Item 1. Financial Statements

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Item 1. Financial Statements

Ares Management Corporation

Condensed Consolidated Statements of Financial Condition

(Amounts in Thousands, Except Share Data)


	As of September 30,		As of December 31,
	2021		2020
	(unaudited)
Assets
Cash and cash equivalents	$	295,704	$	539,812
Investments (includes accrued carried interest of $2,625,319 and $1,145,853 at September 30, 2021 and December 31, 2020, respectively)	3,322,665		1,682,759
Due from affiliates	493,411		405,887
Other assets	1,006,870		590,332
Intangible assets, net	1,452,690		222,087
Right-of-use operating lease assets	176,511		154,742
Assets of Consolidated Funds:
Cash and cash equivalents	1,581,433		522,377
U.S. Treasury securities, at fair value	1,000,165		—
Investments, at fair value	10,360,854		10,877,097
Due from affiliates	9,059		17,172
Receivable for securities sold	187,230		121,225
Other assets	47,806		35,502
Total assets	$	19,934,398	$	15,168,992
Liabilities
Accounts payable, accrued expenses and other liabilities	$	208,141	$	115,289
Accrued compensation	309,569		103,010
Due to affiliates	202,438		100,186
Performance related compensation payable	1,895,343		813,378
Debt obligations	1,238,325		642,998
Operating lease liabilities	214,681		180,236
Liabilities of Consolidated Funds:
Accounts payable, accrued expenses and other liabilities	89,685		46,824

Payable for securities purchased	863,007		514,946
CLO loan obligations, at fair value	10,174,794		9,958,076
Fund borrowings	99,240		121,909
Total liabilities	15,295,223		12,596,852
Commitments and contingencies
Redeemable interest in Consolidated Funds	1,000,000		—
Redeemable interest in Ares Operating Group entities	98,649		100,366
Non-controlling interests in Consolidated Funds	464,400		539,720
Non-controlling interests in Ares Operating Group entities	1,322,866		738,369
Stockholders' Equity
Series A Preferred Stock, $0.01 par value, 1,000,000,000 shares authorized (zero and 12,400,000 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)	—		298,761
Class A common stock, $0.01 par value, 1,500,000,000 shares authorized (167,581,165 shares and 147,182,562 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)	1,676		1,472
Non-voting common stock, $0.01 par value, 500,000,000 shares authorized (3,489,911 and zero shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)	35		—
Class B common stock, $0.01 par value, 1,000 shares authorized (1,000 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)	—		—
Class C common stock, $0.01 par value, 499,999,000 shares authorized (118,803,257 shares and 112,447,618 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively)	1,188		1,124
Additional paid-in-capital	1,881,913		1,043,669
Retained earnings	(128,981)		(151,824)
Accumulated other comprehensive income (loss), net of tax	(2,571)		483
Total stockholders' equity	1,753,260		1,193,685
Total equity	3,540,526		2,471,774
Total liabilities, redeemable interest, non-controlling interests and equity	$	19,934,398	$	15,168,992

See accompanying notes to the condensed consolidated financial statements.

Ares Management Corporation

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Share Data)

(unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Revenues
Management fees	$	448,262	$	292,434	$	1,135,821	$	823,150
Carried interest allocation	460,651		168,978		1,610,707		241,380
Incentive fees	696		7,194		19,420		4,276
Principal investment income	14,250		11,408		86,477		8,330
Administrative, transaction and other fees	24,860		9,852		49,501		28,897
Total revenues	948,719		489,866		2,901,926		1,106,033
Expenses
Compensation and benefits	335,569		194,267		837,108		559,482
Performance related compensation	331,141		122,356		1,208,954		191,565
General, administrative and other expenses	134,453		69,938		285,471		190,353

Expenses of Consolidated Funds	12,104		6,019		31,575		16,706
Total expenses	813,267		392,580		2,363,108		958,106
Other income (expense)
Net realized and unrealized gains (losses) on investments	8,334		(2,607)		18,744		(10,351)
Interest and dividend income	1,376		1,344		6,818		5,112
Interest expense	(11,523)		(6,815)		(25,125)		(18,203)
Other income, net	36,654		2,203		30,686		9,848
Net realized and unrealized gains (losses) on investments of Consolidated Funds	34,245		17,971		44,720		(153,268)
Interest and other income of Consolidated Funds	104,028		116,581		333,745		346,120
Interest expense of Consolidated Funds	(61,578)		(66,322)		(191,577)		(222,860)
Total other income (expense)	111,536		62,355		218,011		(43,602)
Income before taxes	246,988		159,641		756,829		104,325
Income tax expense	30,275		18,314		104,487		22,119
Net income	216,713		141,327		652,342		82,206

Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds	47,370		42,627		102,255		(38,593)
Net income attributable to Ares Operating Group entities	169,343		98,700		550,087		120,799
Less: Net income (loss) attributable to redeemable interest in Ares Operating Group entities	324		(1,007)		693		(1,007)
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	84,293		52,162		264,646		48,926
Net income attributable to Ares Management Corporation	84,726		47,545		284,748		72,880
Less: Series A Preferred Stock dividends paid	—		5,425		10,850		16,275
Less: Series A Preferred Stock redemption premium	—		—		11,239		—
Net income attributable to Ares Management Corporation Class A and non-voting common stockholders	$	84,726	$	42,120	$	262,659	$	56,605
Net income per share of Class A and non-voting common stock:
Basic	$	0.49	$	0.27	$	1.55	$	0.37
Diluted	$	0.45	$	0.27	$	1.48	$	0.37
Weighted-average shares of Class A and non-voting common stock:
Basic	168,931,621		143,466,209		161,071,151		131,866,471
Diluted	186,522,157		158,122,563		177,143,438		131,866,471

Substantially all revenue is earned from affiliated funds of the Company. See accompanying notes to the condensed consolidated financial statements.

Ares Management Corporation

Condensed Consolidated Statements of Comprehensive Income

(Amounts in Thousands)

(unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net income	$	216,713	$	141,327	$	652,342	$	82,206
Other comprehensive income:
Foreign currency translation adjustments, net of tax	(11,324)		16,893		(18,439)		5,372
Total comprehensive income	205,389		158,220		633,903		87,578

Less: Comprehensive income (loss) attributable to non-controlling interests in Consolidated Funds	42,015		50,300		89,784		(32,478)
Less: Comprehensive loss attributable to redeemable interest in Ares Operating Group entities	(32)		(365)		(67)		(365)
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities	81,947		56,290		262,492		48,281
Comprehensive income attributable to Ares Management Corporation	$	81,459	$	51,995	$	281,694	$	72,140

See accompanying notes to the condensed consolidated financial statements.

Ares Management Corporation

Condensed Consolidated Statements of Changes in Equity

(Amounts in Thousands)


	Series A Preferred Stock		Class A Common Stock		Non- voting Common Stock		Class C Common Stock		Additional Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Non-Controlling Interest in Ares Operating Group Entities		Non-Controlling Interest in Consolidated Funds		Total Equity
Balance at December 31, 2020	$	298,761	$	1,472	$	—	$	1,124	$	1,043,669	$	(151,824)	$	483	$	738,369	$	539,720	$	2,471,774

Changes in ownership interests and related tax benefits	—		26		—		(2)		(41,686)		—		—		(44,477)		—		(86,139)

Capital contributions	—		—		—		—		—		—		—		—		11,011		11,011
Dividends/Distributions	(5,425)		—		—		—		—		(74,684)		—		(67,084)		(38,829)		(186,022)
Net income	5,425		—		—		—		—		52,953		—		56,042		49,858		164,278
Currency translation adjustment, net of tax	—		—		—		—		—		—		(545)		(366)		(9,072)		(9,983)
Equity compensation	—		—		—		—		31,752		—		—		23,897		—		55,649

Balance at March 31, 2021	298,761		1,498		—		1,122		1,033,735		(173,555)		(62)		706,381		552,688		2,420,568

Changes in ownership interests and related tax benefits	—		3		—		—		(165,886)		—		—		143,867		—		(22,016)
Issuances of common stock	—		122		35		—		827,273		—		—		—		—		827,430
Capital contributions	—		—		—		54		—		—		—		317,595		34,994		352,643
Redemption of preferred stock	(310,000)		—		—		—		—		—		—		—		—		(310,000)
Dividends/Distributions	(5,425)		—		—		—		—		(82,825)		—		(63,585)		(33,460)		(185,295)
Net income	16,664		—		—		—		—		124,980		—		124,311		5,027		270,982
Currency translation adjustment, net of tax	—		—		—		—		—		—		758		558		1,956		3,272
Equity compensation	—		—		—		—		41,003		—		—		28,501		—		69,504
Stock option exercises	—		8		—		—		14,019		—		—		—		—		14,027
Balance at June 30, 2021	—		1,631		35		1,176		1,750,144		(131,400)		696		1,257,628		561,205		3,441,115

Changes in ownership interests and related tax benefits	—		38		—		(21)		79,787		—		—		(187,454)		—		(107,650)

Capital contributions	—		—		—		33		—		—		—		211,444		(126,339)		85,138

Dividends/Distributions	—		—		—		—		—		(82,307)		—		(68,083)		(12,481)		(162,871)
Net income	—		—		—		—		—		84,726		—		84,293		47,370		216,389
Currency translation adjustment, net of tax	—		—		—		—		—		—		(3,267)		(2,346)		(5,355)		(10,968)
Equity compensation	—		—		—		—		38,607		—		—		27,384		—		65,991
Stock option exercises	—		7		—		—		13,375		—		—		—		—		13,382
Balance at September 30, 2021	$	—	$	1,676	$	35	$	1,188	$	1,881,913	$	(128,981)	$	(2,571)	$	1,322,866	$	464,400	$	3,540,526

See accompanying notes to the condensed consolidated financial statements.

Ares Management Corporation

Condensed Consolidated Statements of Changes in Equity

(Amounts in Thousands)

(unaudited)


	Series A Preferred Stock		Class A Common Stock		Class C Common Stock		Additional Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Income (loss)		Non-Controlling Interest in Ares Operating Group Entities		Non-Controlling Interest in Consolidated Funds		Total Equity
Balance at December 31, 2019	$	298,761	$	1,152	$	—	$	525,244	$	(50,820)	$	(6,047)	$	472,288	$	618,020	$	1,858,598
Consolidation and deconsolidation of funds, net	—		—		—		—		—		—		—		(3,882)		(3,882)
Changes in ownership interests and related tax benefits	—		40		—		(196,670)		—		—		122,551		—		(74,079)
Issuances of common stock	—		121		1,152		382,061		—		—		—		—		383,334
Capital contributions	—		—		—		—		—		—		42,012		133,265		175,277
Dividends/Distributions	(5,425)		—		—		—		(51,090)		—		(55,748)		(13,492)		(125,755)
Net loss	5,425		—		—		—		(36,461)		—		(78,355)		(166,406)		(275,797)
Currency translation adjustment, net of tax	—		—		—		—		—		(4,802)		(4,719)		(4,687)		(14,208)
Equity compensation	—		—		—		16,420		—		—		16,137		—		32,557
Stock option exercises	—		11		—		19,540		—		—		—		—		19,551
Balance at March 31, 2020	298,761		1,324		1,152		746,595		(138,371)		(10,849)		514,166		562,818		1,975,596
Consolidation and deconsolidation of funds, net	—		—		—		—		—		—		—		1,475		1,475
Changes in ownership interests and related tax benefits	—		4		(4)		(9,702)		—		—		9,796		—		94
Expenses incurred upon issuance of common stock	—		—		—		(181)		—		—		—		—		(181)
Capital contributions	—		—		—		—		—		—		229		(9,570)		(9,341)
Dividends/Distributions	(5,425)		—		—		—		(57,620)		—		(59,949)		(136,837)		(259,831)
Net income	5,425		—		—		—		50,946		—		75,119		85,186		216,676
Currency translation adjustment, net of tax	—		—		—		—		—		(388)		(54)		3,129		2,687
Equity compensation	—		—		—		15,500		—		—		13,183		—		28,683
Stock option exercises	—		25		—		47,865		—		—		—		—		47,890
Balance at June 30, 2020	298,761		1,353		1,148		800,077		(145,045)		(11,237)		552,490		506,201		2,003,748

Changes in ownership interests and related tax benefits	—		2		(2)		(122,555)		—		—		118,804		—		(3,751)
Issuances of common stock	—		77		—		305,261		—		—		—		—		305,338
Capital contributions	—		—		—		481		—		—		—		18		499
Dividends/Distributions	(5,425)		—		—		—		(61,159)		—		(49,391)		(19,418)		(135,393)
Net income	5,425		—		—		—		42,120		—		52,162		42,627		142,334
Currency translation adjustment, net of tax	—		—		—		—		—		4,450		4,128		7,673		16,251
Equity compensation	—		—		—		16,921		—		—		13,416		—		30,337
Stock option exercises	—		6		—		11,512		—		—		—		—		11,518
Balance at September 30, 2020	298,761		1,438		1,146		1,011,697		(164,084)		(6,787)		691,609		537,101		2,370,881

Changes in ownership interests and related tax benefits	—		27,000		(22,000)		508,000		—		—		(21,922)		—		(21,409)
Issuances of common stock	—		—		—		1		—		—		—		—		1
Capital contributions	—		—		—		—		—		—		2,558		8,717		11,275
Dividends/Distributions	(5,425)		—		—		—		(61,577)		—		(50,246)		(81,760)		(199,008)
Net income	5,425		—		—		—		73,837		—		96,308		66,678		242,248
Currency translation adjustment, net of tax	—		—		—		—		—		7,270		6,206		8,984		22,460
Equity compensation	—		—		—		17,553		—		—		13,856		—		31,409
Stock option exercises	—		7		—		13,910		—		—		—		—		13,917
Balance at December 31, 2020	$	298,761	$	1,472	$	1,124	$	1,043,669	$	(151,824)	$	483	$	738,369	$	539,720	$	2,471,774

See accompanying notes to the condensed consolidated financial statements.

Ares Management Corporation

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(unaudited)


	Nine months ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	652,342	$	82,206
Adjustments to reconcile net income to net cash provided by operating activities	71,133		184,586






Adjustments to reconcile net income to net cash used in operating activities allocable to non-controlling interests in Consolidated Funds	(1,688,085)		(766,399)





Cash flows due to changes in operating assets and liabilities	(149,438)		145,702





Cash flows due to changes in operating assets and liabilities allocable to redeemable and non-controlling interest in Consolidated Funds	(729,703)		366,367




Net cash provided by (used in) operating activities	(1,843,751)		12,462
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements, net of disposals	(15,152)		(8,608)
Acquisitions, net of cash acquired	(1,057,426)		(117,829)
Net cash used in investing activities	(1,072,578)		(126,437)
Cash flows from financing activities:
Net proceeds from issuance of Class A and non-voting common stock	827,430		383,154
Proceeds from Credit Facility	468,000		790,000
Proceeds from issuance of senior and subordinated notes	450,000		399,084

Repayments of Credit Facility	(318,000)		(860,000)

Dividends and distributions	(438,568)		(334,957)
Series A Preferred Stock dividends	(10,850)		(16,275)
Redemption of Series A Preferred Stock	(310,000)		—

Stock option exercises	27,409		78,959
Taxes paid related to net share settlement of equity awards	(221,287)		(75,657)
Other financing activities	1,976		(4,137)
Allocable to redeemable and non-controlling interests in Consolidated Funds:
Contributions from redeemable and non-controlling interests in Consolidated Funds	919,666		123,713
Distributions to non-controlling interests in Consolidated Funds	(84,770)		(169,747)
Borrowings under loan obligations by Consolidated Funds	1,456,887		618,207
Repayments under loan obligations by Consolidated Funds	(74,909)		(104,794)
Net cash provided by financing activities	2,692,984		827,550
Effect of exchange rate changes	(20,763)		16,793
Net change in cash and cash equivalents	(244,108)		730,368
Cash and cash equivalents, beginning of period	539,812		138,384
Cash and cash equivalents, end of period	$	295,704	$	868,752
Supplemental disclosure of non-cash financing activities:
Issuance of AOG Units in connection with acquisitions	$	511,069	$	305,338

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

1. ORGANIZATION

Ares Management Corporation (the “Company”), a Delaware corporation, together with its subsidiaries, is a leading global alternative investment manager operating integrated groups across Credit, Private Equity, Real Estate, Secondary Solutions and Strategic Initiatives. Information about segments should be read together with “Note 15. Segment Reporting.” Subsidiaries of the Company serve as the general partners and/or investment managers to various investment funds and managed accounts within each investment group (the “Ares Funds”). These subsidiaries provide investment advisory services to the Ares Funds in exchange for management fees.

The accompanying unaudited financial statements include the condensed consolidated results of the Company and its subsidiaries. The Company is a holding company, and the Company's assets include equity interests in Ares Holdings Inc., Ares Offshore Holdings, Ltd., and Ares AI Holdings L.P. In this quarterly report, the following of the Company’s subsidiaries are collectively referred to as the “Ares Operating Group” or “AOG”: Ares Offshore Holdings L.P. (“Ares Offshore”), Ares Holdings L.P. (“Ares Holdings”), and Ares Investments L.P. (“Ares Investments”). The Company, indirectly through its wholly owned subsidiaries, is the general partner of each of the Ares Operating Group entities. The Company operates and controls all of the businesses and affairs of and conducts all of its material business activities through the Ares Operating Group.

On April 1, 2021, the Company completed an internal reorganization (the “Reorganization”) that simplified the organizational structure and merged Ares Offshore and Ares Investments with Ares Holdings. As a result of the Reorganization, Ares Holdings became the sole entity in the Ares Operating Group.

The Company and its wholly owned subsidiaries manages or controls certain entities that have been consolidated in the accompanying financials statements as described in “Note 2. Summary of Significant Accounting Policies.” These entities include Ares funds, co-investment entities, collateralized loan obligations or funds (collectively “CLOs”) and a special purpose acquisition company (“SPAC”) (collectively, the “Consolidated Funds”). In February 2021, the Company’s first sponsored SPAC, Ares Acquisition Corporation (NYSE: AAC) (“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 of the Company, owns the majority of the Class B ordinary shares outstanding of AAC, and consolidates AAC under the voting interest model.

Including the results of the Consolidated Funds significantly increases the reported amounts of the assets, liabilities, revenues, expenses and cash flows in the accompanying consolidated financial statements; however, the Consolidated Funds results included herein have no direct effect on the net income attributable to Ares Management Corporation or to Stockholders' Equity. Instead, economic ownership interests of the investors in the Consolidated Funds are reflected as redeemable and non-controlling interests in Consolidated Funds. Further, cash flows allocable to redeemable and non-controlling interest in Consolidated Funds are specifically identifiable in the Consolidated Statements of Cash Flows.

Redeemable Interest and Non-Controlling Interests in Ares Operating Group Entities

The non-controlling interests in AOG entities represent a component of equity and net income attributable to the owners of the Ares Operating Group Units (“AOG Units”) that are not held directly or indirectly by the Company. These owners consist predominantly of Ares Owners Holdings L.P. but also include other strategic distribution partnerships with whom the Company has established joint ventures. Non-controlling interests in AOG entities are adjusted for contributions to and distributions from AOG during the reporting period and are allocated income from the AOG entities based on their historical ownership percentage for the proportional number of days in the reporting period.

On February 21, 2020, the Company completed its acquisition (“Crestline Acquisition”) of the Class A membership interests (the “Class A membership interests”) in Crestline Denali Capital LLC (“Crestline Denali”). The Class A membership interests entitle the Company to the fees associated with managing seven collateral management contracts. The Class B membership interests of Crestline Denali (the “Class B membership interests”) were retained by the former owners of Crestline Denali and represent the financial interests in the subordinated notes of the collateralized loan obligations. In connection with the Company's control over Crestline Denali, the Company also consolidates investments and financial results that are attributable to the Class B membership interests to which the Company has no economic rights or obligations. Equity and income (loss) attributable to the Class B membership interests is included within non-controlling interests in AOG entities.

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

On July 1, 2020, the Company completed its acquisition of a majority interest in SSG Capital Holdings Limited and its operating subsidiaries (“SSG”) in accordance with the purchase agreement entered into on January 21, 2020 (“SSG Acquisition”).

In connection with the SSG Acquisition, the former owners of SSG retained an ownership interest in the operations acquired by the Company. In certain circumstances, the Company may acquire full ownership of SSG pursuant to a contractual arrangement that may be initiated by the Company or by the former owners of SSG. Since the acquisition of the remaining interest in SSG is not within the Company's sole discretion, the ownership interest held by the former owners of SSG is classified as a redeemable interest and represents mezzanine equity.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“GAAP”) for interim financial information and instructions to the Quarterly Report on Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent, and that all such adjustments are of a normal recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”).

As of September 30, 2021, the impact of the outbreak of the novel coronavirus (“COVID-19”) pandemic continues to unfold. As a result, management's estimates and assumptions may be subject to a higher degree of variability and volatility that may result in material differences from the current period.

The condensed consolidated financial statements include the accounts and activities of the AOG entities, their consolidated subsidiaries and certain Consolidated Funds. All intercompany balances and transactions have been eliminated upon consolidation.

The Company has reclassified certain prior period amounts to conform to the current year presentation.

Business Combinations

The Company accounts for business combinations using the acquisition method of accounting, under which the purchase price of the acquisition, including the fair value of certain elements of contingent consideration, is allocated to the assets acquired and liabilities assumed using the fair values determined by management as of the acquisition date. Contingent consideration obligations are recognized as of the acquisition date at fair value based on the probability that contingency will be realized. Any fair value of purchase consideration in excess of the fair value of the assets acquired less liabilities assumed 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. Acquisition-related costs incurred in connection with a business combination are expensed as incurred.

U.S. Treasury Securities, at Fair Value

U.S. Treasury securities, at fair value represents U.S. Treasury bills that were purchased with funds raised through the initial public offering of AAC, a consolidated SPAC that is presented within Consolidated Funds. The funds raised are held in a trust account that is restricted for use and may only be used for purposes of completing an initial business combination or redemption of public shares as set forth in the trust agreement. The U.S. Treasury bills have original maturities greater than three months when purchased and therefore are recorded at fair value. Interest income received on such securities is separately presented from the overall change in fair value and is recognized within interest and other income of Consolidated Funds in the

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Condensed Consolidated Statements of Operations. Any remaining change in fair value of such securities, that is not recognized as interest income, is recognized in net realized and unrealized gains (losses) on investments of Consolidated Funds in the Condensed Consolidated Statements of Operations.

Redeemable Interest in Consolidated Funds

Redeemable interest in Consolidated Funds represent the Class A ordinary shares issued by AAC that are redeemable for cash by the public shareholders in the event that AAC does not complete a business combination or tender offer associated with stockholder approval provisions. The class A ordinary shareholders have redemption rights that are considered to be outside of AAC’s control. At each balance sheet date, the carrying value of the redeemable interest is presented at the redemption amount. At September 30, 2021, all 100,000,000 Class A ordinary shares of AAC were classified outside of permanent equity.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all accounting standard updates (“ASU”) issued by the Financial Accounting Standards Board (“FASB”). ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), to clarify that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. An entity may elect to adopt the amendments in ASU 2020-04 and ASU 2021-01 at any time after March 12, 2020 but no later than December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

3. BUSINESS COMBINATIONS

Acquisition of Landmark Partners, LLC (collectively with its subsidiaries, “Landmark”)

On June 2, 2021, a subsidiary of the Company completed the acquisition of 100% of the equity interests of Landmark, a subsidiary of BrightSphere Investment Group Inc. (NYSE: BSIG) and Landmark Investment Holdings L.P., in accordance with the purchase agreement entered into on March 30, 2021 (the “Landmark Acquisition”). As a result of the Landmark Acquisition, the Company expanded into the secondaries market with Landmark’s focus of managing private equity, real estate and infrastructure secondaries funds. Following the completion of the Landmark Acquisition, the results of Landmark are included in a newly created Secondary Solutions Group segment.

The acquisition date fair value of the consideration transferred totaled $1.1 billion, which consisted of the following:


Cash	$	803,829
Equity(1)	299,640
Total	$	1,103,469

(1)5,419,413 AOG Units were issued in connection with the Landmark Acquisition and increased Ares Owners Holdings L.P.’s ownership interest in the AOG entities.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following is a summary of the fair values of assets acquired and liabilities assumed for the Landmark Acquisition as of June 2, 2021, based upon third party valuations of certain intangible assets. The fair value of assets acquired and liabilities assumed are estimated to be:


Cash	$	25,685
Other tangible assets	23,411
Intangible assets:
Management contracts	425,880
Client relationships	197,160
Trade name	86,200
Total intangible assets	709,240
Total identifiable assets acquired	758,336
Accounts payable, accrued expenses and other liabilities	72,532

Net identifiable assets acquired	685,804
Goodwill	417,665
Net assets acquired	$	1,103,469

The Company incurred $4.9 million of acquisition related costs that were expensed and reported within general, administrative and other expenses within the Condensed Consolidated Statements of Operations.

The carrying value of goodwill associated with Landmark was $417.7 million as of the acquisition date and is entirely allocated to the Secondary Solutions Group segment. The goodwill is attributable primarily to expected synergies and the assembled workforce of Landmark.

In connection with the Landmark Acquisition, the Company allocated $425.9 million, $197.2 million and $86.2 million of the purchase price to the fair value of the management contracts, client relationships and trade name, respectively. The acquired management contracts and client relationships had a weighted average amortization period as of the acquisition date of 7.4 years and 11.8 years, respectively. The trade name was determined to have an indefinite useful life at the time of the Landmark Acquisition and is not subject to amortization as the Company intends Landmark to continue to operate under its brand name into perpetuity.

Landmark’s revenues and net income of $54.0 million and $26.8 million, respectively, are included in the Company’s Consolidated Statements of Operations for the period from June 2, 2021 through September 30, 2021.

Supplemental information of the Company’s consolidated results on an unaudited pro forma basis, as if the Landmark Acquisition had been consummated as of January 1, 2020, is as follows:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Total revenues	$	948,719	$	527,105	$	2,966,540	$	1,214,989
Net income attributable to Ares Management Corporation Class A and non-voting common stockholders	$	87,542	$	37,570	$	257,361	$	41,263

The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable. These results are not necessarily indicative of the Company’s consolidated financial condition or statements of operations in future periods or the results that actually would have been realized had the Company and Landmark been a combined entity during the periods presented. These pro forma amounts have been calculated after applying the following adjustments that were directly attributable to the Landmark Acquisition:

adjustments to include the impact of the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2020, together with the consequential tax effects;
adjustments to include the AOG Units issued as consideration for the Landmark Acquisition, as if they were issued on January 1, 2020, and the resulting change in ownership attributable to Ares Management Corporation;

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

adjustments to reflect the pro-rata economic ownership attributable to Ares Management Corporation;
adjustments to reflect the tax effects of the Landmark Acquisition and the related adjustments as if Landmark had been included in the Company’s results as of January 1, 2020; and
adjustments to include Landmark Acquisition related transaction costs in earnings for the nine months ended September 30, 2020.

Purchase of Landmark GP Interests

The Company acquired an ownership interest in Landmark Partners XVI - GP, L.P. and Landmark Real Estate Fund VIII – GP, L.P. (collectively referred to as the “Landmark GP Entities”). The ownership interest entitles the Company to 60% of the capital interests and a portion of the carried interest in Landmark Equity Partners XVI L.P., Landmark Real Estate Partners VIII L.P. and certain related co-investment vehicles. The Company’s control over Landmark GP Entities also results in the Company consolidating investments and financial results that are attributable to ownership interests that were retained by former Landmark owners. The economic rights retained by the former Landmark owners attributable to these interests are reflected as non-controlling interests in the AOG entities.

Acquisition of Black Creek Group

On July 1, 2021, a subsidiary of the Company completed the acquisition of 100% of the equity interests of Black Creek Group’s U.S. real estate investment advisory and distribution business (“Black Creek”) in accordance with the purchase agreement entered into on May 20, 2021 (the “Black Creek Acquisition”). Black Creek is a leading real estate investment management firm that operates in core and core-plus real estate strategies across two non-traded Real Estate Investment Trusts (“REITs”) and various institutional fund vehicles. Following the completion of the Black Creek Acquisition, the results of Black Creek are included within the Real Estate Group segment.

In connection with the Black Creek Acquisition, the Company recorded a bargain purchase gain of $42.3 million that has been presented within other income (expense), net in the Condensed Consolidated Statements of Operations. The bargain purchase gain resulted from the fair value of the identifiable tangible and intangible assets acquired exceeding the purchase consideration. The purchase agreement with Black Creek contains provisions obligating the Company to make a payment upon the achievement of certain revenue targets to certain senior professionals and advisors that is excluded from purchase consideration as it is subject to continued and future service. See “Note 9. Commitments and Contingencies” for a further description of this contingency.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

4. GOODWILL AND INTANGIBLE ASSETS

Intangible Assets, Net

The following table summarizes the carrying value, net of accumulated amortization, of the Company's intangible assets:


	Weighted Average Amortization Period as of September 30, 2021		As of September 30,			As of December 31,
		2021			2020
Management contracts	6.5 years		$	641,737		$	210,857
Client relationships	11.2 years		229,501			25,141
Trade name	8.7 years		11,079			11,079
Finite-lived intangible assets			882,317			247,077
Foreign currency translation			1,530			3,093
Total finite-lived intangible assets			883,847			250,170
Less: accumulated amortization			(85,157)			(28,082)
Finite-lived intangible assets, net			798,690			222,088
Management contracts			567,800			—
Trade name			86,200			—
Indefinite-lived intangible assets			654,000			—
Intangible assets, net			$	1,452,690		$	222,088

In connection with the Black Creek Acquisition, the Company allocated $576.2 million and $7.2 million of the purchase consideration to the fair value of management contracts and client relationships, respectively. Certain management contracts were determined to have indefinite useful lives at the time of the Black Creek Acquisition and are not subject to amortization. The remaining management contracts and client relationships had a weighted average amortization period as of the acquisition date of 6.1 years and 12.0 years, respectively.

Amortization expense associated with intangible assets was $32.8 million and $11.1 million for the three months ended September 30, 2021 and 2020, respectively, and $60.7 million and $13.7 million for the nine months ended September 30, 2021 and 2020 and is presented within general, administrative and other expenses within the Condensed Consolidated Statements of Operations. During the third quarter of 2021, the Company accelerated the amortization of a collateral management contract due to the redemption of that CLO and removed $3.4 million of intangible assets that were fully amortized.

Goodwill

The following table summarizes the carrying value of goodwill that is included within other assets in the Condensed Consolidated Statements of Financial Condition:


	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total



Balance as of December 31, 2020	$	32,196	$	58,600	$	53,120	$	—	$	227,131	$	371,047
Acquisitions	—		—		—		417,665		—		417,665
Foreign currency translation	—		—		219		(16)		(1,165)		(962)
Balance as of September 30, 2021	$	32,196	$	58,600	$	53,339	$	417,649	$	225,966	$	787,750

There was no impairment of goodwill recorded during the nine months ended September 30, 2021 and 2020. The impact of foreign currency translation is reflected within other comprehensive income.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

5. INVESTMENTS

The Company’s investments are comprised of the following:


					Percentage of total investments
	September 30,		December 31,		September 30,		December 31,

	2021		2020		2021		2020
Equity method investments:
Equity method private investment partnership interests - principal (1)	$	492,482	$	366,471	14.8	%	21.8	%
Equity method - carried interest (1)	2,625,319		1,145,853		79.0		68.1
Equity method private investment partnership interests and other (held at fair value)(1)	117,015		92,196		3.5		5.5
Equity method private investment partnership interests and other(1)	32,132		23,883		1.0		1.4
Total equity method investments	3,266,948		1,628,403		98.3		96.8
Collateralized loan obligations (2)	32,724		31,766		1.0		1.9
Other fixed income	21,583		21,583		0.6		1.3
Collateralized loan obligations and other fixed income, at fair value	54,307		53,349		1.6		3.2
Common stock, at fair value	1,410		1,007		0.1		0.1
Total investments	$	3,322,665	$	1,682,759

(1)Investment or portion of the investment is denominated in foreign currency and is translated into U.S. dollars at each reporting date.

(2)As of September 30, 2021 and December 31, 2020, includes $3.2 million and $3.4 million, respectively, of collateralized loan obligations that are attributable to the Class B Membership Interests.

Equity Method Investments

The Company’s equity method investments include investments that are not consolidated but over which the Company exerts significant influence. The Company evaluates each of its equity method investments to determine if any were significant as defined by guidance from the SEC. As of and for the three and nine months ended September 30, 2021 and 2020, no individual equity method investment held by the Company met the significance criteria.

The Company recognized net gains related to its equity method investments of $18.9 million and $8.9 million for the three months ended September 30, 2021 and 2020, respectively, and net gains of $99.3 million and $1.8 million for the nine months ended September 30, 2021 and 2020, respectively. The net gains were included within principal investment income, net realized and unrealized gains (losses) on investments, and interest and dividend income within the Condensed Consolidated Statements of Operations.

With respect to the Company's equity method investments, the material assets are expected to generate either long-term capital appreciation and/or interest income, the material liabilities are debt instruments collateralized by, or related to, the financing of the assets and net income is materially comprised of the changes in fair value of these net assets.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Investments of the Consolidated Funds

Investments held in the Consolidated Funds are summarized below:


	Fair Value at				Percentage of total investments as of
	September 30,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
Fixed income investments:
Bonds	$	434,226	$	397,494	3.9	%	3.6%
Loans	9,389,769		10,012,948		82.6		92.1
U.S. Treasury securities	1,000,165		—		8.8		—
Investments in CLO warehouse	28,500		—		0.3		—
Total fixed income investments	10,852,660		10,410,442		95.6		95.7
Equity securities	264,202		227,031		2.3		2.1
Partnership interests	244,157		239,624		2.1		2.2
Total investments, at fair value	$	11,361,019	$	10,877,097

As of September 30, 2021, the SPAC’s investment in U.S. Treasury bills exceeded 5.0% of the Company’s total assets. The U.S. Treasury bills mature in November 2021 and have an interest yield of approximately 0.06%. At December 31, 2020, no single issuer or investment, including derivative instruments and underlying portfolio investments of the Consolidated Funds, had a fair value that exceeded 5.0% of the Company’s total assets.

6. FAIR VALUE

Fair Value Measurements

GAAP establishes a hierarchical disclosure framework that prioritizes the inputs used in measuring financial instruments at fair value into three levels based on their market price 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 for which 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 rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates.

*•*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 more than one level 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. The Company’s assessment of the significance of an input requires judgment and considers factors specific to the instrument. The Company accounts for the transfer of assets into or out of each fair value hierarchy level as of the beginning of the reporting period.

Contingent consideration: The Company generally determines the fair value of its contingent consideration liabilities by using a Monte Carlo simulation model. The model considers a range of assumptions including historical experience, prior period performance, current progress towards targets, probability-weighted scenarios, and management's own assumptions. The discount rate used is determined based on the weighted average cost of capital for the Company. The fair value of the

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Company's contingent consideration liabilities are classified as Level III. Liabilities recorded in connection with the Company’s contingent consideration are included within accounts payable, accrued expenses and other liabilities in the Condensed Consolidated Statements of Financial Condition and the associated changes in fair value are included within other income (expense), net in the Condensed Consolidated Statements of Operations.

Fair Value of Financial Instruments Held by the Company and Consolidated Funds

The following tables summarize the financial assets and financial liabilities measured at fair value for the Company and the Consolidated Funds as of September 30, 2021:


Financial Instruments of the Company	Level I		Level II		Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Collateralized loan obligations and other fixed income	$	—	$	—	$	54,307	$	—	$	54,307
Common stock and other equity securities	—		1,410		108,397		—		109,807
Partnership interests	—		—		2,575		6,043		8,618
Total investments, at fair value	—		1,410		165,279		6,043		172,732
Derivatives-foreign exchange contracts and interest rate contracts	—		4,361		—		—		4,361
Total assets, at fair value	$	—	$	5,771	$	165,279	$	6,043	$	177,093
Liabilities, at fair value
Derivatives-foreign exchange contracts	—		(265)		—		—		(265)
Contingent consideration	—		—		(41,413)		—		(41,413)
Total liabilities, at fair value	$	—	$	(265)	$	(41,413)	$	—	$	(41,678)


Financial Instruments of the Consolidated Funds	Level I		Level II		Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	406,253	$	27,973	$	—	$	434,226
Loans	—		9,015,066		374,703		—		9,389,769
U.S. Treasury securities	1,000,165		—		—		—		1,000,165
Investments in CLO warehouse	—		28,500		—		—		28,500
Total fixed income investments	1,000,165		9,449,819		402,676		—		10,852,660
Equity securities	3,366		1,590		259,246		—		264,202
Partnership interests	—		—		237,558		6,599		244,157
Total investments, at fair value	$	1,003,531	$	9,451,409	$	899,480	$	6,599	$	11,361,019
Derivatives:

Asset swaps-other	—		—		325		—		325
Total derivative assets, at fair value	—		—		325		—		325
Total assets, at fair value	$	1,003,531	$	9,451,409	$	899,805	$	6,599	$	11,361,344
Liabilities, at fair value
Derivatives:
Warrants	$	(17,000)	$	—	$	—	$	—	$	(17,000)
Asset swaps-other	—		—		(1,513)		—		(1,513)
Total derivative liabilities, at fair value	(17,000)		—		(1,513)		—		(18,513)
Loan obligations of CLOs	—		(10,174,794)		—		—		(10,174,794)
Total liabilities, at fair value	$	(17,000)	$	(10,174,794)	$	(1,513)	$	—	$	(10,193,307)

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables summarize the financial assets and financial liabilities measured at fair value for the Company and the Consolidated Funds as of December 31,2020:


Financial Instruments of the Company	Level I		Level II		Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Collateralized loan obligations and other fixed income	$	—	$	—	$	53,349	$	—	$	53,349
Common stock and other equity securities	—		1,007		88,412		—		89,419
Partnership interests	—		—		2,575		1,209		3,784
Total investments, at fair value	—		1,007		144,336		1,209		146,552
Derivatives-foreign exchange contracts	—		1,440		—		—		1,440
Total assets, at fair value	$	—	$	2,447	$	144,336	$	1,209	$	147,992
Liabilities, at fair value
Derivatives-foreign exchange contracts	$	—	$	(1,565)	$	—	$	—	$	(1,565)
Total liabilities, at fair value	$	—	$	(1,565)	$	—	$	—	$	(1,565)


Financial Instruments of the Consolidated Funds	Level I		Level II		Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	397,485	$	9	$	—	$	397,494
Loans	—		9,470,651		542,297		—		10,012,948

Total fixed income investments	—		9,868,136		542,306		—		10,410,442
Equity securities	5,749		239		221,043		—		227,031
Partnership interests	—		—		231,857		7,767		239,624
Total investments, at fair value	5,749		9,868,375		995,206		7,767		10,877,097
Derivatives:

Asset swaps-other	—		—		1,104		—		1,104

Total assets, at fair value	$	5,749	$	9,868,375	$	996,310	$	7,767	$	10,878,201
Liabilities, at fair value
Derivatives:

Asset swaps-other	$	—	$	—	$	(44)	$	—	$	(44)

Loan obligations of CLOs	—		(9,958,076)		—		—		(9,958,076)
Total liabilities, at fair value	$	—	$	(9,958,076)	$	(44)	$	—	$	(9,958,120)

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended September 30, 2021:



Level III Assets and Liabilities of the Company	Equity Securities		Fixed Income		Partnership Interests		Contingent Consideration		Total
Balance, beginning of period	$	107,240	$	55,840	$	2,575	$	—	$	165,655

Established in connection with acquisition	—		—		—		(34,200)		(34,200)
Purchases(1)	—		708		—		—		708
Sales/settlements(2)	—		(2,904)		—		—		(2,904)
Realized and unrealized appreciation (depreciation), net	1,157		663		—		(7,213)		(5,393)
Balance, end of period	$	108,397	$	54,307	$	2,575	$	(41,413)	$	123,866
Change in net unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	1,157	$	675	$	—	$	(7,213)	$	(5,381)


Level III Net Assets of Consolidated Funds	Equity Securities		Fixed Income		Partnership Interests		Derivatives, Net		Total
Balance, beginning of period	$	229,300	$	455,426	$	255,278	$	(1,658)	$	938,346

Transfer in	—		18,792		—		—		18,792
Transfer out	—		(209,282)		—		—		(209,282)
Purchases(1)	27,346		219,180		—		—		246,526
Sales/settlements(2)	(313)		(88,584)		(30,000)		625		(118,272)
Amortized discounts/premiums	—		394		—		—		394
Realized and unrealized appreciation (depreciation), net	2,913		6,750		12,280		(155)		21,788
Balance, end of period	$	259,246	$	402,676	$	237,558	$	(1,188)	$	898,292
Change in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	2,912	$	1,607	$	12,280	$	(63)	$	16,736

(1)Purchases include paid-in-kind interest and securities received in connection with restructuring.

(2)Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended September 30, 2020:



Level III Assets of the Company	Equity Securities		Fixed Income		Partnership Interests		Total
Balance, beginning of period	$	14,704	$	67,355	$	2,575	$	84,634
Transfer in due to changes in consolidation	72,967		—		—		72,967
Purchases(1)	—		5,983		—		5,983
Sales/settlements(2)	—		(899)		—		(899)
Realized and unrealized appreciation (depreciation), net	(1,746)		3,175		—		1,429
Balance, end of period	$	85,925	$	75,614	$	2,575	$	164,114
Change in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(1,746)	$	3,175	$	—	$	1,429


Level III Net Assets of Consolidated Funds	Equity Securities		Fixed Income		Partnership Interests		Derivatives, Net		Total
Balance, beginning of period	$	42,259	$	586,287	$	312,636	$	1,402	$	942,584

Transfer in	—		96,671		—		—		96,671
Transfer out	—		(230,326)		—		—		(230,326)
Purchases(1)	150		118,558		—		—		118,708
Sales/settlements(2)	(25)		(73,010)		(2,000)		705		(74,330)
Amortized discounts/premiums	—		(135)		—		140		5
Realized and unrealized appreciation (depreciation), net	828		15,836		(1,402)		(393)		14,869
Balance, end of period	$	43,212	$	513,881	$	309,234	$	1,854	$	868,181
Change in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	878	$	13,690	$	(1,402)	$	(604)	$	12,562

(1)Purchases include paid-in-kind interest and securities received in connection with restructurings.

(2)Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the nine months ended September 30, 2021:



Level III Assets and Liabilities of the Company	Equity Securities		Fixed Income		Partnership Interests		Contingent Consideration		Total
Balance, beginning of period	$	88,412	$	53,349	$	2,575	$	—	$	144,336
Transfer in due to changes in consolidation	—		7,623		—		—		7,623
Established in connection with acquisition	—		—		—		(34,200)		(34,200)
Purchases(1)	19,278		1,689		—		—		20,967
Sales/settlements(2)	—		(12,120)		—		—		(12,120)
Realized and unrealized appreciation (depreciation), net	707		3,766		—		(7,213)		(2,740)
Balance, end of period	$	108,397	$	54,307	$	2,575	$	(41,413)	$	123,866
Change in net unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	707	$	2,315	$	—	$	(7,213)	$	(4,191)


Level III Net Assets of Consolidated Funds	Equity Securities		Fixed Income		Partnership Interests		Derivatives, Net		Total
Balance, beginning of period	$	221,043	$	542,305	$	231,857	$	1,060	$	996,265
Transfer out due to changes in consolidation	(157)		(49,326)		—		—		(49,483)
Transfer in	2,195		47,818		—		—		50,013
Transfer out	(33)		(216,177)		—		—		(216,210)
Purchases(1)	36,201		437,426		13,000		—		486,627
Sales/settlements(2)	(876)		(371,006)		(32,000)		301		(403,581)
Amortized discounts/premiums	1		1,464		—		—		1,465
Realized and unrealized appreciation (depreciation), net	872		10,172		24,701		(2,549)		33,196
Balance, end of period	$	259,246	$	402,676	$	237,558	$	(1,188)	$	898,292
Change in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	790	$	2,700	$	24,701	$	(1,670)	$	26,521

(1)Purchases include paid-in-kind interest and securities received in connection with restructuring.

(2)Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the nine months ended September 30, 2020:



Level III Assets and Liabilities of the Company	Equity Securities		Fixed Income		Partnership Interests		Total
Balance, beginning of period	$	14,704	$	69,183	$	35,192	$	119,079
Transfer in due to changes in consolidation	72,967		3,686		—		76,653
Purchases(1)	—		7,285		—		7,285
Sales/settlements(2)	—		(1,587)		(32,430)		(34,017)
Realized and unrealized depreciation, net	(1,746)		(2,953)		(187)		(4,886)
Balance, end of period	$	85,925	$	75,614	$	2,575	$	164,114
Change in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(1,746)	$	(1,917)	$	5,511	$	1,848


Level III Net Assets of Consolidated Funds	Equity Securities		Fixed Income		Partnership Interests		Derivatives, Net		Total
Balance, beginning of period	$	85,988	$	339,136	$	296,012	$	(4,106)	$	717,030
Transfer in (out) due to changes in consolidation	(635)		392,672		—		—		392,037
Transfer in	—		146,839		—		—		146,839
Transfer out	—		(350,078)		—		—		(350,078)
Purchases(1)	551		256,514		64,000		—		321,065
Sales/settlements(2)	(714)		(249,027)		(58,000)		813		(306,928)
Amortized discounts/premiums	—		777		—		291		1,068
Realized and unrealized appreciation (depreciation), net	(41,978)		(22,952)		7,222		4,856		(52,852)
Balance, end of period	$	43,212	$	513,881	$	309,234	$	1,854	$	868,181
Change in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(41,930)	$	(25,701)	$	7,222	$	4,439	$	(55,970)

(1)Purchases include paid-in-kind interest and securities received in connection with restructurings.

(2)Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market activity during the period and thus were valued using observable inputs either from independent pricing services or multiple brokers. Transfers into Level III were generally attributable to certain investments that experienced a less significant level of market activity during the period and thus were only able to obtain one or fewer quotes from a broker or independent pricing service.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables summarize the quantitative inputs and assumptions used for the Company’s and the Consolidated Funds' Level III measurements as of September 30, 2021:


Level III Measurements of the Company	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities	$	14,704	Transaction price(1)	N/A	N/A	N/A
	46,765		Discounted cash flow	Discount Rates	14.0% - 20.0%	15.3%
	46,928		Market approach	Multiple of Book Value	1.5x	N/A
Partnership interests	2,575		Other	N/A	N/A	N/A
Collateralized loan obligations	32,724		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Other fixed income	21,583		Other	N/A	N/A	N/A
Total assets	$	165,279
Liabilities
Contingent consideration	$	(8,600)	Monte Carlo simulation	Discount Rates	8%	N/A
				Volatility	17%	N/A
	$	(32,813)	Other	N/A	N/A	N/A
Total liabilities	$	(41,413)


Level III Measurements of the Consolidated Funds	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	896	Market approach	EBITDA multiple(2)	1.8x - 83.3x	15.3x


	14		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	258,336		Transaction price(1)	N/A	N/A	N/A
Partnership interest	237,558		Discounted cash flow	Discount rate	22.4%	22.4%
Fixed income securities
	261,064		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	98,055		Income approach	Yield	1.8%-54.7%	6.5%
	14,791		Transaction price	N/A	N/A	N/A
	28,766		Other	N/A	N/A	N/A
Derivative instruments	325		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A

Total assets	$	899,805
Liabilities
Derivative instruments	$	(1,513)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(1,513)

(1)Transaction price consists of securities purchased or restructured. The Company determined that there was no change to the valuation based on the underlying assumptions used at the closing of such transactions.

(2)“EBITDA” in the table above is a non-GAAP financial measure and refers to earnings before interest, tax, depreciation and amortization.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables summarize the quantitative inputs and assumptions used for the Company’s and the Consolidated Funds' Level III measurements as of December 31, 2020:


Level III Measurements of the Company	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Equity securities	$	14,704	Transaction price(1)	N/A	N/A
	32,905		Discounted Cash Flow	Discount Rates	14.0% - 20.0%
	40,803		Market Approach	Multiple of Book Value	1.6x
Partnership interests	2,575		Other	N/A	N/A

Collateralized loan obligations	31,766		Broker quotes and/or 3rd party pricing services	N/A	N/A
Other fixed income	21,583		Other	N/A	N/A
Total	$	144,336


Level III Measurements of the Consolidated Funds	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	438	Market approach	EBITDA multiple(2)	2.9x - 19.5x	13.4x
	32,528		Other	Net income multiple	30.0x	30.0x
				Illiquidity discount	25.0%	25.0%
	33		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	188,044		Transaction price(1)	N/A	N/A	N/A
Partnership interests	231,857		Discounted cash flow	Discount rate	23.8%	23.8%
Fixed income securities
	384,419		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	6,605		Market approach	EBITDA multiple(2)	6.5x - 7.8x	6.9x
	122,962		Income approach	Yield	2.7% - 48.1%	7.9%
	28,320		Other	N/A	N/A	N/A
Derivative instruments	1,104		Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	996,310
Liabilities
Derivative instruments	$	(44)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(44)

(1)Transaction price consists of securities purchased or restructured. The Company determined that there has been no change to the valuation based on the underlying assumptions used at the closing of such transactions.

(2)“EBITDA” in the table above is a non-GAAP financial measure and refers to earnings before interest, tax, depreciation and amortization.

The Company has an insurance-related investment in a private fund managed by a third party that is valued using NAV per share. The terms and conditions of this fund do not allow for redemptions without certain events or approvals that are outside the Company's control. This investment had a fair value of $6.0 million and $1.2 million as of September 30, 2021 and December 31, 2020. The Company has no unfunded commitments for this investment.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

7. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company and the Consolidated Funds are exposed to certain risks relating to their ongoing operations and use various types of derivative instruments primarily to mitigate against credit and foreign exchange risk. The derivative instruments are not designated as hedging instruments under the accounting standards for derivatives and hedging. The Company recognizes all of its derivative instruments at fair value as either assets or liabilities in the Condensed Consolidated Statements of Financial Condition within other assets or accounts payable, accrued expenses and other liabilities, respectively. These amounts may be offset to the extent that there is a legal right to offset and if elected by management.

The following tables identify the fair value and notional amounts of derivative contracts by major product type on a gross basis for the Company and the Consolidated Funds:


	As of September 30, 2021								As of December 31, 2020
	Assets				Liabilities				Assets				Liabilities
The Company	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Foreign exchange contracts	$	81,008	$	4,352	$	9,868	$	265	$	30,040	$	1,440	$	39,362	$	1,565
Interest rate contracts	18,455		9		—		—		—		—		—		—
Total derivatives, at fair value(2)	$	99,463	$	4,361	$	9,868	$	265	$	30,040	$	1,440	$	39,362	$	1,565


	As of September 30, 2021								As of December 31, 2020
	Assets				Liabilities				Assets				Liabilities
Consolidated Funds	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Warrants	$	—	$	—	$	230,000	$	17,000	$	—	$	—	$	—	$	—
Asset swap - other	44,521		325		39,701		1,513		7,600		1,104		540		44
Total derivatives, at fair value(3)	$	44,521	$	325	$	269,701	$	18,513	$	7,600	$	1,104	$	540	$	44

(1)Represents the total contractual amount of derivative assets and liabilities outstanding.

(2)As of September 30, 2021 and December 31, 2020, the Company had the right to, but elected not to, offset $0.3 million and $1.6 million of its derivative liabilities.

(3)As of September 30, 2021 and December 31, 2020, the Consolidated Funds offset $0.3 million and $0.4 million of their derivative assets and liabilities, respectively.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

8. DEBT

The following table summarizes the Company’s and its subsidiaries’ debt obligations:


					As of September 30, 2021			As of December 31, 2020


	Debt Origination Date	Maturity	Original Borrowing Amount		Carrying Value		Interest Rate	Carrying Value		Interest Rate
Credit Facility(1)	Revolver	3/31/2026	N/A		$	150,000	1.13%	$	—	—%
2024 Senior Notes(2)	10/8/2014	10/8/2024	$	250,000	247,802		4.21	247,285		4.21
2030 Senior Notes(3)	6/15/2020	6/15/2030	400,000		396,045		3.28	395,713		3.28
2051 Subordinated Notes(4)	6/30/2021	6/30/2051	450,000		444,478		4.13	—		—
Total debt obligations					$	1,238,325		$	642,998

(1)The AOG entities are borrowers under the Credit Facility, which provides a $1.090 billion revolving line of credit. It has a variable interest rate based on LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change with the Company’s underlying credit agency rating. On March 31, 2021, the Company amended the Credit Facility to, among other things, extend the maturity date from March 2025 to March 2026. As of September 30, 2021, base rate loans bear interest calculated based on the base rate plus 0.125% and the LIBOR rate loans bear interest calculated based on LIBOR plus 1.125%. The unused commitment fee is 0.10% per annum. There is a base rate and LIBOR floor of zero.

(2)The 2024 Senior Notes were issued in October 2014 by Ares Finance Co. LLC, an indirect subsidiary of the Company, at 98.27% of the face amount with interest paid semi-annually. The Company may redeem the 2024 Senior Notes prior to maturity, subject to the terms of the indenture governing the 2024 Notes.

(3)The 2030 Senior Notes were issued in June 2020 by Ares Finance Co. II LLC, an indirect subsidiary of the Company, at 99.77% of the face amount with interest paid semi-annually. The Company may redeem the 2030 Senior Notes prior to maturity, subject to the terms of the indenture governing the 2030 Notes.

(4)The 2051 Subordinated Notes were issued in June 2021 by Ares Finance Co. III LLC, an indirect subsidiary of the Company, at 100.00% of par with interest paid semi-annually at a fixed-rate of 4.125%. Beginning June 30, 2026, the interest rate will reset on every fifth year based on the five-year U.S. Treasury Rate plus 3.237%. The Company may redeem the 2051 Subordinated Notes prior to maturity or defer interest payments up to five consecutive years, subject to the terms of the indenture governing the 2051 Subordinated Notes.

As of September 30, 2021, the Company and its subsidiaries were in compliance with all covenants under the debt obligations.

The Company typically incurs and pays debt issuance costs when entering into a new debt obligation or when amending an existing debt agreement. Debt issuance costs related to the 2024 and 2030 Senior Notes (the “Senior Notes”) and 2051 Subordinated Notes are recorded as a reduction of the corresponding debt obligation, and debt issuance costs related to the Credit Facility are included in other assets in the Condensed Consolidated Statements of Financial Condition. All debt issuance costs are amortized over the remaining term of the related obligation into interest expense in the Condensed Consolidated Statements of Operations.

The following table presents the activity of the Company's debt issuance costs:


	Credit Facility		Senior Notes		Subordinated Notes




Unamortized debt issuance costs as of December 31, 2020	$	5,232	$	4,283	$	—
Debt issuance costs incurred	1,282		—		5,568
Amortization of debt issuance costs	(929)		(446)		(46)

Unamortized debt issuance costs as of September 30, 2021	$	5,585	$	3,837	$	5,522

Loan Obligations of the Consolidated CLOs

Loan obligations of the Consolidated Funds that are CLOs (“Consolidated CLOs”) represent amounts due to holders of debt securities issued by the Consolidated CLOs. The Company measures the loan obligations of the Consolidated CLOs using the fair value of the financial assets of its Consolidated CLOs.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following loan obligations were outstanding and classified as liabilities of the Consolidated CLOs:


	As of September 30, 2021					As of December 31, 2020


	Loan Obligations		Fair Value of Loan Obligations		Weighted Average Remaining Maturity In Years	Loan Obligations		Fair Value of Loan Obligations		Weighted Average Remaining Maturity In Years
Senior secured notes(1)	$	9,577,725	$	9,561,079	9.5	$	9,796,442	$	9,665,804	10.1
Subordinated notes(2)	723,567		613,715		8.3	482,391		292,272		10.2
Total loan obligations of Consolidated CLOs	$	10,301,292	$	10,174,794		$	10,278,833	$	9,958,076

(1)Original borrowings under the senior secured notes totaled $9.6 billion, with various maturity dates ranging from September 2026 to July 2034. The weighted average interest rate as of September 30, 2021 was 1.96%.

(2)Original borrowings under the subordinated notes totaled $723.6 million, with various maturity dates ranging from September 2026 to July 2034. The notes do not have contractual interest rates; instead, holders of the notes receive distributions from the excess cash flows generated by each Consolidated CLO.

Loan obligations of the Consolidated CLOs are collateralized by the assets held by the Consolidated CLOs, consisting of cash and cash equivalents, corporate loans, corporate bonds and other securities. The assets of one Consolidated CLO may not be used to satisfy the liabilities of another Consolidated CLO. Loan obligations of the Consolidated CLOs include floating rate notes, deferrable floating rate notes, revolving lines of credit and subordinated notes. Amounts borrowed under the notes are repaid based on available cash flows subject to priority of payments under each Consolidated CLO’s governing documents. Based on the terms of these facilities, the creditors of the facilities have no recourse to the Company.

Credit Facilities of the Consolidated Funds

Certain Consolidated Funds maintain credit facilities to fund investments between capital drawdowns. These facilities generally are collateralized by the unfunded capital commitments of the Consolidated Funds’ limited partners, bear an annual commitment fee based on unfunded commitments and contain various affirmative and negative covenants and reporting obligations, including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments and portfolio asset dispositions. The creditors of these facilities have no recourse to the Company and only have recourse to a subsidiary of the Company to the extent the debt is guaranteed by such subsidiary. As of September 30, 2021 and December 31, 2020, the Consolidated Funds were in compliance with all covenants under such credit facilities.

The Consolidated Funds had the following revolving bank credit facilities and term loan outstanding:


				As of September 30, 2021			As of December 31, 2020


Consolidated Funds' Debt Facilities	Maturity Date	Total Capacity		Outstanding Loan(1)		Effective Rate	Outstanding Loan(1)		Effective Rate
Credit Facilities:
	3/4/2022	$	71,500	$	71,500	1.59%	$	71,500	1.59%
	7/1/2023	18,000		17,740		1.63	17,909		1.75
	1/15/2022(2)	—		—		—	32,500		2.75
	7/23/2024	75,000		10,000		2.65	N/A		N/A
	9/24/2026	150,000		—		N/A	N/A		N/A
Total borrowings of Consolidated Funds				$	99,240		$	121,909

(1)The fair values of the borrowings approximate the carrying value as the interest rate on the borrowings is a floating rate.

(2)On July 23, 2021, the credit facility was terminated at the Consolidated Fund’s discretion.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

9. COMMITMENTS AND CONTINGENCIES

Indemnification Arrangements

Consistent with standard business practices in the normal course of business, the Company enters into contracts that contain indemnities for affiliates of the Company, persons acting on behalf of the Company or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the Company’s maximum exposure under these arrangements cannot be determined and has not been recorded in the Condensed Consolidated Statements of Financial Condition. As of September 30, 2021, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Commitments

As of September 30, 2021 and December 31, 2020, the Company had aggregate unfunded commitments to invest in funds it manages or to support certain strategic initiatives of $732.8 million and $784.2 million, respectively.

Contingent Liabilities

In connection with the Landmark Acquisition, the Company established a management incentive program (the “Landmark MIP”) with certain professionals of Landmark. The Landmark MIP represents a contingent liability not to exceed $300.0 million and is based on the achievement of fundraising targets for certain Landmark funds during a measurement period.

The Company expects to settle this liability with a combination of 15% cash and 85% equity awards. Expense associated with the cash component is recognized ratably over the measurement period, which will end on the earlier of the final fundraising date or December 31, 2022. Expense associated with the equity component is recognized ratably over the service period, which will continue for four years beyond the measurement period end date. The Landmark MIP is remeasured each period with incremental changes in fair value included within compensation and benefits expense within the Condensed Consolidated Statements of Operations. At the measurement period end date, the cash component will be paid and restricted units for the balance of the Landmark MIP will be granted at fair value. The unpaid liability at the measurement period end date will be reclassified from liability to additional paid-in-capital and any difference between the fair value of the Landmark MIP at the measurement period end date and the previously recorded compensation expense will be recognized over the remaining four year service period as equity-based compensation expense. As of September 30, 2021, the fair value of the contingent liability was estimated to be $236.0 million. Compensation expense of $14.7 million and $19.3 million for the three months ended September 30, 2021 and for the period from June 2, 2021 through September 30, 2021, respectively, was recorded in the Condensed Consolidated Statements of Operations.

The purchase agreement with Black Creek contains provisions obligating the Company to make payments in an aggregate amount not to exceed $275.0 million to certain senior professionals and advisors upon the achievement of certain revenue targets through a measurement period no later than December 31, 2024. Because these future payments require continued service through the measurement period, this consideration is accounted for as compensation expense instead of as purchase consideration. The fair value of this contingent liability is remeasured at each reporting date with compensation expense recorded ratably over the service period, which is the Black Creek Acquisition date through the measurement period end date. As of September 30, 2021, the fair value of the contingent liability was $206.7 million and the Company recorded a contingent liability of $13.5 million within accrued compensation in the Consolidated Statements of Financial Condition. For the three months ended September 30 2021, compensation expense of $13.5 million was recorded within compensation and benefits expense within the Condensed Consolidated Statements of Operations.

The purchase agreement with Black Creek also contains a provision obligating the Company to make a payment to the sellers equal to 50% of the performance income realized for certain Black Creek funds for the year ended December 31, 2021. The fair value of this contingent obligation as of the acquisition date was $28.6 million. The contingent obligation is subject to remeasurement until settlement and changes in fair value from the acquisition date are recorded within other income (expense), net within the Condensed Consolidated Statements of Operations. As of September 30, 2021, the fair value of the contingent obligation was $32.8 million and recorded within due to affiliates within the Consolidated Statements of Financial Condition.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Performance Income

Performance income is affected by changes in the fair values of the underlying investments in the funds that are advised by the Company. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, public equity market volatility, industry trading multiples and interest rates. Generally, if at the termination of a fund (and increasingly at interim points in the life of a fund), the fund has not achieved investment returns that (in most cases) exceed the preferred return threshold or (in all cases) the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, the Company will be obligated to repay carried interest that was received by the Company in excess of the amounts to which the Company is entitled. This contingent obligation is normally reduced by income taxes paid by the Company related to its carried interest.

Senior professionals of the Company who have received carried interest distributions are responsible for funding their proportionate share of any contingent repayment obligations. However, the governing agreements of certain of the Company's funds provide that if a current or former professional does not fund his or her respective share for such fund, then the Company may have to fund additional amounts beyond what was received in carried interest, although the Company will generally retain the right to pursue any remedies under such governing agreements against those carried interest recipients who fail to fund their obligations.

Additionally, at the end of the life of the funds there could be a payment due to a fund by the Company if the Company has recognized more performance income than was ultimately earned. The general partner obligation amount, if any, will depend on final realized values of investments at the end of the life of the fund.

At September 30, 2021 and December 31, 2020, if the Company assumed all existing investments were worthless, the amount of performance income subject to potential repayment, net of tax distributions, which may differ from the recognition of revenue, would have been approximately $202.3 million and $326.4 million, respectively, of which approximately $158.0 million and $252.4 million, respectively, is reimbursable to the Company by certain professionals who are the recipients of such performance income. Management believes the possibility of all of the investments becoming worthless is remote. As of September 30, 2021 and December 31, 2020, if the funds were liquidated at their fair values, there would be no contingent repayment obligation or liability.

Litigation

From time to time, the Company is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, the Company does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect its results of operations, financial condition or cash flows.

Leases

The Company leases office space and certain office equipment. The Company's leases have remaining lease terms of one to twelve years. The tables below present certain supplemental quantitative disclosures regarding the Company's leases:


		As of September 30,		As of December 31,

	Classification	2021		2020
Operating lease assets	Right-of-use operating lease assets	$	176,511	$	154,742
Finance lease assets	Other assets(1)	1,164		1,386
Total lease assets		$	177,675	$	156,128

Operating lease liabilities	Operating lease liabilities	$	214,681	$	180,236
Finance lease obligations	Accounts payable, accrued expenses and other liabilities	977		1,273
Total lease liabilities		$	215,658	$	181,509

(1) Finance lease assets are recorded net of accumulated amortization of $1.4 million and $1.0 million as of September 30, 2021 and December 31, 2020, respectively.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


Maturity of lease liabilities	Operating Leases		Finance Leases
2021	$	10,591	$	73
2022	41,989		598
2023	38,277		164
2024	36,579		162
2025	36,251		11
After 2025	66,683		—
Total future payments	230,370		1,008
Less: interest	15,689		31
Total lease liabilities	$	214,681	$	977


		Three months ended September 30,				Nine months ended September 30,
	Classification	2021		2020		2021		2020
Operating lease expense	General, administrative and other expenses	$	9,697	$	7,701	$	27,203	$	23,138
Finance lease expense:
Amortization of finance lease assets	General, administrative and other expenses	154		127		408		346
Interest on finance lease liabilities	Interest expense	7		11		24		33
Total lease expense		$	9,858	$	7,839	$	27,635	$	23,517



	Nine months ended September 30,
Other information	2021		2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	$	26,704	$	23,098
Operating cash flows for finance leases	34		48
Financing cash flows for finance leases	463		412
Leased assets obtained in exchange for new finance lease liabilities	189		—
Leased assets obtained in exchange for new operating lease liabilities	55,461		12,477


	As of September 30,		As of December 31,

Lease term and discount rate	2021		2020
Weighted-average remaining lease terms (in years):
Operating leases	6.1		6.0
Finance leases	2.1		2.6
Weighted-average discount rate:
Operating leases	2.97	%	3.59	%
Finance leases	2.91	%	3.26	%

10. RELATED PARTY TRANSACTIONS

Substantially all of the Company’s revenue is earned from its affiliates, including management fees, carried interest allocation, incentive fees, principal investment income and administrative expense reimbursements. The related accounts receivable are included within due from affiliates within the Condensed Consolidated Statements of Financial Condition, except that accrued carried interest allocations, which is predominantly due from affiliated funds, is presented separately within investments in the Condensed Consolidated Statements of Financial Condition.

The Company has investment management agreements with the Ares Funds that it manages. In accordance with these agreements, these Ares Funds may bear certain operating costs and expenses which are initially paid by the Company and subsequently reimbursed by the Ares Funds.

The Company also has entered into agreements to be reimbursed for its expenses incurred for providing administrative services to certain related parties, including ARCC, ACRE, ARDC, Ivy Hill Asset Management, L.P., ACF FinCo I L.P. and

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

CION Ares Diversified Credit Fund. As a result of the Black Creek Acquisition, the Company is party to agreements with each Black Creek fund to provide various services, such as administration, acquisition, development and property management, among others.

Employees and other related parties may be permitted to participate in co-investment vehicles that generally invest in Ares funds alongside fund investors. Participation is limited by law to individuals who qualify under applicable securities laws. These co-investment vehicles generally do not require these individuals to pay management fees or performance income.

Performance income from the funds can be distributed to professionals or their related entities on a current basis, subject, in the case of carried interest programs, to repayment by the subsidiary of the Company that acts as general partner of the relevant fund in the event that certain specified return thresholds are not ultimately achieved. The professionals have personally guaranteed, subject to certain limitations, the obligations of these subsidiaries in respect of this general partner obligation. Such guarantees are several, and not joint, and are limited to distributions received by the relevant recipient.

The Company considers its professionals and non-consolidated funds to be affiliates. Amounts due from and to affiliates were composed of the following:


	As of September 30,		As of December 31,

	2021		2020
Due from affiliates:
Management fees receivable from non-consolidated funds	$	347,078	$	308,581
Incentive fee receivable from non-consolidated funds	579		21,495
Payments made on behalf of and amounts due from non-consolidated funds and employees	145,754		75,811
Due from affiliates—Company	$	493,411	$	405,887
Amounts due from portfolio companies and non-consolidated funds	$	9,059	$	17,172
Due from affiliates—Consolidated Funds	$	9,059	$	17,172
Due to affiliates:
Management fee received in advance and rebates payable to non-consolidated funds	$	7,959	$	4,808
Tax receivable agreement liability	97,698		62,505
Undistributed carried interest and incentive fees	64,675		27,322
Payments made by non-consolidated funds on behalf of and payable by the Company	32,106		5,551
Due to affiliates—Company	$	202,438	$	100,186

Due from Ares Funds and Portfolio Companies

In the normal course of business, the Company pays certain expenses on behalf of Consolidated Funds and non-consolidated funds for which it is reimbursed. Amounts advanced on behalf of Consolidated Funds are eliminated in consolidation. Certain expenses initially paid by the Company, primarily professional services, travel and other costs associated with particular portfolio company holdings, are subject to reimbursement by the portfolio companies.

11. INCOME TAXES

The Company’s income tax provision includes corporate income taxes and other entity level income taxes, as well as income taxes incurred by certain affiliated funds that are consolidated in these financial statements. For the three and nine months ended September 30, 2021, the Company recorded income tax expense of $30.3 million and $104.5 million. For the three and nine months ended September 30, 2020, the Company recorded income tax expense of $18.3 million and $22.1 million, respectively.

The Company’s effective income tax rate is dependent on many factors, including the estimated nature and amounts of income and expenses allocated to the non-controlling interests without being subject to federal, state and local income taxes at the corporate level. Additionally, the Company’s effective tax rate is influenced by the amount of income tax provision recorded for any affiliated funds and co-investment entities that are consolidated in the Company's condensed consolidated financial statements. For the three and nine months ended September 30, 2021 and 2020, the Company recorded its interim income tax provision utilizing the estimated annual effective tax rate.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The income tax effects of temporary differences give rise to significant portions of deferred tax assets and liabilities, which are presented on a net basis. As of September 30, 2021 and December 31, 2020, the Company recorded a net deferred tax asset of $29.9 million and $70.0 million, respectively, within other assets in the Condensed Consolidated Statements of Financial Condition.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal, state, local and foreign tax authorities. With limited exceptions, the Company is no longer subject to income tax audits by taxing authorities for any years prior to 2017. Although the outcome of tax audits is always uncertain, the Company does not believe the outcome of any future audit will have a material adverse effect on the Company’s condensed consolidated financial statements.

12. EARNINGS PER SHARE

For the three and nine months ended September 30, 2021, the Company had Class A and non-voting common stock outstanding. The non-voting common stock has the same economic rights as the Class A common stock; therefore, earnings per share is presented on a combined basis. Income of the Company has been allocated on a proportionate basis to the two common stock classes. Additional information on the issuance of the non-voting common stock is discussed in “Note 14. Equity and Redeemable Interests.”

Basic earnings per share of Class A and non-voting common stock is computed by using the two-class method. Diluted earnings per share of Class A and non-voting common stock is computed using the more dilutive method of either the two-class method or the treasury stock method.

For the three and nine months ended September 30, 2021 and the three months ended September 30, 2020, the treasury stock method was the more dilutive method. For the nine months ended September 30, 2020, the two-class method was the more dilutive method.

The computation of diluted earnings per share for the three and nine months ended September 30, 2021 and 2020 excludes the following restricted units and AOG units, as their effect would have been anti-dilutive:


	Three months ended September 30,		Nine months ended September 30,
	2021	2020	2021	2020

Restricted units	450	572	167	—
AOG Units	119,855,724	114,726,173	115,394,058	—

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the computation of basic and diluted earnings per common share:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Basic earnings per share of Class A and non-voting common stock:
Net income attributable to Ares Management Corporation Class A and non-voting common stockholders	$	84,726	$	42,120	$	262,659	$	56,605
Distributions on unvested restricted units	(1,440)		(2,757)		(8,142)		(7,715)
Undistributed earnings allocable to participating unvested restricted units	(306)		—		(2,858)		—
Net income available to Class A and non-voting common stockholders	$	82,980	$	39,363	$	251,659	$	48,890
Basic weighted-average shares of Class A and non-voting common stock	168,931,621		143,466,209		161,071,151		131,866,471
Basic earnings per share of Class A and non-voting common stock	$	0.49	$	0.27	$	1.55	$	0.37

Diluted earnings per share of Class A and non-voting common stock:
Net income available to Class A and non-voting common stockholders	$	84,726	$	42,120	$	262,659	$	56,605
Distributions on unvested restricted units	—		—		—		(7,715)
Net income attributable to Ares Management Corporation Class A and non-voting common stockholders	$	84,726	$	42,120	$	262,659	$	48,890
Effect of dilutive shares:
Restricted units	12,273,068		9,762,645		10,807,242		—
Options	5,317,468		4,893,709		5,265,045		—

Diluted weighted-average shares of Class A and non-voting common stock	186,522,157		158,122,563		177,143,438		131,866,471
Diluted earnings per share of Class A and non-voting common stock	$	0.45	$	0.27	$	1.48	$	0.37

Dividend declared and paid per Class A and non-voting common stock	$	0.47	$	0.40	$	1.41	$	1.20

13. EQUITY COMPENSATION

Equity Incentive Plan

Equity-based compensation is granted under the Company's 2014 Equity Incentive Plan (as amended, the "Equity Incentive Plan"). The total number of shares available to be issued under the Equity Incentive Plan resets based on a formula defined in the Equity Incentive Plan and may increase on January 1 of each year. On January 1, 2021, the total number of shares available for issuance under the Equity Incentive Plan reset to 44,510,451 shares and as of September 30, 2021, 38,972,964 shares remain available for issuance.

Generally, unvested restricted units are forfeited upon termination of employment in accordance with the Equity Incentive Plan. The Company recognizes forfeitures as a reversal of previously recognized compensation expense in the period the forfeiture occurs.

Equity-based compensation expense, net of forfeitures, recorded by the Company is included in the following table:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Restricted units	$	36,390	$	30,036	$	127,219	$	86,804
Restricted units with a market condition	29,601		300		63,925		4,729
Options	—		—		—		43
Equity-based compensation expense	$	65,991	$	30,336	$	191,144	$	91,576

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Restricted Units

Each restricted unit represents an unfunded, unsecured right of the holder to receive a share of the Company's Class A common stock on a specific date. The restricted units generally vest and are settled in shares of Class A common stock either (i) at a rate of one-third per year, beginning on the third anniversary of the grant date, (ii) in their entirety on the fifth anniversary of the grant date, (iii) at a rate of one quarter per year, beginning on the second anniversary of the grant date or the holder's employment commencement date, or (iv) at a rate of one third per year, beginning on the first anniversary of the grant date in each case generally subject to the holder’s continued employment as of the applicable vesting date (subject to accelerated vesting upon certain qualifying terminations of employment or retirement eligibility provisions). Compensation expense associated with restricted units is recognized on a straight-line basis over the requisite service period of the award.

Restricted units are delivered net of the holder's payroll related taxes upon vesting. For the nine months ended September 30, 2021, 8.2 million restricted units vested and 4.4 million shares of Class A common stock were delivered to the holders. For the nine months ended September 30, 2020, 4.7 million restricted units vested and 2.6 million shares of Class A common stock were delivered to the holders.

The holders of restricted units, other than awards that have not yet been issued as described in the subsequent sections, generally have the right to receive as current compensation an amount in cash equal to (i) the amount of any dividend paid with respect to a share of Class A common stock multiplied by (ii) the number of restricted units held at the time such dividends are declared (“Dividend Equivalent”). During the nine months ended September 30, 2021, the Company declared dividends of $0.47 per share to Class A common stockholders at the close of business on March 17, 2021, June 16, 2021 and September 16, 2021. For the three and nine months ended September 30, 2021, Dividend Equivalents were made to the holders of restricted units in the aggregate amount of $6.4 million and $21.7 million, respectively, which are presented as dividends within the Condensed Consolidated Statements of Changes in Equity. When units are forfeited, the cumulative amount of Dividend Equivalents previously paid is reclassified to compensation and benefits expense in the Condensed Consolidated Statements of Operations.

During the first quarter of 2021, in addition to grants awarded in 2021, the Company approved the future grant of restricted units to certain senior executives in each of 2022, 2023 and 2024, subject to the holder’s continued employment and acceleration in certain instances. The vesting period of these awards are at a rate of 25% per year, beginning on the second anniversary of the grant date. Given that these future restricted units have been communicated to the recipient, the Company accounts for these awards as if they have been granted and recognizes the compensation expense on a straight-line basis over the service period. The restricted units that have been approved and communicated but not yet granted are not eligible to receive a Dividend Equivalent until the grant date.

The following table presents unvested restricted units' activity:


	Restricted Units	Weighted Average Grant Date Fair Value Per Unit
Balance - January 1, 2021	16,299,664	$	24.30
Granted	9,667,989	46.16
Vested	(6,278,948)	20.70
Forfeited	(1,255,502)	30.48
Balance - September 30, 2021	18,433,203	$	36.33

The total compensation expense expected to be recognized in all future periods associated with the restricted units is approximately $504.8 million as of September 30, 2021 and is expected to be recognized over the remaining weighted average period of 3.5 years.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Performance-Based Restricted Unit Awards with a Market Condition

During the first quarter of 2021, the Company granted certain restricted units with a vesting condition contingent upon the volume-weighted, average closing price of the Company’s 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. 537,500 restricted units with a market condition of $55.00 per share (“Tranche I”), 537,500 restricted units with a market condition of $60.00 per share (“Tranche II”), 537,500 restricted units with a market condition of $65.00 per share (“Tranche III”) and 537,500 restricted units with a market condition of $75.00 per share (“Tranche IV”) were granted. Vesting is also generally subject to continued employment at the time such market condition is achieved, subject to certain exceptions upon certain qualifying terminations of employment. 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. Restricted units subject to a market condition are not eligible to receive a Dividend Equivalent.

The grant date fair values for Tranche I, Tranche II, Tranche III and Tranche IV awards were $37.28, $34.47, $31.92 and $27.75 per unit, respectively, 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 simulation where the market condition was achieved. The median vesting period is 0.7 years, 1.2 years, 1.6 years and 2.3 years for Tranche I, Tranche II, Tranche III and Tranche IV, respectively.

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 valuation date						$45.76
Risk-free interest rate						0.88%
Volatility						35.0%
Dividend yield						3.5%
Cost of equity						10.0%

The following table presents the market condition awards' activity:


	Market Condition Awards Units	Weighted Average Grant Date Fair Value Per Unit
Balance - January 1, 2021	—	$	—
Granted	2,150,000	32.86
Vested	(1,925,000)	33.21
Forfeited	(225,000)	29.84
Balance - September 30, 2021	—	$	—

During the nine months ended September 30, 2021, the market-priced vesting condition was met for all four tranches of the market condition awards and resulted in the acceleration of $43.4 million of compensation expense. Tranche I was met during the second quarter of 2021 and Tranche II, III and IV were met during the third quarter of 2021, and the compensation expense was accelerated during each of the quarters of $14.0 million and $29.4 million, respectively.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Options

A summary of options activity during the nine months ended September 30, 2021 is presented below:


	Options	Weighted Average Exercise Price		Weighted Average Remaining Life (in years)	Aggregate Intrinsic Value
Balance - January 1, 2021	8,312,203	$	18.99	3.4	$	233,251
Granted	—	—		—	—
Exercised	(1,489,789)	18.94		—	—
Expired	—	—		—	—
Forfeited	—	—		—	—
Balance - September 30, 2021	6,822,414	$	19.00	2.6	$	374,073
Exercisable at September 30, 2021	6,822,414	$	19.00	2.6	$	374,073

Net cash proceeds from exercises of stock options were $27.4 million for the nine months ended September 30, 2021. The Company realized tax benefits of approximately $9.6 million from those exercises.

14. EQUITY AND REDEEMABLE INTEREST

Common Stock

The Company's common stock consists of Class A, Class B, Class C and non-voting common stock, each $0.01 par value per share. The non-voting common stock has the same economic rights as the Class A common stock. Sumitomo Mitsui Banking Corporation (“SMBC”) is the sole holder of the non-voting common stock. The Class B common stock and Class C common stock are non-economic and holders are not entitled to dividends from the Company or to receive any assets of the Company in the event of any dissolution, liquidation or winding up of the Company. Ares Management GP LLC is the sole holder of the Class B common stock and Ares Voting LLC (“Ares Voting”) is the sole holder of the Class C common stock.

In February 2021, the Company's board of directors authorized the renewal of the stock repurchase program that allows for the repurchase of up to $150 million of shares of Class A common stock. Under the program, shares may be repurchased from time to time in open market purchases, privately negotiated transactions or otherwise, including in reliance on Rule 10b5-1 of the Securities Act. The program is scheduled to expire in February 2022. Repurchases under the program, if any, will depend on the prevailing market conditions and other factors. During the nine months ended September 30, 2021 and 2020, the Company did not repurchase any shares as part of the stock repurchase program.

On April 5, 2021, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with SMBC. Pursuant to the Purchase Agreement, the Company agreed to issue and sell to SMBC approximately $250.0 million of the Company’s common stock (consisting of 3,489,911 shares of non-voting common stock and 1,234,200 shares of Class A common stock) at a price per share equal to the public offering price of Class A common stock being offered pursuant to the Offering (as defined below), less underwriting discounts and commissions (the “Private Placement”). The Private Placement closed on April 8, 2021 and resulted in gross proceeds to the Company of approximately $250.0 million before deducting offering expenses.

On April 6, 2021, the Company entered into an underwriting agreement pursuant to which the Company agreed to issue and sell 10,925,000 shares of the Class A common stock (including 1,425,000 shares of Class A common stock sold pursuant to the exercise of the underwriters' option to purchase additional shares of Class A common stock) (collectively, the “Offering”). The Offering closed on April 8, 2021 and resulted in gross proceeds to the Company of approximately $578.2 million before deducting offering expenses.

Offering expenses for the Private Placement and Offering amounted to approximately $0.7 million. The expenses have been recorded as a reduction in the proceeds received and are presented on a net basis together with issuances of common stock in additional paid-in-capital within the Condensed Consolidated Statements of Changes in Equity.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the changes in each class of common stock:


	Class A Common Stock	Non-Voting Common Stock	Class B Common Stock	Class C Common Stock	Total
Balance - January 1, 2021	147,182,562	—	1,000	112,447,618	259,631,180
Issuance of stock(1)	12,159,200	3,489,911	—	8,744,296	24,393,407
Exchanges of AOG Units	2,330,367	—	—	(2,330,367)	—
Redemptions of AOG Units	—	—	—	(58,290)	(58,290)
Stock option exercises, net of shares withheld for tax	1,460,388	—	—	—	1,460,388

Vesting of restricted stock awards, net of shares withheld for tax	4,448,648	—	—	—	4,448,648
Balance - September 30, 2021	167,581,165	3,489,911	1,000	118,803,257	289,875,333

(1) Issuances of Class C Common stock corresponds with increases in Ares Owners Holdings L.P.’s ownership interest in the AOG entities.

The following table presents each partner's AOG Units and corresponding ownership interest in each of the Ares Operating Group entities, as well as its daily average ownership of AOG Units in each of the Ares Operating Group entities:


							Daily Average Ownership
	As of September 30, 2021			As of December 31, 2020				Three months ended September 30,				Nine months ended September 30,
	AOG Units	Direct Ownership Interest		AOG Units	Direct Ownership Interest			2021		2020		2021		2020
Ares Management Corporation	171,071,076	59.02	%	147,182,562	56.69	%		58.50	%	55.57	%	58.26	%	53.33	%
Ares Owners Holdings, L.P.	118,803,257	40.98		112,447,618	43.31			41.50		44.43		41.74		46.67
Total	289,874,333	100.00	%	259,630,180	100.00	%

Preferred Stock

As of December 31, 2020, the Company had 12,400,000 shares of the Series A Preferred Stock outstanding. As and if declared by the Company’s board of directors, dividends on the Series A Preferred Stock are payable quarterly at a rate per annum equal to 7.00%. The Series A Preferred Stock could be redeemed at the Company’s option, in whole or in part, at any time on or after June 30, 2021, at a price per share of $25.00.

On June 30, 2021 (the “Redemption Date”), the Company redeemed all shares of the Series A Preferred Stock outstanding at a redemption price per share of $25.00. The redemption price did not include any accrued dividends as the Redemption Date occurred on the dividend payment date. On the Redemption Date, the Company paid $310.0 million for the redemption of the Series A Preferred Stock and $5.4 million for the previously announced dividend of $0.4375 per share. The excess of the redemption price over the carrying value of the Series A Preferred Stock of approximately $11.2 million relates to the original issuance costs and is presented as a reduction to net income available to common stockholders and to non-controlling interests in AOG entities within the Condensed Consolidated Statements of Operations.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Redeemable Interest

The following table summarizes the activities associated with the redeemable interest in Ares Operating Group entities:


	Total
Balance - January 1, 2021	$	100,366
Net income	32
Currency translation adjustment, net of tax	(590)
Balance- March 31, 2021	$	99,808
Net income	$	337
Currency translation adjustment, net of tax	186

Distribution	(300)
Balance- June 30, 2021	$	100,031
Net income	$	324
Currency translation adjustment, net of tax	(356)

Distribution	(1,350)
Balance- September 30, 2021	$	98,649

The following table summarizes the activities associated with the redeemable interest in Consolidated Funds:


	Total
Balance - January 1, 2021	$	—
Redemption value	930,924
Balance- March 31, 2021	$	930,924
Change in redemption value	(14,100)
Balance- June 30, 2021	$	916,824
Change in redemption value	83,176
Balance- September 30, 2021	$	1,000,000

15. SEGMENT REPORTING

The Company operates through its distinct operating segments that are summarized below:

Credit Group: The Credit Group manages credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, multi-asset credit, alternative credit investments and direct lending. The syndicated loans strategy focuses on evaluating individual credit opportunities related primarily to non-investment grade senior secured loans and primarily targets first lien secured debt, with a secondary focus on second lien secured loans and subordinated and other unsecured loans. The high yield bond strategy seeks to deliver a diversified portfolio of liquid, traded non-investment grade corporate bonds, including secured, unsecured and subordinated debt instruments. Multi-asset credit is a “go anywhere” strategy designed to offer investors a flexible solution to global credit investing by allowing us to tactically allocate between multiple asset classes in various market conditions. The alternative credit strategy seeks to capitalize on asset-focused investment opportunities that fall outside of traditional, well-defined markets such as corporate debt, real estate and private equity. The alternative credit strategy emphasizes downside protection and capital preservation through a focus on investments that tend to share the following key attributes: asset security, covenants, structural protections and cash flow velocity. The direct lending strategy is one of the largest self-originating direct lenders to the U.S. and European markets and has a multi-channel origination strategy designed to address a broad set of investment opportunities in the middle market. The direct lending team maintains a flexible investment strategy with the capability to invest in first lien senior secured loans (including “unitranche” loans which are loans that combine senior and subordinated debt, generally in a first lien position), second lien senior secured loans, subordinated debt, preferred equity and non-control equity co-investments in private middle market companies. U.S. direct lending activities are managed through a publicly traded business development company, ARCC, as well as through private commingled funds and separately managed accounts (“SMAs”).

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Private Equity Group: The Private Equity Group manages investment strategies broadly categorizes its investment activities into three strategies: Corporate Private Equity, Special Opportunities and Infrastructure and Power. In the Corporate Private Equity strategy, the Company targets four principal transactions types: prudently leveraged control buyouts, growth equity, rescue/deleveraging capital and distressed buyouts/discounted debt accumulation together with the broad resources of potential investment opportunities. This flexible capital approach, together with the broad resources of the Ares platform, widens our universe of potential investment opportunities and allows us to remain active in different markets and to be highly selective in making investments across various market environments. In the Special Opportunities strategy, the Company employs a flexible capital strategy to target non-control positions across a broad spectrum of stressed, distressed and opportunistic situations. The Infrastructure and Power strategy targets value-added approach that seeks to source and structure essential infrastructure assets with strong downside protection and potential for capital appreciation throughout the climate infrastructure, natural gas generation, and energy transportation sectors.

Real Estate Group: The Real Estate Group manages comprehensive real estate equity and debt strategies, focusing on activities categorized as core, value-add, and opportunistic. Real Estate equity strategies involve high-quality properties and locations and de-risked developments with an opportunity to create value through repositioning, lease-up, re-tenanting, redevelopment, and/or complex recapitalizations. The group targets assets located in liquid markets with diversified economies in order to deliver compelling, risk-adjusted returns through a combination of asset selectivity and disciplined portfolio management. The U.S. core investment activities focus on the acquisition of assets secured by long-term cash flows and durable tenancy diversified across geographies and end-user industries. The core strategy encompasses industrial, multifamily, office, necessity-based retail, and other property types across major metropolitan economies. The value-add investment activities focus on acquiring underperforming, income-producing, institutional-quality assets that can be improved through select value-creation initiatives across the U.S. and Europe. The opportunistic activities focus on capitalizing on distressed and special situations, repositioning underperforming assets and undertaking select development and redevelopment projects across the U.S. and Europe. Additionally, the Ares Real Estate Group has specialized operating and investment capabilities specifically in the industrial sector through its vertically integrated operating platform. The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and invest in a wide range of financing opportunities in the U.S. In addition to managing private commingled funds and SMAs investing in equity and debt strategies, the Real Estate Group also makes investments through Black Creek Diversified Property Fund, Inc. (“DPF”) and Black Creek Industrial REIT IV, Inc. (“BCI IV”), its non-traded REITs, and ACRE, a publicly traded commercial mortgage REIT.

Secondary Solutions Group: The Secondary Solutions Group was formed during the second quarter of 2021 in connection with the Landmark Acquisition. The Secondary Solutions Group invests in secondary markets across a range of alternative asset class strategies, including private equity, real estate and infrastructure. The Company acquires interests across a range of partnership vehicles, including funds, multi-asset portfolios and single asset joint ventures. Each strategy focuses on recapitalizing and restructuring the funds, including transactions that can address pending fund maturity, strategy change or the need for additional equity capital. The private equity secondaries strategy targets opportunities in non-competitive channels and makes investments in durable, performing assets with attractive capital structures. In the real estate secondaries strategy, the Company seeks broad diversification by property sector and geography and to drive investment results through underwriting, transaction structuring and portfolio construction. In the infrastructure secondaries strategy, the Company focuses on achieving diversification through a portfolio that provides inflation protection and exposure to uncorrelated assets.

Strategic Initiatives: The Company began reflecting the Strategic Initiatives category beginning in the third quarter of 2020. It represents an all other category that includes operating segments and strategic investments that seek to expand the Company’s reach and its scale in new and existing global markets including Ares SSG, Ares Insurance Solutions (“AIS”) and AAC.

The OMG consists of shared resource groups to support the Company’s operating segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, legal, compliance, human resources, strategy, relationship management and distribution. The OMG includes Ares Wealth Management Solutions (“WMS”) that facilitates the product development, distribution, marketing and client management activities for investment offerings in the global wealth management channel. Additionally, the OMG provides services to certain of the Company’s investment companies and partnerships, which reimburse the OMG for expenses equal to the costs of services provided. The OMG’s revenues and expenses are not allocated to the Company’s reportable segments but the Company does consider the cost structure of the OMG when evaluating its financial performance.

Segment Profit Measures: These measures supplement and should be considered in addition to, and not in lieu of, the Condensed Consolidated Statements of Operations prepared in accordance with GAAP.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Fee related earnings (“FRE”) is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it excludes performance income, performance related compensation, investment income from the Consolidated Funds and non-consolidated funds and certain other items that the Company believes are not indicative of its core operating performance.

Realized income (“RI”) is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from income before taxes by excluding (a) operating results of the Consolidated Funds, (b) depreciation and amortization expense, (c) the effects of changes arising from corporate actions, (d) unrealized gains and losses related to performance income and investment performance and (e) certain other items that the Company believes are not indicative of operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital activities, underwriting costs and expenses incurred in connection with corporate reorganization. Management believes RI is a more appropriate metric to evaluate the Company's current business operations.

Management makes operating decisions and assesses the performance of each of the Company’s business segments based on financial and operating metrics and other data that is presented before giving effect to the consolidation of any of the Consolidated Funds. Consequently, all segment data excludes the assets, liabilities and operating results related to the Consolidated Funds and non-consolidated funds.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables present the financial results for the Company’s operating segments, as well as the OMG:


	Three months ended September 30, 2021
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	271,591	$	69,591	$	55,160	$	41,064	16,544		$	453,950	$	—	$	453,950
Other fees	5,798		370		3,681		—		2		9,851		3,446		13,297
Compensation and benefits	(86,502)		(26,773)		(29,160)		(11,955)		(5,316)		(159,706)		(66,107)		(225,813)
General, administrative and other expenses	(14,930)		(6,238)		(5,420)		(2,593)		(1,774)		(30,955)		(28,142)		(59,097)
Fee related earnings	175,957		36,950		24,261		26,516		9,456		273,140		(90,803)		182,337
Performance income—realized	6,332		34,316		4,693		—		—		45,341		—		45,341
Performance related compensation—realized	(3,079)		(27,483)		(3,166)		—		—		(33,728)		—		(33,728)
Realized net performance income	3,253		6,833		1,527		—		—		11,613		—		11,613
Investment income—realized	618		2,020		1,699		—		1,025		5,362		—		5,362
Interest and other investment income (expense)—realized	4,716		4,861		918		699		163		11,357		(270)		11,087
Interest expense	(2,392)		(2,726)		(1,683)		(427)		(4,135)		(11,363)		(160)		(11,523)
Realized net investment income (loss)	2,942		4,155		934		272		(2,947)		5,356		(430)		4,926
Realized income	$	182,152	$	47,938	$	26,722	$	26,788	$	6,509	$	290,109	$	(91,233)	$	198,876

	Three months ended September 30, 2020
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	208,371	$	54,653	$	23,787	$	—	$	13,320	$	300,131	$	—	$	300,131
Other fees	4,898		2		5		—		6		4,911		—		4,911
Compensation and benefits	(74,373)		(21,224)		(13,011)		—		(4,241)		(112,849)		(41,551)		(154,400)
General, administrative and other expenses	(13,789)		(6,002)		(2,987)		—		(1,514)		(24,292)		(19,519)		(43,811)
Fee related earnings	125,107		27,429		7,794		—		7,571		167,901		(61,070)		106,831
Performance income—realized	7,069		115,997		199		—		—		123,265		—		123,265
Performance related compensation—realized	(4,131)		(93,284)		(123)		—		—		(97,538)		—		(97,538)
Realized net performance income	2,938		22,713		76		—		—		25,727		—		25,727
Investment income—realized	—		16,351		486		—		—		16,837		—		16,837
Interest and other investment income (expense)—realized	1,962		1,065		1,308		—		(4)		4,331		(503)		3,828
Interest expense	(2,340)		(2,216)		(1,389)		—		(729)		(6,674)		(141)		(6,815)
Realized net investment income (loss)	(378)		15,200		405		—		(733)		14,494		(644)		13,850
Realized income	$	127,667	$	65,342	$	8,275	$	—	$	6,838	$	208,122	$	(61,714)	$	146,408

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	Nine months ended September 30, 2021
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	764,702	$	171,019	$	115,602	$	53,962	$	48,963	$	1,154,248	$	—	$	1,154,248
Other fees	18,494		726		4,604		—		82		23,906		3,446		27,352
Compensation and benefits	(252,783)		(73,534)		(60,767)		(16,244)		(15,440)		(418,768)		(158,943)		(577,711)
General, administrative and other expenses	(37,716)		(17,499)		(12,064)		(3,452)		(5,580)		(76,311)		(69,872)		(146,183)
Fee related earnings	492,697		80,712		47,375		34,266		28,025		683,075		(225,369)		457,706
Performance income—realized	78,255		159,479		12,255		—		—		249,989		—		249,989
Performance related compensation—realized	(49,433)		(127,706)		(8,167)		—		—		(185,306)		—		(185,306)
Realized net performance income	28,822		31,773		4,088		—		—		64,683		—		64,683
Investment income—realized	1,858		5,308		4,182		—		1,347		12,695		—		12,695
Interest and other investment income—realized	14,354		10,716		3,892		701		2,824		32,487		170		32,657
Interest expense	(5,372)		(6,032)		(3,930)		(432)		(8,962)		(24,728)		(397)		(25,125)
Realized net investment income (loss)	10,840		9,992		4,144		269		(4,791)		20,454		(227)		20,227
Realized income	$	532,359	$	122,477	$	55,607	$	34,535	$	23,234	$	768,212	$	(225,596)	$	542,616

	Nine months ended September 30, 2020
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total Segments		OMG		Total
Management fees	$	606,596	$	160,206	$	71,459	$	—	$	13,320	$	851,581	$	—	$	851,581
Other fees	12,057		142		716		—		6		12,921		—		12,921
Compensation and benefits	(222,063)		(62,946)		(38,159)		—		(4,241)		(327,409)		(114,916)		(442,325)
General, administrative and other expenses	(41,626)		(16,083)		(9,185)		—		(1,514)		(68,408)		(56,877)		(125,285)
Fee related earnings	354,964		81,319		24,831		—		7,571		468,685		(171,793)		296,892
Performance income—realized	16,085		276,469		27,106		—		—		319,660		—		319,660
Performance related compensation—realized	(12,142)		(222,949)		(17,484)		—		—		(252,575)		—		(252,575)
Realized net performance income	3,943		53,520		9,622		—		—		67,085		—		67,085
Investment income (loss)—realized	(843)		35,866		2,740		—		—		37,763		(5,698)		32,065
Interest and other investment income (expense)—realized	13,166		2,364		3,024		—		(4)		18,550		(588)		17,962
Interest expense	(6,391)		(6,106)		(3,715)		—		(729)		(16,941)		(1,262)		(18,203)
Realized net investment income (loss)	5,932		32,124		2,049		—		(733)		39,372		(7,548)		31,824
Realized income	$	364,839	$	166,963	$	36,502	$	—	$	6,838	$	575,142	$	(179,341)	$	395,801

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

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


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Segment revenues
Management fees	$	453,950	$	300,131	$	1,154,248	$	851,581
Other fees	9,851		4,911		23,906		12,921
Performance income—realized	45,341		123,265		249,989		319,660
Total segment revenues	$	509,142	$	428,307	$	1,428,143	$	1,184,162
Segment expenses
Compensation and benefits	$	159,706	$	112,849	$	418,768	$	327,409
General, administrative and other expenses	30,955		24,292		76,311		68,408
Performance related compensation—realized	33,728		97,538		185,306		252,575
Total segment expenses	$	224,389	$	234,679	$	680,385	$	648,392
Segment realized net investment income
Investment income—realized	$	5,362	$	16,837	$	12,695	$	37,763
Interest and other investment income —realized	11,357		4,331		32,487		18,550
Interest expense	(11,363)		(6,674)		(24,728)		(16,941)
Total segment realized net investment income	$	5,356	$	14,494	$	20,454	$	39,372

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


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Total consolidated revenue	$	948,719	$	489,866	$	2,901,926	$	1,106,033
Performance (income) loss—unrealized	(415,317)		(52,488)		(1,381,697)		77,866
Management fees of Consolidated Funds eliminated in consolidation	11,051		11,719		33,416		33,601

Incentive fees of Consolidated Funds eliminated in consolidation	—		—		1,528		(70)
Administrative, transaction and other fees of Consolidated Funds eliminated in consolidation	4,264		4,448		13,157		12,249
Administrative fees(1)	(15,632)		(9,216)		(34,754)		(27,715)
OMG revenue	(3,446)		—		(3,446)		—
Performance income (loss) reclass(2)	680		(291)		1,285		(3,664)
Principal investment income, net of eliminations	(14,250)		(11,408)		(86,477)		(8,330)
Net income of non-controlling interests in consolidated subsidiaries	(6,927)		(4,323)		(16,795)		(5,808)
Total consolidation adjustments and reconciling items	(439,577)		(61,559)		(1,473,783)		78,129
Total segment revenue	$	509,142	$	428,307	$	1,428,143	$	1,184,162

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

(2)Related to performance income for AREA Sponsor Holdings LLC, an investment pool. Changes in value of this investment are reflected within net realized and unrealized gains (losses) on investments in the Company’s Condensed Consolidated Statements of Operations.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table reconciles the Company's consolidated expenses to segment expenses:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Total consolidated expenses	$	813,267	$	392,580	$	2,363,108	$	958,106
Performance related compensation-unrealized	(296,044)		(24,818)		(1,022,393)		61,010
Expenses of Consolidated Funds added in consolidation	(23,206)		(17,737)		(66,653)		(50,237)
Expenses of Consolidated Funds eliminated in consolidation	11,102		11,718		35,078		33,531
Administrative fees(1)	(15,632)		(9,216)		(34,754)		(27,715)
OMG expenses	(94,249)		(61,070)		(228,815)		(171,793)
Acquisition and merger-related expense	(754)		(3,474)		(18,364)		(9,430)
Equity compensation expense	(65,991)		(30,336)		(191,144)		(91,576)
Acquisition-related compensation expense(2)	(28,194)		—		(32,824)		—
Deferred placement fees	(32,413)		(2,942)		(33,740)		(18,677)
Depreciation and amortization expense	(36,668)		(14,336)		(71,742)		(26,197)

Expense of non-controlling interests in consolidated subsidiaries	(6,829)		(5,690)		(17,372)		(8,630)
Total consolidation adjustments and reconciling items	(588,878)		(157,901)		(1,682,723)		(309,714)
Total segment expenses	$	224,389	$	234,679	$	680,385	$	648,392

(2)Represents compensation expense associated with contingent obligations recorded in connection with the Landmark Acquisition and the Black Creek Acquisition and is presented in compensation and benefits in the Company’s Condensed Consolidated Statements of Operations.

The following table reconciles the Company's consolidated other income to segment realized net investment income:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Total consolidated other income (expense)	$	111,536	$	62,355	$	218,011	$	(43,602)
Investment (income) loss—unrealized	(3,609)		1,479		(60,588)		83,369
Interest and other investment (income) loss—unrealized	(1,405)		(1,390)		3,057		(10,330)
Other (income) loss from Consolidated Funds added in consolidation, net	(76,287)		(68,132)		(178,195)		20,719
Other expense from Consolidated Funds eliminated in consolidation, net	(4,973)		(3,470)		(13,783)		(11,478)
OMG other (income) expense	37		(1,820)		646		(781)
Performance (income) loss reclass(1)	(680)		291		(1,285)		3,664
Principal investment income (loss)	20,719		18,080		96,448		(24,951)
Other (income) expense, net	(34,812)		9,534		(34,666)		9,903
Other (income) loss of non-controlling interests in consolidated subsidiaries	(5,170)		(2,433)		(9,191)		12,859
Total consolidation adjustments and reconciling items	(106,180)		(47,861)		(197,557)		82,974
Total segment realized net investment income	$	5,356	$	14,494	$	20,454	$	39,372

(1)Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within net realized and unrealized gains (losses) on investments in the Company’s Condensed Consolidated Statements of Operations.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the reconciliation of income before taxes as reported in the Condensed Consolidated Statements of Operations to segment results of RI and FRE:


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Income before taxes	$	246,988	$	159,641	$	756,829	$	104,325
Adjustments:
Depreciation and amortization expense	36,668		14,336		71,742		26,197
Equity compensation expense	65,991		30,336		191,144		91,576
Acquisition-related compensation expense(1)	28,194		—		32,824		—
Acquisition and merger-related expense	7,967		3,490		26,188		9,815
Deferred placement fees	32,413		2,942		33,740		18,677
OMG expense, net	90,840		59,250		226,015		171,012
Other (income) expense, net	(42,025)		9,518		(42,490)		9,518
Net (income) expense of non-controlling interests in consolidated subsidiaries	(5,268)		(1,066)		(8,614)		15,681
(Income) loss before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(47,372)		(42,744)		(102,331)		38,446
Total performance (income) loss—unrealized	(415,317)		(52,488)		(1,381,697)		77,866
Total performance related compensation—unrealized	296,044		24,818		1,022,393		(61,010)
Total investment (income) loss—unrealized	(5,014)		89		(57,531)		73,039
Realized income	290,109		208,122		768,212		575,142
Total performance income—realized	(45,341)		(123,265)		(249,989)		(319,660)
Total performance related compensation—realized	33,728		97,538		185,306		252,575
Total investment income—realized	(5,356)		(14,494)		(20,454)		(39,372)
Fee related earnings	$	273,140	$	167,901	$	683,075	$	468,685

(1)Represents compensation expense associated with contingent obligations recorded in connection with the Landmark Acquisition and the Black Creek Acquisition and is presented in compensation and benefits in the Company’s Condensed Consolidated Statements of Operations.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

16. CONSOLIDATION

Investments in Consolidated Variable Interest Entities

The Company consolidates entities in which the Company has a variable interest and as the general partner or investment manager, has both the power to direct the most significant activities and a potentially significant economic interest. Investments in the consolidated VIEs are reported at fair value and represent the Company’s maximum exposure to loss.

Investments in Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated as the Company is not the primary beneficiary. The Company's interest in such entities generally is in the form of direct equity interests, fixed fee arrangements or both. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities. Investments in the non-consolidated VIEs are carried at fair value.

The Company's interests in consolidated and non-consolidated VIEs, as presented in the Condensed Consolidated Statements of Financial Condition, and its respective maximum exposure to loss relating to non-consolidated VIEs are as follows:


	As of September 30,		As of December 31,

	2021		2020
Maximum exposure to loss attributable to the Company's investment in non-consolidated VIEs(1)	$	340,988	$	224,203
Maximum exposure to loss attributable to the Company's investment in consolidated VIEs(1)	478,164		391,963
Assets of consolidated VIEs	12,190,617		11,580,003
Liabilities of consolidated VIEs	11,238,928		10,716,438

(1)As of September 30, 2021 and December 31, 2020, the Company's maximum exposure of loss for CLO securities was equal to the cumulative fair value of our capital interest in CLOs that are managed and totaled $104.4 million and $107.7 million, respectively.


	Three months ended September 30,				Nine months ended September 30,
	2021		2020		2021		2020
Net income (loss) attributable to non-controlling interests related to consolidated VIEs	$	38,597	$	42,627	$	84,285	$	(38,593)

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Consolidating Schedules

The following supplemental financial information illustrates the consolidating effects of the Consolidated Funds on the Company's financial condition, results from operations and cash flows:


	As of September 30, 2021
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Assets
Cash and cash equivalents	$	295,704	$	—	$	—	$	295,704
Investments (includes $2,625,319 of accrued carried interest)	3,804,023		—		(481,358)		3,322,665
Due from affiliates	517,504		—		(24,093)		493,411
Other assets	1,006,870		—		—		1,006,870
Intangible assets, net	1,452,690		—		—		1,452,690
Right-of-use operating lease assets	176,511		—		—		176,511
Assets of Consolidated Funds
Cash and cash equivalents	—		1,581,433		—		1,581,433
U.S. Treasury securities, at fair value	—		1,000,165		—		1,000,165
Investments, at fair value	—		10,356,640		4,214		10,360,854
Due from affiliates	—		19,089		(10,030)		9,059
Receivable for securities sold	—		187,230		—		187,230
Other assets	—		47,806		—		47,806
Total assets	$	7,253,302	$	13,192,363	$	(511,267)	$	19,934,398
Liabilities
Accounts payable, accrued expenses and other liabilities	$	218,171	$	—	$	(10,030)	$	208,141
Accrued compensation	309,569		—		—		309,569
Due to affiliates	202,438		—		—		202,438
Performance related compensation payable	1,895,343		—		—		1,895,343
Debt obligations	1,238,325		—		—		1,238,325

Operating lease liabilities	214,681		—		—		214,681
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—		102,883		(13,198)		89,685
Due to affiliates	—		19,880		(19,880)		—
Payable for securities purchased	—		863,007		—		863,007
CLO loan obligations, at fair value	—		10,220,040		(45,246)		10,174,794
Fund borrowings	—		99,240		—		99,240
Total liabilities	4,078,527		11,305,050		(88,354)		15,295,223
Commitments and contingencies
Redeemable interest in Consolidated Funds	—		1,000,000		—		1,000,000
Redeemable interest in Ares Operating Group entities	98,649		—		—		98,649
Non-controlling interest in Consolidated Funds	—		887,313		(422,913)		464,400
Non-controlling interest in Ares Operating Group entities	1,322,866		—		—		1,322,866
Stockholders' Equity
Series A Preferred Stock, $0.01 par value, 1,000,000,000 shares authorized (zero shares issued and outstanding)	—		—		—		—
Class A common stock, $0.01 par value, 1,500,000,000 shares authorized (167,581,165 shares issued and outstanding)	1,676		—		—		1,676
Non-voting common stock, $0.01 par value, 500,000,000 shares authorized (3,489,911 shares issued and outstanding)	35		—		—		35
Class B common stock, $0.01 par value, 1,000 shares authorized (1,000 shares issued and outstanding)	—		—		—		—
Class C common stock, $0.01 par value, 499,999,000 shares authorized (118,803,257 shares issued and outstanding)	1,188		—		—		1,188
Additional paid-in-capital	1,881,913		—		—		1,881,913
Retained earnings	(128,981)		—		—		(128,981)
Accumulated other comprehensive loss, net of tax	(2,571)		—		—		(2,571)
Total stockholders' equity	1,753,260		—		—		1,753,260
Total equity	3,076,126		887,313		(422,913)		3,540,526
Total liabilities, redeemable interest, non-controlling interests and equity	$	7,253,302	$	13,192,363	$	(511,267)	$	19,934,398

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	As of December 31, 2020
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Assets
Cash and cash equivalents	$	539,812	$	—	$	—	$	539,812
Investments (includes $1,145,853 of accrued carried interest)	2,064,517		—		(381,758)		1,682,759
Due from affiliates	426,021		—		(20,134)		405,887
Other assets	590,543		—		(211)		590,332
Intangible assets, net	222,087		—		—		222,087
Right-of-use operating lease assets	154,742		—		—		154,742
Assets of Consolidated Funds
Cash and cash equivalents	—		522,377		—		522,377
Investments, at fair value	—		10,873,522		3,575		10,877,097
Due from affiliates	—		27,377		(10,205)		17,172
Receivable for securities sold	—		121,225		—		121,225
Other assets	—		35,502		—		35,502
Total assets	$	3,997,722	$	11,580,003	$	(408,733)	$	15,168,992
Liabilities
Accounts payable, accrued expenses and other liabilities	$	125,494	$	—	$	(10,205)	$	115,289
Accrued compensation	103,010		—		—		103,010
Due to affiliates	100,186		—		—		100,186
Performance related compensation payable	813,378		—		—		813,378
Debt obligations	642,998		—		—		642,998
Operating lease liabilities	180,236		—		—		180,236
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—		46,824		—		46,824
Due to affiliates	—		16,770		(16,770)		—
Payable for securities purchased	—		514,946		—		514,946
CLO loan obligations	—		10,015,989		(57,913)		9,958,076
Fund borrowings	—		121,909		—		121,909
Total liabilities	1,965,302		10,716,438		(84,888)		12,596,852
Commitments and contingencies
Redeemable interest in Ares Operating Group entities	100,366		—		—		100,366
Non-controlling interest in Consolidated Funds	—		863,565		(323,845)		539,720
Non-controlling interest in Ares Operating Group entities	738,369		—		—		738,369
Stockholders' Equity
Series A Preferred Stock, $0.01 par value, 1,000,000,000 shares authorized (12,400,000 shares issued and outstanding)	298,761		—		—		298,761
Class A common stock, $0.01 par value, 1,500,000,000 shares authorized (147,182,562 shares issued and outstanding)	1,472		—		—		1,472
Class B common stock, $0.01 par value, 1,000 shares authorized (1,000 shares issued and outstanding)	—		—		—		—
Class C common stock, $0.01 par value, 499,999,000 shares authorized (112,447,618 share issued and outstanding)	1,124		—		—		1,124
Additional paid-in-capital	1,043,669		—		—		1,043,669
Retained earnings	(151,824)		—		—		(151,824)
Accumulated other comprehensive income, net of tax	483		—		—		483
Total stockholders' equity	1,193,685		—		—		1,193,685
Total equity	1,932,054		863,565		(323,845)		2,471,774
Total liabilities, redeemable interest, non-controlling interests and equity	$	3,997,722	$	11,580,003	$	(408,733)	$	15,168,992

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	Three months ended September 30, 2021
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Revenues
Management fees	$	459,313	$	—	$	(11,051)	$	448,262
Carried interest allocation	460,651		—		—		460,651
Incentive fees	696		—		—		696
Principal investment income	20,719		—		(6,469)		14,250
Administrative, transaction and other fees	29,124		—		(4,264)		24,860
Total revenues	970,503		—		(21,784)		948,719
Expenses
Compensation and benefits	335,569		—		—		335,569
Performance related compensation	331,141		—		—		331,141
General, administrative and other expense	134,453		—		—		134,453
Expenses of the Consolidated Funds	—		23,206		(11,102)		12,104
Total expenses	801,163		23,206		(11,102)		813,267
Other income (expense)
Net realized and unrealized gains on investments	2,759		—		5,575		8,334
Interest and dividend income	2,702		—		(1,326)		1,376
Interest expense	(11,523)		—		—		(11,523)
Other income, net	36,338		—		316		36,654
Net realized and unrealized gains on investments of the Consolidated Funds	—		36,695		(2,450)		34,245
Interest and other income of the Consolidated Funds	—		104,344		(316)		104,028
Interest expense of the Consolidated Funds	—		(64,752)		3,174		(61,578)
Total other income	30,276		76,287		4,973		111,536
Income before taxes	199,616		53,081		(5,709)		246,988
Income tax expense	30,273		2		—		30,275
Net income	169,343		53,079		(5,709)		216,713

Less: Net income attributable to non-controlling interests in Consolidated Funds	—		53,079		(5,709)		47,370
Net income attributable to Ares Operating Group entities	169,343		—		—		169,343
Less: Net income attributable to redeemable interest in Ares Operating Group entities	324		—		—		324
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	84,293		—		—		84,293



Net income attributable to Ares Management Corporation Class A and non-voting common stockholders	$	84,726	$	—	$	—	$	84,726

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	Three months ended September 30, 2020
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Revenues
Management fees	$	304,153	$	—	$	(11,719)	$	292,434
Carried interest allocation	168,978		—		—		168,978
Incentive fees	7,194		—		—		7,194
Principal investment income	18,080		—		(6,672)		11,408
Administrative, transaction and other fees	14,300		—		(4,448)		9,852
Total revenues	512,705		—		(22,839)		489,866
Expenses
Compensation and benefits	194,267		—		—		194,267
Performance related compensation	122,356		—		—		122,356
General, administrative and other expense	69,938		—		—		69,938
Expenses of the Consolidated Funds	—		17,737		(11,718)		6,019
Total expenses	386,561		17,737		(11,718)		392,580
Other income (expense)
Net realized and unrealized gains (losses) on investments	2,303		—		(4,910)		(2,607)
Interest and dividend income	1,602		—		(258)		1,344
Interest expense	(6,815)		—		—		(6,815)
Other income (expense), net	(6,337)		—		8,540		2,203
Net realized and unrealized gains on investments of the Consolidated Funds	—		9,850		8,121		17,971
Interest and other income of the Consolidated Funds	—		126,100		(9,519)		116,581
Interest expense of the Consolidated Funds	—		(67,818)		1,496		(66,322)
Total other income (expense)	(9,247)		68,132		3,470		62,355
Income before taxes	116,897		50,395		(7,651)		159,641
Income tax expense	18,197		117		—		18,314
Net income	98,700		50,278		(7,651)		141,327

Less: Net income attributable to non-controlling interests in Consolidated Funds	—		50,278		(7,651)		42,627
Net income attributable to Ares Operating Group entities	98,700		—		—		98,700
Less: Net loss attributable to redeemable interest in Ares Operating Group entities	(1,007)		—		—		(1,007)
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	52,162		—		—		52,162
Net income attributable to Ares Management Corporation	47,545		—		—		47,545
Less: Series A Preferred Stock dividends paid	5,425		—		—		5,425
Net income attributable to Ares Management Corporation Class A common stockholders	$	42,120	$	—	$	—	$	42,120

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	Nine months ended September 30, 2021
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Revenues
Management fees	$	1,169,237	$	—	$	(33,416)	$	1,135,821
Carried interest allocation	1,610,707		—		—		1,610,707
Incentive fees	20,948		—		(1,528)		19,420
Principal investment income	96,448		—		(9,971)		86,477
Administrative, transaction and other fees	62,658		—		(13,157)		49,501
Total revenues	2,959,998		—		(58,072)		2,901,926
Expenses
Compensation and benefits	837,108		—		—		837,108
Performance related compensation	1,208,954		—		—		1,208,954
General, administrative and other expense	285,471		—		—		285,471
Expenses of the Consolidated Funds	—		66,653		(35,078)		31,575
Total expenses	2,331,533		66,653		(35,078)		2,363,108
Other income (expense)
Net realized and unrealized gains on investments	10,602		—		8,142		18,744
Interest and dividend income	9,695		—		(2,877)		6,818
Interest expense	(25,125)		—		—		(25,125)
Other income, net	30,861		—		(175)		30,686
Net realized and unrealized gains on investments of the Consolidated Funds	—		46,541		(1,821)		44,720
Interest and other income of the Consolidated Funds	—		333,570		175		333,745
Interest expense of the Consolidated Funds	—		(201,916)		10,339		(191,577)
Total other income	26,033		178,195		13,783		218,011
Income before taxes	654,498		111,542		(9,211)		756,829
Income tax expense	104,411		76		—		104,487
Net income	550,087		111,466		(9,211)		652,342

Less: Net income attributable to non-controlling interests in Consolidated Funds	—		111,466		(9,211)		102,255
Net income attributable to Ares Operating Group entities	550,087		—		—		550,087
Less: Net income attributable to redeemable interest in Ares Operating Group entities	693		—		—		693
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	264,646		—		—		264,646
Net income attributable to Ares Management Corporation	284,748		—		—		284,748
Less: Series A Preferred Stock dividends paid	10,850		—		—		10,850
Less: Series A Preferred Stock redemption premium	11,239		—		—		11,239
Net income attributable to Ares Management Corporation Class A and non-voting common stockholders	$	262,659	$	—	$	—	$	262,659

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	Nine months ended September 30, 2020
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Revenues
Management fees	$	856,751	$	—	$	(33,601)	$	823,150
Carried interest allocation	241,380		—		—		241,380
Incentive fees	4,206		—		70		4,276
Principal investment income (loss)	(24,951)		—		33,281		8,330
Administrative, transaction and other fees	41,146		—		(12,249)		28,897
Total revenues	1,118,532		—		(12,499)		1,106,033
Expenses
Compensation and benefits	559,482		—		—		559,482
Performance related compensation	191,565		—		—		191,565
General, administrative and other expense	190,353		—		—		190,353
Expenses of the Consolidated Funds	—		50,237		(33,531)		16,706
Total expenses	941,400		50,237		(33,531)		958,106
Other income (expense)
Net realized and unrealized losses on investments	(25,360)		—		15,009		(10,351)
Interest and dividend income	8,102		—		(2,990)		5,112
Interest expense	(18,203)		—		—		(18,203)
Other income, net	1,100		—		8,748		9,848
Net realized and unrealized losses on investments of the Consolidated Funds	—		(148,826)		(4,442)		(153,268)
Interest and other income of the Consolidated Funds	—		355,639		(9,519)		346,120
Interest expense of the Consolidated Funds	—		(227,532)		4,672		(222,860)
Total other expense	(34,361)		(20,719)		11,478		(43,602)
Income (loss) before taxes	142,771		(70,956)		32,510		104,325
Income tax expense	21,972		147		—		22,119
Net income (loss)	120,799		(71,103)		32,510		82,206

Less: Net loss attributable to non-controlling interests in Consolidated Funds	—		(71,103)		32,510		(38,593)
Net income attributable to Ares Operating Group entities	120,799		—		—		120,799
Less: Net loss attributable to redeemable interest in Ares Operating Group entities	(1,007)		—		—		(1,007)
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	48,926		—		—		48,926
Net income attributable to Ares Management Corporation	72,880		—		—		72,880
Less: Series A Preferred Stock dividends paid	16,275		—		—		16,275
Net income attributable to Ares Management Corporation Class A common stockholders	$	56,605	$	—	$	—	$	56,605

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	Nine months ended September 30, 2021
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Cash flows from operating activities:
Net income	$	550,087	$	111,466	$	(9,211)	$	652,342
Adjustments to reconcile net income to net cash provided by (used in) operating activities	(28,467)		—		99,600		71,133







Adjustments to reconcile net income to net cash used in operating activities allocable to non-controlling interests in Consolidated Funds	—		(1,697,529)		9,444		(1,688,085)




Cash flows due to changes in operating assets and liabilities	(153,361)		—		3,923		(149,438)





Cash flows due to changes in operating assets and liabilities allocable to redeemable and non-controlling interest in Consolidated Funds	—		343,253		(1,072,956)		(729,703)




Net cash provided by (used in) operating activities	368,259		(1,242,810)		(969,200)		(1,843,751)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements, net of disposals	(15,152)		—		—		(15,152)
Acquisitions, net of cash acquired	(1,057,426)		—		—		(1,057,426)
Net cash used in investing activities	(1,072,578)		—		—		(1,072,578)
Cash flows from financing activities:
Net proceeds from issuance of Class A and non-voting common stock	827,430		—		—		827,430
Proceeds from Credit Facility	468,000		—		—		468,000
Proceeds from subordinated notes	450,000		—		—		450,000
Repayments of Credit Facility	(318,000)		—		—		(318,000)

Dividends and distributions	(438,568)		—		—		(438,568)
Series A Preferred Stock dividends	(10,850)		—		—		(10,850)
Redemption of Series A Preferred Stock	(310,000)		—		—		(310,000)

Stock option exercises	27,409		—		—		27,409
Taxes paid related to net share settlement of equity awards	(221,287)		—		—		(221,287)
Other financing activities	1,976		—		—		1,976
Allocable to redeemable and non-controlling interests in Consolidated Funds:
Contributions from redeemable and non-controlling interests in Consolidated Funds	—		1,027,454		(107,788)		919,666
Distributions to non-controlling interests in Consolidated Funds	—		(102,701)		17,931		(84,770)
Borrowings under loan obligations by Consolidated Funds	—		1,456,887		—		1,456,887
Repayments under loan obligations by Consolidated Funds	—		(74,909)		—		(74,909)
Net cash provided by financing activities	476,110		2,306,731		(89,857)		2,692,984
Effect of exchange rate changes	(15,899)		(4,864)		—		(20,763)
Net change in cash and cash equivalents	(244,108)		1,059,057		(1,059,057)		(244,108)
Cash and cash equivalents, beginning of period	539,812		522,377		(522,377)		539,812
Cash and cash equivalents, end of period	$	295,704	$	1,581,434	$	(1,581,434)	$	295,704
Supplemental disclosure of non-cash financing activities:
Issuance of AOG Units in connection with acquisitions	$	511,069	$	—	$	—	$	511,069

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)


	Nine months ended September 30, 2020
	Consolidated Company Entities		Consolidated Funds		Eliminations		Consolidated
Cash flows from operating activities:
Net income (loss)	$	120,799	$	(71,103)	$	32,510	$	82,206
Adjustments to reconcile net income to net cash provided by operating activities	207,358		—		(22,772)		184,586







Adjustments to reconcile net income to net cash used in operating activities allocable to non-controlling interests in Consolidated Funds	—		(733,607)		(32,792)		(766,399)





Cash flows due to changes in operating assets and liabilities	152,691		—		(6,989)		145,702





Cash flows due to changes in operating assets and liabilities allocable to non-controlling interest in Consolidated Funds	—		105,992		260,375		366,367




Net cash provided by (used in) operating activities	480,848		(698,718)		230,332		12,462
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements, net of disposals	(8,608)		—		—		(8,608)
Cash paid for asset acquisition	(117,829)		—		—		(117,829)
Net cash used in investing activities	(126,437)		—		—		(126,437)
Cash flows from financing activities:
Proceeds from issuance of Class A common stock	383,154		—		—		383,154
Proceeds from Credit Facility	790,000		—		—		790,000
Proceeds from Senior Notes	399,084		—		—		399,084

Repayments of Credit Facility	(860,000)		—		—		(860,000)
Dividends and distributions	(334,957)		—		—		(334,957)
Series A Preferred Stock dividends	(16,275)		—		—		(16,275)

Stock option exercises	78,959		—		—		78,959
Taxes paid related to net share settlement of equity awards	(75,657)		—		—		(75,657)
Other financing activities	(4,137)		—		—		(4,137)
Allocable to non-controlling interests in Consolidated Funds:
Contributions from non-controlling interests in Consolidated Funds	—		138,760		(15,047)		123,713
Distributions to non-controlling interests in Consolidated Funds	—		(195,598)		25,851		(169,747)
Borrowings under loan obligations by Consolidated Funds	—		618,207		—		618,207
Repayments under loan obligations by Consolidated Funds	—		(104,794)		—		(104,794)
Net cash provided by financing activities	360,171		456,575		10,804		827,550
Effect of exchange rate changes	15,786		1,007		—		16,793
Net change in cash and cash equivalents	730,368		(241,137)		241,137		730,368
Cash and cash equivalents, beginning of period	138,384		606,321		(606,321)		138,384
Cash and cash equivalents, end of period	$	868,752	$	365,185	$	(365,185)	$	868,752
Supplemental disclosure of non-cash financing activities
Issuance of Class A common stock in connection with acquisitions	$	305,388	$	—	$	—	$	305,338

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

17. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after September 30, 2021 through the date the condensed consolidated financial statements were issued. During this period, the Company had the following material subsequent events that require disclosure:

In October 2021, the Company's board of directors declared a quarterly dividend of $0.47 per share of Class A and non-voting common stock payable on December 31, 2021 to common stockholders of record at the close of business on December 17, 2021.

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