximately 37% of the Real Estate Group’s management fees for the year ended December 31, 2021.

The following table presents the performance data for our significant funds that are not drawdown funds in the Real Estate Group as of December 31, 2021 ($ in millions):


					Returns(%)(1)
	Year of Inception	AUM		Year-To-Date			Since Inception(2)		Primary Investment Strategy
Fund				Gross		Net	Gross	Net
Open-ended industrial real estate fund(3)	2017	$	5,063			43.2	35.9	28.6	23.5	U.S. Real Estate Equity
AREIT(4)	2012	3,777				N/A	13.8	N/A	7.4	U.S. Real Estate Equity
AIREIT(5)	2017	5,183				N/A	29.7	N/A	11.3	U.S. Real Estate Equity

(1)Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses.

(2)Since inception returns are annualized.

(3)Gross returns do not reflect the deduction of management fees, incentive fees, as applicable, or other expenses. Net returns are calculated by subtracting the applicable management fees, incentive fees, as applicable and other expenses from the gross returns on a quarterly basis.

(4)Returns are shown for institutional share class. Net returns are calculated using the fund’s NAV and assume distributions are reinvested at the NAV on the date of distribution. The inception date used in the calculation of the since inception return is the date in which the first shares of common stock were sold after converting to a NAV-based REIT. Additional information related to AREIT can be found in its financial statements filed with the SEC, which are not part of this report.

(5)Returns are shown for institutional share class. Net returns are calculated using the fund’s NAV and assume distributions are reinvested at the NAV on the date of distribution. Additional information related to AIREIT can be found in its financial statements filed with the SEC, which are not part of this report.

The following table presents the performance data of our significant drawdown fund as of December 31, 2021 ($ in millions):


	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Fund Deploying Capital
EF V(7)	2018	$	2,282	$	1,968	$	1,105		$	411		$	1,178		$	1,589		1.4x	1.2x	23.4	15.8	European Real Estate Equity

(1)Realized value includes distributions of operating income, sales and financing proceeds received.

(3)The gross MoIC is calculated at the investment level and is based on the interests of all partners. The gross MoIC for all funds is before giving effect to management fees, carried interest and other expenses, as applicable.

(4)The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner which does not pay management fees, carried interest or has such fees rebated outside of the fund. The net MoIC is after giving effect to management fees, carried interest as applicable and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. Cash flows used in the gross IRR calculation are assumed to occur at quarter-end. The gross IRRs are calculated before giving effect to management fees, carried interest and other expenses, as applicable.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying partners and, if applicable, exclude interests attributable to the non fee-paying partners and/or the general partner which does not pay management fees or carried interest or has such fees rebated outside of the fund. The cash flow dates used in the net IRR calculation are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, carried interest as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)EF V is made up of two parallel funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and MoIC presented in the table are for the Euro denominated parallel fund. The gross and net MoIC and IRR presented in the chart is for the Euro denominated parallel fund. The gross and net MoIC for the U.S. Dollar denominated parallel fund are 1.4x and 1.3x, respectively. The gross and net IRR for the U.S. Dollar denominated parallel fund are 23.4% and 17.0%, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of fund's closing. All other values for EF V are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

Secondary Solutions Group—Year Ended December 31, 2021

The following table presents the components of the Secondary Solutions Group's FRE and RI ($ in thousands):


	For the period June 2, 2021 through December 31, 2021

Management fees	$	97,945

Compensation and benefits	(25,215)
General, administrative and other expenses	(6,862)
Fee Related Earnings	$	65,868
Realized net performance income	21
Realized net investment income	1,444
Realized Income	$	67,333

Secondary Solutions Group—Management Fees

The activity for the period presented represents management fees recognized since the closing of the Landmark Acquisition on June 2, 2021. The effective management fee rate for the period from June 2, 2021 through December 31, 2021 was 0.90%.

Secondary Solutions Group—Performance Income

In the Secondary Solutions Group, we are entitled to carried interest from the funds with closings subsequent to the completion of the Landmark Acquisition and to carried interest we acquired through the purchase of an ownership interest in certain Landmark GP Entities. The following table presents accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Secondary Solutions Group ($ in thousands):


	As of December 31, 2021
	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income

LEP XVI	$	159,490	$	135,566	$	23,924
LREP VIII	80,772		68,656		12,116



Other fee generating funds	58,013		49,108		8,905


Total Secondary Solutions Group	$	298,275	$	253,379	$	44,896

The following table presents the change in accrued carried interest for the Secondary Solutions Group ($ in thousands):


		Opening balance as of June 2, 2021		Activity during the period				As of December 31, 2021
	Waterfall Type	Accrued Carried Interest		Change in Unrealized		Realized		Accrued Carried Interest
LEP XVI	European	$	37,281	$	122,209	$	—	$	159,490
LREP VIII	European	24,398		56,374		—		80,772



Other fee generating funds	European	15,146		42,867		—		58,013
Total Secondary Solutions Group		$	76,825	$	221,450	$	—	$	298,275

Secondary Solutions Group—Assets Under Management

The table below presents the rollforward of AUM for the Secondary Solutions Group ($ in millions):





























	Private Equity Secondaries		Real Estate Secondaries		Infrastructure Secondaries		Total Secondary Solutions Group
Balance at 12/31/2020	$	—	$	—	$	—	$	—
Acquisitions	12,275		5,641		1,597		19,513
Net new par/equity commitments	1,571		760		—		2,331


Distributions	(1,860)		(421)		(25)		(2,306)

Change in fund value	1,847		682		52		2,581
Balance at 12/31/2021	$	13,833	$	6,662	$	1,624	$	22,119
Average AUM(1)	$	13,021	$	5,840	$	1,602	$	20,463













(1) Represents the average calculated using AUM on the date of the Landmark Acquisition and on each subsequent quarter-end.

The components of our AUM for the Secondary Solutions Group are presented below ($ in billions):


			AUM: $22.1


			FPAUM						Non-fee paying(1)						AUM not yet paying fees

(1) Includes $0.5 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021.

Secondary Solutions Group—Fee Paying AUM

The table below presents the rollforward of fee paying AUM for the Secondary Solutions Group ($ in millions):






























	Private Equity Secondaries		Real Estate Secondaries		Infrastructure Secondaries		Total Secondary Solutions Group
Balance at 12/31/2020	$	—	$	—	$	—	$	—
Acquisitions	10,740		4,928		1,171		16,839
Commitments	813		539		—		1,352
Subscriptions/deployment/increase in leverage	95		11		10		116

Distributions	(142)		(114)		(8)		(264)

Change in fund value	191		56		15		262
Change in fee basis	90		(31)		—		59
Balance at 12/31/2021	$	11,787	$	5,389	$	1,188	$	18,364
Average FPAUM(1)	$	11,117	$	5,034	$	1,178	$	17,329













(1) Represents the average calculated using FPAUM on the date of the Landmark Acquisition and on each subsequent quarter-end.

The chart below presents FPAUM for the Secondary Solutions Group by its fee basis ($ in billions):


			FPAUM: $18.3


			Capital commitments						Market value(1)						Invested capital/other

Secondary Solutions Group—Fund Performance Metrics as of December 31, 2021

Secondary Solutions includes three significant funds, Landmark Equity Partners XV, L.P. (“LEP XV”), LEP XVI and LREP VIII, that collectively contributed approximately 64% of the Secondary Solutions Group’s management fees for the year ended December 31, 2021.

The following table presents the performance data of our significant drawdown funds as of December 31, 2021($ in millions):


	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Fund Harvesting Investments
LEP XV(7)	2013	$	2,183	$	3,250	$	2,627		$	2,157		$	1,716		$	3,873		1.6x	1.5x	20.4	14.9	Private Equity Secondaries
Funds Deploying Capital
LEP XVI(7)	2016	5,712		4,896		2,211			667			3,154			3,821			1.9x	1.7x	67.5	43.9	Private Equity Secondaries
LREP VIII(7)	2016	3,706		3,300		1,581			837			1,383			2,220			1.6x	1.4x	30.5	20.8	Real Estate Secondaries

For all funds in the Secondary Solutions Group, returns are calculated from results that are generally reported on a three month lag and may not include the impact of economic and market activities occurring in the current reporting period.

(1)Realized value represents the sum of all cash distributions to all limited partners and if applicable, exclude tax and incentive distributions made to the general partner.

(2)Unrealized value represents the limited partners' share of fund's NAV reduced by the accrued incentive allocation, if applicable. There can be no assurance that unrealized values will be realized at the valuations indicated.

(3)The gross MoIC is calculated at the fund-level and is based on the interests of all partners. If applicable, limiting the gross MoIC to exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or carried interest would have no material impact on the result. The gross MoIC is before giving effect to management fees, carried interest as applicable and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund's governing documentation. The gross fund-level MoIC would have generally been lower had such fund called capital from its partners instead of utilizing the credit facility.

(4)The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes those interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The net MoIC is after giving effect to management fees and other expenses, carried interest and credit facility interest expense, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund's governing documentation. The net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to all partners. If applicable, limiting the gross IRR to exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or carried interest would have no material impact on the result. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund's governing documents. The gross fund-level IRR would generally have been lower had such fund called capital from its partners instead of utilizing the credit facility.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and, if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or carried interest. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees and other expenses, carried interest and credit facility interest expenses, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund's governing documents. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)The results of each fund is presented on a combined basis with the affiliated parallel funds or accounts, given that the investments are substantially the same.

Strategic Initiatives—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of Strategic Initiatives’ FRE ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)
			2021		2020		$ Change		% Change
Management fees			$	66,604	$	26,587	$	40,017	151%
Other fees			82		152		(70)		(46)
Compensation and benefits			(26,673)		(6,442)		(20,231)		NM
General, administrative and other expenses			(7,778)		(2,926)		(4,852)		(166)
Fee Related Earnings			$	32,235	$	17,371	14,864		86

NM - Not Meaningful

Management Fees. The chart below presents Strategic Initiatives management fees and effective management fee rates ($ in millions):

Management fees increased for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the full annual impact of the SSG Acquisition which closed at the beginning of the third quarter of 2020. In addition, the increase was driven by the acquisition of Aspida Life Re that occurred late in the fourth quarter of 2020 and by $3.6 million as a result of additional commitments to SLO III.

The decrease in effective management fee rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by the acquisition of Aspida Life Re that occurred in the fourth quarter of 2020. The insurance strategy has an effective management fee rate of 0.30% and is driving the decrease in the overall effective management fee rate.

Compensation and Benefits. Compensation and benefits increased by $20.2 million to $26.7 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in salaries and benefits for the year ended December 31, 2021 when compared to the same period in 2020 was primarily driven by (i) the full impact of the SSG Acquisition which closed at the beginning of the third quarter of 2020 and (ii) the insurance platform which has been included within Strategic Initiatives subsequent to the acquisition of Aspida Life Re in the fourth quarter of 2020. The increase in salaries and benefits for the year ended December 31, 2021 also included $1.6 million of non-recurring compensation expense.

The increase in salaries and benefits for the year ended December 31, 2021 was also driven by headcount growth across the Asian special situations, Asian secured lending and insurance strategies. Average headcount for the year-to-date period increased by 167% to 48 investment and investment support professionals for the 2021 period from 18 professionals for the same period in 2020.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $4.9 million, or 166%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase for the year ended December 31, 2021 compared to the year ended December 31, 2020 was due to the full impact of the SSG Acquisition which closed at the beginning of the third quarter of 2020.

Realized Income:

The following table presents the components of the Strategic Initiatives RI ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)
			2021		2020		$ Change		% Change
Fee Related Earnings			$	32,235	$	17,371	$	14,864	86%
Performance income—realized			4		—		4		NM
Performance related compensation—realized			(2)		—		(2)		NM
Realized net performance income			2		—		2		NM
Investment income—realized			13		13		—		—
Interest and other investment income (loss)—realized			3,948		996		2,952		296
Interest expense			(13,031)		(1,465)		(11,566)		NM
Realized net investment loss			(9,070)		(456)		(8,614)		NM
Realized Income			$	23,167	$	16,915	6,252		37

NM - Not Meaningful

Realized net investment loss for the years ended December 31, 2021 and 2020 was primarily attributable to interest expense allocations based on the cost basis of investments. The activity for the year ended December 31, 2021 also included realized net investment income attributable to distributions from an investment vehicle that manages a portfolio of non-performing loans.

Strategic Initiatives—Assets Under Management

The tables below present rollforwards of AUM for the Strategic Initiatives ($ in millions):





























	Asian Special Situations		Asian Secured Lending		Insurance		SPACs		Total Strategic Initiatives
Balance at 12/31/2020	$	5,154	$	1,864	$	2,243	$	—	$	9,261

Net new par/equity commitments(1)	818		620		(295)		1,000		2,143


Distributions	(93)		(12)		(130)		—		(235)

Change in fund value	360		(16)		110		—		454
Balance at 12/31/2021	$	6,239	$	2,456	$	1,928	$	1,000	$	11,623
Average AUM(2)	$	5,382	$	2,229	$	1,986	$	800	$	10,397

	Asian Special Situations		Asian Secured Lending		Insurance		SPACs		Total Strategic Initiatives
Balance at 12/31/2019	$	—	$	—	$	—	$	—	$	—
Acquisitions	5,220		1,651		2,243		—		9,114
Net new par/equity commitments	—		205		—		—		205


Distributions	(207)		—		—		—		(207)

Change in fund value	141		8		—		—		149
Balance at 12/31/2020	$	5,154	$	1,864	$	2,243	$	—	$	9,261
Average AUM(3)	$	5,157	$	1,786	$	2,243	$	—	$	9,186

(1) Insurance includes the reversal of prior period commitments that were reallocated to other investment strategies and are sub-advised by Ares vehicles.
(2) Represents a five-point average of quarter-end balances for each period.
(3) Represents average calculated using Ares SSG’s AUM on the date of the SSG Acquisition and on each subsequent quarter-end, and the average using Ares Insurance Solutions’ AUM on the date of the acquisition of Aspida Life Re and the subsequent quarter-end

The components of our AUM for the Strategic Initiatives are presented below ($ in billions):


			AUM: $11.6						AUM: $9.3


			FPAUM						AUM not yet paying fees						Non-fee paying(1)

(1) Includes $0.2 billion and $0.1 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021 and 2020.

Strategic Initiatives—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Strategic Initiatives ($ in millions):































	Asian Special Situations		Asian Secured Lending		Insurance		Total Strategic Initiatives
Balance at 12/31/2020	$	3,614	$	739	$	2,243	$	6,596

Commitments	—		—		(130)		(130)
Subscriptions/deployment/increase in leverage	1,070		697		(90)		1,677
Capital reductions	(259)		(121)		—		(380)
Distributions	(820)		(181)		(150)		(1,151)

Change in fund value	—		(19)		194		175

Balance at 12/31/2021	$	3,605	$	1,115	$	2,067	$	6,787
Average FPAUM(1)	$	3,659	$	961	$	2,084	$	6,704

	Asian Special Situations		Asian Secured Lending		Insurance		Total Strategic Initiatives
Balance at 12/31/2019	$	—	$	—	$	—	$	—
Acquisition	3,615		568		2,243		6,426

Subscriptions/deployment/increase in leverage	346		370		—		716
Capital reductions	(25)		—		—		(25)
Distributions	(273)		(199)		—		(472)


Change in fee basis	(49)		—		—		(49)
Balance at 12/31/2020	$	3,614	$	739	$	2,243	$	6,596
Average FPAUM(2)	$	3,600	$	675	$	2,243	$	6,518

(1) Represents a five-point average of quarter-end balances for each period.
(2) Represents average calculated using Ares SSG’s FPAUM on the date of the SSG Acquisition and on each subsequent quarter-end, and the average using Ares Insurance Solutions’ FPAUM on the date of the acquisition of Aspida Life Re and the subsequent quarter-end

The charts below present FPAUM for the Strategic Initiatives by its fee basis ($ in billions):


			FPAUM: $6.8						FPAUM: $6.6


			Market value						Capital commitments						Invested capital/other

Strategic Initiatives—Fund Performance Metrics as of December 31, 2021

Strategic Initiatives includes one significant fund, SSG Capital Partners V, L.P. (“SSG Fund V”), that contributed approximately 35% of the management fees reported in Strategic Initiatives for the year ended December 31, 2021.

The following table presents the performance data of our significant drawdown fund as of December 31, 2021 ($ in millions):


	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Fund Deploying Capital
SSG Fund V	2018	$	2,121	$	1,878	$	1,702		$	945		$	994		$	1,939		1.2x	1.1x	41.7	24.4	Asian Special Situations

(1)Realized value represents the sum of all cash distributions to all partners and if applicable, exclude tax and incentive distributions made to the general partner.

(3)The gross MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC is before giving effect to management fees, carried interest as applicable and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(4)The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes those interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The net MoIC is after giving effect to management fees and other expenses, carried interest and credit facility interest expense, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. The gross fund-level IRR would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and, if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or carried interest. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees and other expenses, carried interest and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

Operations Management Group—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of the Operations Management Group’s FRE ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)

		2021		2020		$ Change		% Change
Other fees		$	8,478	$	—	$	8,478	NM
Compensation and benefits		(226,725)		(155,979)		$	(70,746)	(45)
General, administrative and other expenses		(100,645)		(80,778)		(19,867)		(25)
Fee Related Earnings		$	(318,892)	$	(236,757)	(82,135)		(35)

NM - Not Meaningful

Other Fees. Other fees of $8.5 million for the year ended December 31, 2021 represents fees earned through AWMS primarily for the sale and distribution of our non-traded REITs, net of amounts reallowed to participating broker-dealers. The fees earned include trade-based fees and dealer manager fees, as well as distribution-related fees that we earn following the Black Creek Acquisition.

Compensation and Benefits. Compensation and benefits increased by $70.7 million, or 45%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by (i) the headcount growth from the Black Creek Acquisition and Landmark Acquisition, (ii) the expansion of our strategy and relationship management teams to support global fundraising, and (iii) the expansion of our business operations teams to support the growth

of our business and other strategic initiatives. In connection with the sale and distribution of shares in our non-traded REITs, we incurred employee commission expense of $10.2 million during the year ended December 31, 2021. The increase in compensation and benefits was further driven by the increase in payroll related taxes of $6.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily attributable to the vesting of non-recurring equity compensation awards.

Average headcount for the year-to-date period increased by 33% to 925 operations management professionals from 695 professionals for the same period in 2020. Average headcount for our operations management professionals increased by 122 professionals from the Landmark Acquisition and Black Creek Acquisition, including the increase from AWMS. Average headcount also increased by 46 to support the expansion of our team in India and by 25 in connection with the SSG Acquisition.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $19.9 million, or 25%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The change included an increase in general, administrative and other expenses of $4.2 million from the Landmark Acquisition and Black Creek Acquisition for the year ended December 31, 2021. The impact from the acquisitions has been excluded from the discussion below.

Certain expenses have also increased during the current period, including occupancy costs to support our growing headcount and information services and information technology to support the expansion of our business, despite the temporary cost savings recognized with our transition to a modified remote working environment. Collectively, these expenses increased by $4.5 million for the year ended December 31, 2021 when compared to the same period in 2020. The increase was also driven by higher professional service fees, recruiting fees and insurance costs of $5.0 million for the year ended December 31, 2021, largely to support the expanding platform. The year ended December 31, 2021 also included a $3.0 million charitable contribution to the AltFinance program that launched in the second quarter of 2021. AltFinance is an initiative designed to diversify the alternative investment industry by attracting, training and providing career opportunities for college students attending historically black colleges and universities, and we expect to make annual charitable contributions of $3.0 million for at least the next 10 years to the initiative.

Realized Income:

The following table presents the components of the OMG's RI ($ in thousands):


	Year ended December 31,	Favorable (Unfavorable)

		2021		2020		$ Change		% Change
Fee Related Earnings		$	(318,892)	$	(236,757)	$	(82,135)	(35)%
Investment loss—realized		—		(5,698)		5,698		100
Interest and other investment income (loss)—realized		226		(739)		965		NM
Interest expense		(536)		(1,335)		799		60
Realized net investment loss		(310)		(7,772)		7,462		96
Realized Income		$	(319,202)	$	(244,529)	(74,673)		(31)

NM - Not Meaningful

Realized net investment loss for the year ended December 31, 2020 was primarily driven by a realized loss associated with the sale of a non–core insurance-related investment.

Liquidity and Capital Resources

Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Management believes that the Company is well-positioned and its liquidity will continue to be sufficient for its foreseeable working capital needs, contractual obligations, dividend payments, pending acquisitions and strategic initiatives. For further discussion regarding the potential risks and impact of the COVID-19 pandemic on the Company, see “Item 1A. Risk Factors” in this Annual Report on Form 10-K.

Sources and Uses of Liquidity

Our sources of liquidity are (1) cash on hand, (2) net working capital, (3) cash from operations, including management fees and fee related performance revenues, which are collected monthly, quarterly or semi-annually, and net realized performance income, which may be unpredictable as to amount and timing, (4) fund distributions related to our investments that are unpredictable as to amount and timing and (5) net borrowing from the Credit Facility. As of December 31, 2021, our cash and cash equivalents were $343.7 million, and we had $415.0 million borrowings outstanding under our Credit Facility. Our ability to draw from the Credit Facility is subject to a leverage and other covenants. We remain in compliance with all covenants as of December 31, 2021. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the ordinary course of business and under the current market conditions for the foreseeable future. Cash flows from management fees may be impacted by a slowdown or declines in deployment, declines or write downs in valuations, or a slowdown or negatively impacted fundraising. In addition, management fees may be subject to deferral and fee related performance revenues may be subject to hold backs. Declines or delays and transaction activity may impact our fund distributions and net realized performance income which could adversely impact our cash flows and liquidity. Market conditions may make it difficult to extend the maturity or refinance our existing indebtedness or obtain new indebtedness with similar terms.

We expect that our primary liquidity needs will continue to be to (1) provide capital to facilitate the growth of our existing investment management businesses, (2) fund our investment commitments, (3) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management businesses as well as other strategic growth initiatives, (4) pay operating expenses, including cash compensation to our employees, and make payments under the tax receivable agreement (“TRA”), (5) fund capital expenditures, (6) service our debt, (7) pay income taxes, (8) make dividend payments to our Class A and non-voting common stockholders in accordance with our dividend policy and (9) pay distributions to AOG unitholders.

In the normal course of business, we expect to pay dividends to our Class A and non-voting common stockholders that are aligned with our expected fee related earnings after an allocation of current taxes paid. For the purposes of determining this amount, we allocate the current taxes paid to FRE and to realized incentive and investment income in a manner that may be disproportional to earnings generated by these metrics and the actual taxes paid on these metrics should they be considered separately. Additionally, our methodology uses the tax benefits from certain expenses that are not included in these non-GAAP metrics, such as equity-based compensation from the vesting of restricted units and the exercise of stock options and from the amortization of intangible assets, among others. We allocate the taxes by multiplying the statutory tax rate currently in effect by our realized performance and net investment income and removing this amount from total current taxes. This remainder is the amount that we allocate to FRE. We use this method to allocate the current provision for income taxes to approximate the amount of cash that is available to pay dividends to our shareholders. If cash flows from operations were insufficient to fund dividends over a sustained period of time, we expect that we would suspend or reduce paying such dividends. In addition, there is no assurance that dividends would continue at the current levels or at all.

The final dividend was paid to our Series A Preferred stockholders in connection with the redemption on June 30, 2021.

Our ability to obtain debt financing and complete stock offerings provides us with additional sources of liquidity. For further discussion of financing transactions occurring in the current period, see “Cash Flows” within this section and “Note 8. Debt” and “Note 15. Equity and Redeemable Interest” to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Our consolidated financial statements reflect the cash flows of our operating businesses as well as those of our Consolidated Funds. The assets of our Consolidated Funds, on a gross basis, are significantly larger than the assets of our operating businesses and therefore have a substantial effect on our reported cash flows. The primary cash flow activities of our Consolidated Funds include: (1) raising capital from third-party investors, which is reflected as non-controlling interests of our Consolidated Funds, (2) financing certain investments by issuing debt, (3) purchasing and selling investment securities, (4) generating cash through the realization of certain investments, (5) collecting interest and dividend income and (6) distributing cash to investors. Our Consolidated Funds are generally accounted for as investment companies under GAAP; therefore, the character and classification of all Consolidated Fund transactions are presented as cash flows from operations. Liquidity available at our Consolidated Funds is typically not available for corporate liquidity needs, and debt of the Consolidated Funds is non–recourse to the Company except to the extent of the Company's investment in the fund.

Cash Flows

We consolidate funds where we are deemed to hold a controlling interest. The Consolidated Funds are not necessarily the same entities in each year presented due to changes in ownership, changes in limited partners' rights and the creation or termination of funds. The consolidation of these funds had no effect on cash flows attributable to us for the periods presented. As such, we evaluate the activity of the Consolidated Funds and the eliminations resulting from consolidation separately. The following tables and discussion summarize our consolidated statements of cash flows by activities attributable to the Company and to our Consolidated Funds. For more details on the activity of the Company and Consolidated Funds, refer to “Note 17. Consolidation” to our audited consolidated financial statements included in this Annual Report on Form 10-K.


	Year ended December 31,
($ in thousands)	2021		2020
Net cash provided by operating activities	$	300,755	$	281,204
Net cash used in the Consolidated Funds' operating activities, net of eliminations	(2,896,800)		(706,863)
Net cash used in operating activities	(2,596,045)		(425,659)
Net cash used in the Company's investing activities	(1,084,633)		(136,764)
Net cash provided by the Company's financing activities	600,698		239,736
Net cash provided by the Consolidated Funds' financing activities, net of eliminations	2,902,927		704,159
Net cash provided by financing activities	3,503,625		943,895
Effect of exchange rate changes	(19,104)		19,956
Net change in cash and cash equivalents	$	(196,157)	$	401,428

Operating Activities

In the table below cash flows from operations has been summarized to present (i) cash generated from our core operating activities, primarily consisting of profits generated principally from management fees and fee related performance revenues after covering for operating expenses and fee related performance compensation, (ii) net realized performance income and (iii) net cash from investment related activities including purchases, sales and net realized investment income. We generated meaningful cash flow from operations in each period presented. Although cash generated from our core operating activities increased when compared to the prior year, net purchases associated with our investment portfolio, which represent a use of cash, also increased when compared to the prior year period.


	Year ended December 31,				Favorable (Unfavorable)
	2021		2020		$ Change		% Change
Core operating activities	$	537,141	$	322,341	$	214,800	67%
Net realized performance income	19,421		95,701		(76,280)		(80)
Net cash used in investment related activities	(255,806)		(136,841)		(118,965)		87
Net cash provided by operating activities	$	300,756	$	281,201	19,555		7

Net cash used in the Consolidated Funds’ operating activities continues to be principally attributable to net purchases of investment securities by recently launched funds during both years.

Our working capital needs are generally rising to support the growth of our business, while the capital requirements needed to support fund-related activities vary based upon the specific investment activities being conducted during such period.

Investing Activities


	Year ended December 31,
	2021		2020
Purchase of furniture, equipment and leasehold improvements, net of disposals	$	(27,226)	$	(15,942)
Acquisitions, net of cash acquired	(1,057,407)		(120,822)
Net cash used in investing activities	$	(1,084,633)	$	(136,764)

Net cash used in the Company's investing activities was principally composed of cash used to complete the Landmark Acquisition and Black Creek Acquisition in the current year and cash used to complete the SSG Acquisition and to purchase CLO collateral management agreements from Crestline Denali Capital LLC in the prior year. We also used cash to purchase furniture, fixtures, equipment and leasehold improvements during both years to support the growth in our staffing levels and expanding our global presence.

Financing Activities


	Year ended December 31,
	2021		2020
Net proceeds from issuance of Class A and non-voting common stock	$	827,430	$	383,154
Net borrowings of Credit Facility	415,000		(70,000)
Proceeds from issuance of senior and subordinated notes	450,000		399,084

Class A and non-voting common stock dividends	(324,306)		(231,446)
AOG unitholder distributions	(269,200)		(215,334)
Series A Preferred Stock dividends	(10,850)		(21,700)
Redemption of Series A Preferred Stock	(310,000)		—

Stock option exercises	37,216		92,877
Taxes paid related to net share settlement of equity awards	(226,101)		(95,368)
Other financing activities	11,509		(1,531)
Net cash provided by the Company's financing activities	$	600,698	$	239,736

Net cash provided by the Company’s financing activities for the year ended December 31, 2021 was principally composed of net proceeds from the public offering of Class A common stock, a private offering of Class A common stock and non-voting common stock to SMBC and the issuance of the 2051 Subordinated Notes. A portion of the proceeds were used to redeem the Series A Preferred Stock. As a result of generating higher fee related earnings, we increased the level of dividends paid to a growing shareholder base of Class A and non-voting common stockholders and of distributions paid to AOG unitholders.

In connection with the vesting of restricted units that are granted to our employees under the Equity Incentive Plan, we withhold shares equal to the fair value of our employee’s withholding tax liabilities and pay the taxes on their behalf. This use of cash increased from the prior period primarily as a result of our appreciating stock price, which is the basis on which employee compensation is recognized. The net settlement of shares minimizes the dilutive impact of our Equity Incentive Plan as fewer shares are issued upon vesting. For the years ended December 31, 2021 and 2020, we retained and did not issue 3.8 million shares and 2.5 million shares, respectively.

Net cash provided by the Company’s financing activities for year ended December 31, 2020 was principally composed of net proceeds from the issuance of the 2030 Senior Notes to provide additional liquidity at a reduced cost of capital in response to the uncertainty caused by the COVID-19 pandemic and to leverage our growth in future periods. A portion of these proceeds was used to repay revolving borrowings under our Credit Facility. In addition, net cash provided by the Company’s financing activities includes cash proceeds from the private offering of Class A common stock to SMBC. These proceeds were partially offset by cash used to pay higher dividends and distributions to Class A common stockholders and AOG unitholders, respectively.


	Year ended December 31,
	2021		2020
Contributions from redeemable and non-controlling interests in Consolidated Funds, net of eliminations	$	1,033,644	$	132,430
Distributions to non-controlling interests in Consolidated Funds, net of eliminations	(98,897)		(251,507)
Borrowings under loan obligations by Consolidated Funds	2,048,932		1,013,291
Repayments under loan obligations by Consolidated Funds	(80,752)		(190,055)
Net cash provided by the Consolidated Funds' financing activities	$	2,902,927	$	704,159

Net cash provided by the Consolidated Funds’ financing activities for the year ended December 31, 2021 was principally attributable to contributions from shareholders in the initial public offering of the SPAC and to the borrowings of three newly issued CLOs.

Net cash provided by the Consolidated Funds’ financing activities for the year ended December 31, 2020 was principally attributable to the borrowings of two newly issued CLOs.

Capital Resources

We intend to use a portion of our available liquidity to pay cash dividends to our Class A and non-voting common stockholders on a quarterly basis in accordance with our dividend policy. Our ability to make cash dividends is dependent on a myriad of factors, including among others: general economic and business conditions; our strategic plans and prospects; our business and investment opportunities; timing of capital calls by our funds in support of our commitments; our financial condition and operating results; working capital requirements and other anticipated cash needs; contractual restrictions and

obligations; legal, tax and regulatory restrictions; restrictions on the payment of distributions by our subsidiaries to us and other relevant factors.

We are required to maintain minimum net capital balances for regulatory purposes for our broker-dealer entities and certain subsidiaries operating outside the U.S. These net capital requirements in the U.S. are met in part by retaining cash, cash equivalents and investment securities. As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions. As of December 31, 2021, we were required to maintain approximately $39.1 million in net assets within these subsidiaries to meet regulatory net capital and capital adequacy requirements. We remain in compliance with all regulatory requirements.

Holders of AOG Units, subject to the terms of the exchange agreement, may exchange their AOG Units for shares of our Class A common stock on a one-for-one basis. These exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of AMC that otherwise would not have been available. These increases in tax basis may increase depreciation and amortization for U.S. income tax purposes and thereby reduce the amount of tax that we would otherwise be required to pay in the future. We entered into the TRA that provides payment to the TRA recipients of 85% of the amount of actual cash savings, if any, in U.S. federal, state, local and foreign income tax or franchise tax that we actually realize as a result of these increases in tax basis and of certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA and interest accrued thereon. Future payments under the TRA in respect of subsequent exchanges are expected to be substantial. The TRA liability balance was $100.5 million and $62.5 million as of December 31, 2021 and 2020, respectively. In 2021, there were exchanges of approximately 2.5 million of AOG Units for shares of our Class A common stock and we recognized deferred tax benefits of $46.1 million, which increased additional paid in capital by $6.9 million and our TRA liability by $39.2 million. The TRA liability also decreased by $1.2 million primarily due to a cash payment made from the realized tax benefit for the 2020 tax year.

For a discussion of our debt obligations, including the debt obligations of our consolidated funds, see "Note 8. Debt,” to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Series A Preferred Stock

The Series A Preferred Stock was redeemed in full on June 30, 2021. For a discussion of our equity, including the redemption of our Series A Preferred Stock, see “Note 15. Equity and Redeemable Interest,” to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change the underlying assumptions, estimates or judgments. See “—Components of Consolidated Results of Operations” and “Note 2. Summary of Significant Accounting Policies,” to our audited consolidated financial statements included in this Annual Report on Form 10-K for a summary of our significant accounting policies.

Principles of Consolidation

We consolidate entities based on either a variable interest model or voting interest model. As such, for entities that are determined to be variable interest entities (“VIEs”), we consolidate those entities where we have both significant economics and the power to direct the activities of the entity that impact economic performance. For limited partnerships and similar entities evaluated under the voting interest model, we do not consolidate those entities for which we act as the general partner unless we hold a majority voting interest.

The consolidation guidance requires qualitative and quantitative analysis to determine whether our involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related income), would give us a controlling financial interest. This analysis requires judgment. These judgments include: (1) determining whether the equity investment at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support, (2) evaluating whether the equity holders, as a group, can make decisions that

have a significant effect on the success of the entity, (3) determining whether two or more parties’ equity interests should be aggregated, (4) determining whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to receive returns from an entity and (5) evaluating the nature of relationships and activities of the parties involved in determining which party within a related-party group is most closely associated with a VIE and hence would be deemed the primary beneficiary.

The creditors of the consolidated VIEs do not have recourse to us other than to the assets of the consolidated VIEs. The assets and liabilities of the consolidated VIEs are comprised primarily of investments and loans payable, respectively.

Fair Value Measurement

GAAP establishes a hierarchical disclosure framework prioritizing the inputs used in measuring financial instruments at fair value into three levels based on their market observability. Market price observability is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active market or where fair value can be measured based on actively quoted prices generally have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.

Financial assets and liabilities measured and reported at fair value are classified as follows:

Level I—Quoted prices in active markets for identical instruments.
Level II—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; and model-derived valuations with directly or indirectly observable significant inputs. Level II inputs include prices in markets with few transactions, non-current prices, prices for which little public information exists or prices that vary substantially over time or among brokered market makers. Other inputs include interest rate, yield curve, volatility, prepayment risk, loss severity, credit risk and default rate.

*•*Level III—Valuations that rely on one or more significant unobservable inputs. These inputs reflect the Company’s assessment of the assumptions that market participants would use to value the instrument based on the best information available.

In some instances, an instrument may fall into multiple levels of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair value measurement. Our assessment of the significance of an input requires judgment and considers factors specific to the instrument. See “Note 6. Fair Value,” to our consolidated financial statements included in this Annual Report on Form 10-K for a summary of our valuation of investments and other financial instruments by fair value hierarchy levels.

Acquisitions

Management’s determination of fair value of assets acquired and liabilities assumed at the acquisition date is based on the best information available in the circumstances and may incorporate management’s own assumptions and involve a significant degree of judgment. We use our best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. For business combinations accounted for under the acquisition method, including the fair value of certain elements of contingent consideration as of the acquisition date over the fair value of net assets acquired is recorded as goodwill. Conversely, any excess of the fair value of the net assets acquired over the purchase consideration is recognized as a bargain purchase gain. Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to, future expected cash inflows and outflows, future fundraising assumptions, expected useful life, discount rates and income tax rates. Our estimates for future cash flows are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying assets acquired. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Unanticipated events and circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

Equity-Based Compensation

We granted certain restricted units with a vesting condition based upon the volume-weighted, average closing price of our Class A common stock meeting or exceeding a stated price for 30 consecutive calendar days on or prior to January 22, 2029, referred to as the market condition. Vesting is also generally subject to continued employment at the time such market condition is achieved. Under the terms of the awards, if the target price of the applicable market condition is not achieved by the close of business on January 22, 2029, the unvested market condition awards will be automatically canceled and forfeited for no consideration, with any expense that was previously recognized reversed.

The grant date fair values are based on a probability distributed Monte-Carlo simulation. Due to the existence of the market condition, the vesting period for the awards is not explicit, and as such, compensation expense is recognized on a straight-line basis over the median vesting period derived from the positive iterations of the Monte Carlo simulations where the market condition is achieved.

Below is a summary of the significant assumptions used to estimate the grant date fair value of market condition awards:


Closing price of the Company's common shares as of grant date						$45.76
Risk-free interest rate						0.88%
Volatility						35.0%
Dividend yield						3.5%
Cost of equity						10.0%

See “Note 14. Equity Compensation,” to our audited consolidated financial statements included in this Annual Report on Form 10-K for further discussion and activity of these awards.

Income Taxes

The Company is taxed as corporation for U.S. federal and state income tax purposes. We use the liability method of accounting for deferred income taxes pursuant to GAAP. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the statutory tax rates expected to be applied in the periods in which those temporary differences are settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change. A valuation allowance is recorded on our net deferred tax assets when it is more likely than not that such assets will not be realized or when timing is unknown. When evaluating the realizability of our deferred tax assets, all evidence, both positive and negative, is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies and expectations of future earnings.

Under GAAP, the amount of tax benefit to be recognized is the amount of benefit that is more likely than not to be sustained upon examination. We analyze our tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where we are required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, we determine that uncertainties in tax positions exist, a liability is established. We recognize accrued interest and penalties related to unrecognized tax positions in interest expense and general, administrative and other expenses, respectively, in the Consolidated Statements of Operations.

Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties under GAAP. We review our tax positions quarterly and adjust our tax balances as new legislation is passed or new information becomes available.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and their impact on the Company can be found in “Note 2. Summary of Significant Accounting Policies,” to our audited consolidated financial statements included in this Annual Report on Form 10-K.

Contractual Obligations, Commitments and Contingencies and Other Arrangements

In the normal course of business, we enter into contractual obligations that may require future cash payments. We may also engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, capital commitments to funds, indemnifications and potential contingent repayment obligations. The following table sets forth our contractual obligations and capital commitments of the Company and of the Consolidated Funds as of December 31, 2021 ($ in thousands):


	Less than 1 year		1 - 3 years		4 - 5 years		Thereafter		Total
The Company:
Operating lease obligations(1)	$	44,128	$	76,009	$	63,173	$	39,245	$	222,555
Debt obligations payable(2)	—		247,979		415,000		840,730		1,503,709
Capital lease obligations	624		325		11		1		961
Interest obligations on debt(3)	43,030		86,060		64,951		500,323		694,364
Other long-term obligations(4)	1,789		1,416		—		—		3,205
Capital commitments(5)	677,259		—		—		—		677,259
Subtotal	766,830		411,789		543,135		1,380,299		3,102,053
Consolidated Funds:

Debt obligations payable	71,500		56,271		1,007,594		10,027,107		11,162,472
Interest obligations on debt(3)	198,593		394,747		383,414		784,835		1,761,589
Capital commitments of Consolidated Funds(5)	1,206,144		—		—		—		1,206,144
	$	2,243,067	$	862,807	$	1,934,143	$	12,192,241	$	17,232,258

(1)The table includes future minimum commitments for our operating leases, including short-term leases that are not recorded as operating lease liabilities. Office space, computer and communication equipment are leased under agreements with expirations ranging from one-year contracts to lease commitments through 2033. Rent expense includes only base contractual rent.

(2)Debt obligations include $650.0 million of senior notes and $450.0 million of subordinated notes, net of unamortized discount, and outstanding balance under the Credit Facility as of December 31, 2021.

(3)Interest obligations reflect future interest payments on outstanding debt obligations with stated interest rates.

(4)Represents payment obligations with respect to long-term service contracts entered into by the Company.

(5)Represents commitments to fund certain investments. These amounts are generally due on demand and are therefore presented as obligations payable in less than one-year.

We entered into a TRA with the TRA Recipients that requires us to pay them 85% of any cash tax savings, if any, realized by AMC from any step-up in tax basis resulting from an exchange of Ares Operating Group Units for shares of our Class A common stock or, at our option, for cash. Because the timing of amounts to be paid under the TRA cannot be determined, this contractual commitment has not been presented in the table above. The cash tax savings, if any, achieved may not ensure that we have sufficient cash available to pay this liability, and we may be required to incur additional debt to satisfy this liability.

For further discussion of our capital commitments, indemnification arrangements and contingent obligations, see “Note 10. Commitments and Contingencies,” to our audited consolidated financial statements included in this Annual Report on Form 10-K.

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