Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Ares Management Corporation is a Delaware corporation. Unless the context otherwise requires, references to “Ares,” “we,” “us,” “our,” and the “Company” are intended to mean the business and operations of Ares Management Corporation and its consolidated subsidiaries. The following discussion analyzes the financial condition and results of operations of the Company. “Consolidated Funds” refers collectively to certain Ares funds, co-investment entities, CLOs and special purpose acquisition companies that are required under generally accepted accounting principles in the United States (“GAAP”) to be consolidated in our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Additional terms used by the Company are defined in the Glossary and throughout the Management's Discussion and Analysis in this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements of Ares Management Corporation and the related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and the related notes included in the 2020 Annual Report on Form 10-K of Ares Management Corporation and the related notes.

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

Trends Affecting Our Business

We believe that our disciplined investment philosophy across our distinct but complementary investment groups contributes to the stability of our performance throughout market cycles. As of September 30, 2021, approximately 94% of our management fees were derived from perpetual capital vehicles and other long-dated funds. Our funds have a stable base of committed capital enabling us to invest in assets with a long-term focus over different points in a market cycle and to take advantage of market volatility. However, our results of operations, including the fair value of our AUM, are affected by a variety of factors, particularly in the United States and Western Europe, including conditions in the global financial markets and the economic and political environments.

Performance across global capital markets continued its positive trajectory as inflationary concerns and the spread of the COVID-19 Delta variant were overshadowed by improving corporate credit fundamentals and strengthening market demand.

Despite bouts of volatility throughout the quarter, U.S. high yield bonds had positive returns as strong company earnings, declining default rates and moderating primary market activity provided a supportive tailwind in the asset class. Specifically, the ICE BAML High Yield Master II Index, a high yield bond index, returned 0.9% in the quarter and 4.7% in the year-to-date period. Meanwhile, the Credit Suisse Leveraged Loan Index (“CSLLI”), a leveraged loan index, returned 1.1% in the quarter and 4.7% in the year-to-date period. The CSLLI resumed its rally amid ongoing retail inflows, strong CLO origination and lighter issuance. With rising interest rate risk, robust demand for lower quality, lower duration assets continued to provide a supportive technical backdrop in the asset class.

European high yield and leveraged loan markets rallied alongside its U.S. counterparts amid modest corporate earnings, strong economic data prints and a supportive technical backdrop as issuance meaningfully moderated during the quarter. The ICE BAML European Currency High Yield Index returned 0.7% in the quarter and 3.7% in the year-to-date period, while the Credit Suisse Western European Leveraged Loan Index returned 1.0% in the quarter and 3.9% in the year-to-date period.

Global equity markets were relatively flat in performance as supply chain issues, labor shortages, and complications with the COVID-19 Delta variant were prevalent during the quarter. The S&P 500 Index had positive returns of 0.6% in the quarter and 15.9% in the year-to-date period. Whereas the MSCI All Country World ex USA Index returned a negative 3.0% for the quarter and a positive 5.9% for the year-to-date period. Private equity market activity remained robust throughout the quarter as the recovery from the COVID-19 pandemic continued. This activity has extended to the secondaries markets, which continue to be robust across the private equity, real estate and infrastructure strategies during the quarter. The significant level of dry powder and availability of low-rate, competitive debt financing also helped fuel the private equity markets.

With the European and U.S. economies continuing to recover over the quarter, real estate values have continued to increase following declines from the onset of the global pandemic. Certain property types are recovering at an accelerated rate, led by the industrial subsector. Signs of stabilization are beginning to appear for the office subsector as employees return back

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to the office, particularly in the U.S., though the sector has not fully recovered to pre-pandemic levels. The FTSE EPRA/NAREIT Developed Europe and the FTSE NAREIT All Equity REITs indices returned a negative 0.4% and a negative 0.5%, respectively, for the quarter and returned 6.9% and 19.0%, respectively, for the year-to-date period.

Managing Business Performance

Operating Metrics

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

Assets Under Management

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

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The tables below present rollforwards of our total AUM by segment:


($ in millions)	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total AUM
Balance at 6/30/2021	$	167,587	$	30,732	$	19,725	$	19,476	$	10,366	$	247,886
Acquisitions	—		—		13,719		—		—		13,719
Net new par/equity commitments	9,050		1,977		2,077		1,130		213		14,447
Net new debt commitments	5,533		200		250		—		—		5,983
Capital reductions	(381)		(2)		(41)		—		(29)		(453)
Distributions	(944)		(1,491)		(707)		(535)		202		(3,475)
Redemptions	(267)		—		(28)		—		—		(295)
Change in fund value	655		1,280		1,506		672		84		4,197
Balance at 9/30/2021	$	181,233	$	32,696	$	36,501	$	20,743	$	10,836	$	282,009
Average AUM(1)	$	174,412	$	31,715	$	28,114	$	20,110	$	10,601	$	264,952

	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total AUM
Balance at 6/30/2020	$	117,413	$	26,602	$	14,395	$	—	$	—	$	158,410
Acquisitions	—		—		—		—		6,871		6,871
Net new par/equity commitments	10,111		475		26		—		190		10,802
Net new debt commitments	1,701		—		23		—		—		1,724
Capital reductions	(206)		(18)		(186)		—		—		(410)
Distributions	(568)		(1,066)		(161)		—		(122)		(1,917)
Redemptions	(301)		(5)		—		—		—		(306)
Change in fund value	3,078		702		282		—		1		4,063
Balance at 9/30/2020	$	131,228	$	26,690	$	14,379	$	—	6,940		$	179,237
Average AUM(2)	$	124,323	$	26,647	$	14,388	$	—	$	6,906	$	172,264

(1) Represents a two-point average of quarter-end balances for each period.
(2) Represents a two-point average of quarter-end balances for each period; except for Strategic Initiatives, which represents the average calculated using AUM on the date of the SSG Acquisition and the subsequent quarter-end.

	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total AUM
Balance at 12/31/2020	$	145,472	$	27,439	$	14,808	$	—	$	9,261	$	196,980
Acquisitions	—		—		13,719		19,513		—		33,232
Net new par/equity commitments	24,999		2,296		4,745		1,231		1,393		34,664
Net new debt commitments	13,496		200		2,655		—		29		16,380
Capital reductions	(2,491)		(7)		(273)		—		(29)		(2,800)
Distributions	(2,504)		(3,519)		(1,370)		(659)		(178)		(8,230)
Redemptions	(1,242)		—		(35)		—		—		(1,277)
Change in fund value	3,503		6,287		2,252		658		360		13,060
Balance at 9/30/2021	$	181,233	$	32,696	$	36,501	$	20,743	$	10,836	$	282,009
Average AUM(1)	$	161,353	$	29,972	$	22,042	$	19,911	$	10,089	$	243,367

	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total AUM
Balance at 12/31/2019	$	110,543	$	25,166	$	13,207	$	—	$	—	$	148,916
Acquisitions	2,693		—		—		—		6,871		9,564
Net new par/equity commitments	14,257		5,593		1,992		—		190		22,032
Net new debt commitments	5,704		—		287		—		—		5,991
Capital reductions	(350)		(133)		(222)		—		—		(705)
Distributions	(1,905)		(3,293)		(993)		—		(122)		(6,313)
Redemptions	(1,592)		(5)		—		—		—		(1,597)
Change in fund value	1,878		(638)		108		—		1		1,349
Balance at 9/30/2020	$	131,228	$	26,690	$	14,379	$	—	$	6,940	$	179,237
Average AUM(2)	$	117,924	$	25,119	$	14,024	$	—	$	6,906	$	163,973

(1) Represents a four-point average of quarter-end balances for each period, except for Secondary Solutions, which represents the average calculated using AUM on the date of the Landmark Acquisition and on each subsequent quarter-end.
(2) Represents a four-point average of quarter-end balances for each period, except for Strategic Initiatives, which represents the average calculated using AUM on the date of the SSG Acquisition and the subsequent quarter-end.

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


			AUM: $282.0						AUM: $179.2


			FPAUM						AUM not yet paying fees						Non-fee paying(1)(2)

(1) Includes $8.5 billion of AUM of funds from which we indirectly earn management fees as of September 30, 2021 and 2020.

(2) Includes $3.1 billion and $2.2 billion of non-fee paying AUM based on our general partner commitment as of September 30, 2021 and 2020, respectively.

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

Fee Paying Assets Under Management

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

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The tables below present rollforwards of our total FPAUM by segment:


($ in millions)	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total
Balance at 6/30/2021	$	99,588	$	18,732	$	11,817	$	16,927	$	6,621	$	153,685
Acquisitions	—		—		7,155		—		—		7,155
Commitments	2,864		1,751		1,323		278		233		6,449
Subscriptions/deployment/increase in leverage	6,095		576		1,464		7		379		8,521
Capital reductions	(335)		—		—		—		(121)		(456)
Distributions	(1,468)		(809)		(375)		(73)		(273)		(2,998)
Redemptions	(296)		—		(28)		—		—		(324)
Change in fund value	(46)		5		588		83		53		683
Change in fee basis	—		(6)		(5)		(37)		—		(48)
Balance at 9/30/2021	$	106,402	$	20,249	$	21,939	$	17,185	$	6,892	$	172,667
Average FPAUM(1)	$	102,997	$	19,491	$	16,879	$	17,057	$	6,757	$	163,181

	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total
Balance at 6/30/2020	$	78,744	$	17,473	$	9,331	$	—	$	—	$	105,548
Acquisitions	—		—		—		—		4,183		4,183
Commitments	323		210		43		—		—		576
Subscriptions/deployment/increase in leverage	2,152		310		76		—		278		2,816
Capital reductions	(547)		—		(2)		—		(22)		(571)
Distributions	(686)		(219)		(85)		—		(174)		(1,164)
Redemptions	(281)		—		—		—		—		(281)
Change in fund value	1,600		(33)		156		—		—		1,723
Change in fee basis	—		(22)		(86)		—		24		(84)
Balance at 9/30/2020	$	81,305	$	17,719	$	9,433	$	—	$	4,289	$	112,746
Average FPAUM(2)	$	80,027	$	17,596	$	9,383	$	—	$	4,236	$	111,242

(1) Represents a two-point average of quarter-end balances for each period.
(2) Represents a two-point average of quarter-end balances for each period; except for Strategic Initiatives, which represents the average calculated using FPAUM on the date of the SSG Acquisition and the subsequent quarter-end.
	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total
Balance at 12/31/2020	$	88,017	$	21,172	$	10,252	$	—	$	6,596	$	126,037
Acquisitions	—		—		7,155		16,839		—		23,994
Commitments	6,705		2,171		2,885		378		(66)		12,073
Subscriptions/deployment/increase in leverage	17,178		1,843		2,187		9		1,504		22,721
Capital reductions	(1,618)		—		(32)		—		(302)		(1,952)
Distributions	(3,783)		(2,002)		(903)		(73)		(952)		(7,713)
Redemptions	(1,298)		—		(35)		—		—		(1,333)
Change in fund value	1,201		5		567		81		112		1,966
Change in fee basis	—		(2,940)		(137)		(49)		—		(3,126)
Balance at 9/30/2021	$	106,402	$	20,249	$	21,939	$	17,185	$	6,892	$	172,667
Average FPAUM(1)	$	96,407	$	19,670	$	13,708	$	16,984	$	6,684	$	153,453

	Credit Group		Private Equity Group		Real Estate Group		Secondary Solutions Group		Strategic Initiatives		Total
Balance at 12/31/2019	$	71,880	$	17,040	$	7,963	$	—	$	—	$	96,883
Acquisitions	2,596		—		—		—		4,183		6,779
Commitments	2,844		210		1,541		—		—		4,595
Subscriptions/deployment/increase in leverage	9,691		1,330		608		—		278		11,907
Capital reductions	(1,519)		—		(49)		—		(22)		(1,590)
Distributions	(2,866)		(801)		(394)		—		(174)		(4,235)
Redemptions	(1,605)		—		—		—		—		(1,605)
Change in fund value	324		(39)		161		—		—		446
Change in fee basis	(40)		(21)		(397)		—		24		(434)
Balance at 9/30/2020	$	81,305	$	17,719	$	9,433	$	—	$	4,289	$	112,746
Average FPAUM(2)	$	76,922	$	17,313	$	8,987	$	—	$	4,236	$	107,458

(1) Represents a four-point average of quarter-end balances for each period, except for Secondary Solutions, which represents the average calculated using FPAUM on the date of the Landmark Acquisition and on each subsequent quarter-end.
(2) Represents a four-point average of quarter-end balances for each period, except for Strategic Initiatives, which represents the average calculated using FPAUM on the date of the SSG Acquisition and on the subsequent quarter-end.

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


			FPAUM: $172.7						FPAUM: $112.7


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

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

(2)Includes $38.3 billion and $20.3 billion from funds that primarily invest in illiquid strategies as of September 30, 2021 and 2020, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

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

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

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

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

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


			Credit						Private Equity						Real Estate						Secondary Solutions						Strategic Initiatives

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


			Credit						Private Equity						Real Estate						Secondary Solutions						Strategic Initiatives

As of September 30, 2021, AUM not yet paying fees of $55.3 billion could generate approximately $539.4 million in potential incremental annual management fees, of which $488.7 million relates to $50.3 billion of AUM that is available for future deployment. As of September 30, 2020, AUM not yet paying fees of $39.3 billion could have generated approximately $413.3 million in potential incremental annual management fees, of which $386.1 million relates to $36.3 billion of AUM that was available for future deployment.

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Management Fees By Type

We view the duration of funds we manage as a metric to measure the stability of our future management fees. For both the three months ended September 30, 2021 and 2020, 94% of management fees were earned from perpetual capital or long-dated funds. The charts below present the composition of our segment management fees by the initial fund duration:


			Perpetual Capital - Commingled Funds						Perpetual Capital - Managed Accounts						Long-Dated Funds(1)						Other(2)

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

(2) Other primarily represents managed accounts or co-investment vehicles that (i) are not considered long-dated and (ii) do not meet the criteria of perpetual capital.

Fund Performance Metrics

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

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

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

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Consolidation and Deconsolidation of Ares Funds

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

Consolidated Funds represented approximately 5% of our AUM as of September 30, 2021, 3% of our management fees and less than 1% of our carried interest and incentive fees for the nine months ended September 30, 2021. As of September 30, 2021, we consolidated 22 CLOs, 10 private funds and one SPAC, and as of September 30, 2020, we consolidated 21 CLOs and seven private funds.

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

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

We generally deconsolidate funds and CLOs when we are no longer deemed to have a controlling interest in the entity. During the nine months ended September 30, 2021, we deconsolidated one CLO as a result of significant change in ownership and during the nine months ended September 30, 2020, we deconsolidated one private fund as a result of liquidation/dissolution.

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

For the actual impact that consolidation had on our results and further discussion on consolidation and deconsolidation of funds, see “Note 16. Consolidation” to our condensed consolidated financial statements included herein.

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Results of Operations

Consolidated Results of Operations

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



	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Revenues
Management fees	$	448,262	$	292,434	$	155,828	53%	$	1,135,821	$	823,150	$	312,671	38	%
Carried interest allocation	460,651		168,978		291,673		173	1,610,707		241,380		1,369,327		NM
Incentive fees	696		7,194		(6,498)		(90)	19,420		4,276		15,144		NM
Principal investment income	14,250		11,408		2,842		25	86,477		8,330		78,147		NM
Administrative, transaction and other fees	24,860		9,852		15,008		152	49,501		28,897		20,604		71
Total revenues	948,719		489,866		458,853		94	2,901,926		1,106,033		1,795,893		162
Expenses
Compensation and benefits	335,569		194,267		(141,302)		(73)	837,108		559,482		(277,626)		(50)
Performance related compensation	331,141		122,356		(208,785)		(171)	1,208,954		191,565		(1,017,389)		NM
General, administrative and other expenses	134,453		69,938		(64,515)		(92)	285,471		190,353		(95,118)		(50)

Expenses of Consolidated Funds	12,104		6,019		(6,085)		(101)	31,575		16,706		(14,869)		(89)
Total expenses	813,267		392,580		(420,687)		(107)	2,363,108		958,106		(1,405,002)		(147)
Other income (expense)
Net realized and unrealized gains (losses) on investments	8,334		(2,607)		10,941		NM	18,744		(10,351)		29,095		NM
Interest and dividend income	1,376		1,344		32		2	6,818		5,112		1,706		33
Interest expense	(11,523)		(6,815)		(4,708)		(69)	(25,125)		(18,203)		(6,922)		(38)
Other income, net	36,654		2,203		34,451		NM	30,686		9,848		20,838		212
Net realized and unrealized gains (losses) on investments of Consolidated Funds	34,245		17,971		16,274		91	44,720		(153,268)		197,988		NM
Interest and other income of Consolidated Funds	104,028		116,581		(12,553)		(11)	333,745		346,120		(12,375)		(4)
Interest expense of Consolidated Funds	(61,578)		(66,322)		4,744		7	(191,577)		(222,860)		31,283		14
Total other income (expense)	111,536		62,355		49,181		79	218,011		(43,602)		261,613		NM
Income before taxes	246,988		159,641		87,347		55	756,829		104,325		652,504		NM
Income tax expense	30,275		18,314		(11,961)		(65)	104,487		22,119		(82,368)		NM
Net income	216,713		141,327		75,386		53	652,342		82,206		570,136		NM

Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds	47,370		42,627		4,743		11	102,255		(38,593)		140,848		NM
Net income attributable to Ares Operating Group entities	169,343		98,700		70,643		72	550,087		120,799		429,288		NM
Less: Net income (loss) attributable to redeemable interest in Ares Operating Group entities	324		(1,007)		1,331		NM	693		(1,007)		1,700		NM
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	84,293		52,162		32,131		62	264,646		48,926		215,720		NM
Net income attributable to Ares Management Corporation	84,726		47,545		37,181		78	284,748		72,880		211,868		291
Less: Series A Preferred Stock dividends paid	—		5,425		(5,425)		(100)	10,850		16,275		(5,425)		(33)
Less: Series A Preferred Stock redemption premium	—		—		—		—	11,239		—		(11,239)		NM
Net income attributable to Ares Management Corporation Class A and non-voting common stockholders	$	84,726	$	42,120	42,606		101	$	262,659	$	56,605	206,054		NM

NM - Not Meaningful

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Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

Consolidated Results of Operations of the Company

Management Fees. Management fees increased by $155.8 million, or 53%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $312.7 million, or 38%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by higher FPAUM from capital deployment in direct lending funds. Management fees also increased by $17.9 million for the three and nine month periods in connection with the Black Creek Acquisition that was completed on July 1, 2021. In addition, the Landmark Acquisition was completed on June 2, 2021 and contributed $41.1 million and $54.0 million for the three and nine months ended September 30, 2021, respectively. For detail regarding the fluctuations of management fees within each of our segments see “—Results of Operations by Segment.”

Carried Interest Allocation. Carried interest allocation increased by $291.7 million, or 173%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $1,369.3 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The activity was principally composed of the following:


($ in millions)	Three months ended September 30, 2021		Primary Drivers	Three months ended September 30, 2020		Primary Drivers
Credit funds	$	92.6	Primarily from four direct lending funds and one alternative credit fund with $16.1 billion of IGAUM generating returns in excess of their hurdle rates. Ares Private Credit Solutions, L.P. (“PCS”) and Ares Capital Europe IV L.P. (“ACE IV”) generated carried interest allocation of $11.7 million and $27.5 million, respectively. Ares Capital Europe V L.P. (“ACE V”) also generated $18.0 million of carried interest allocation. The carried interest allocation generated by these funds was driven by net investment income on an increasing invested capital base. Ares Capital Europe III, L.P. (“ACE III”) generated carried interest allocation of $10.5 million driven by net investment income during the period. Ares Pathfinder Fund, L.P. (“Pathfinder”) generated carried interest allocation of $16.0 million that was driven by market appreciation of various investments.	$	62.9	Primarily from three direct lending funds and one alternative credit fund with $10.5 billion of IGAUM generating returns in excess of their hurdle rates. PCS and ACE IV generated carried interest allocation of $19.4 million and $17.6 million, respectively, that was driven by net investment income on an increasing invested capital base. Pathfinder generated carried interest allocation of $9.7 million primarily driven by net investment income during the period. ACE III generated carried interest allocation of $9.4 million primarily due to a partial recovery of unrealized losses related to market volatility driven by the COVID-19 pandemic.
Private equity funds	227.2		Market appreciation across several portfolio company investments, primarily operating in the services and technology, retail and healthcare industries, generated carried interest allocation of $141.5 million from Ares Corporate Opportunities V, L.P. (“ACOF V”), $72.5 million from Ares Special Opportunities Fund, L.P. (“ASOF”) and $16.9 million from Ares Corporate Opportunities VI, L.P. (“ACOF VI”). Market depreciation across several investments led to a reversal of carried interest allocation for Ares Corporate Opportunities Fund IV, L.P. (“ACOF IV”) of $6.9 million, primarily due to a lower stock price for The AZEK Company (“AZEK”), and Ares Energy Investors Fund V, L.P. (“EIF V”) of $7.1 million primarily due to a decrease in value of certain energy investments.	82.0		ACOF IV generated carried interest allocation of $43.7 million primarily driven by market appreciation of its investment in AZEK following its initial public offering. In addition, market appreciation across several investments generated carried interest allocation of $24.2 million for ASOF. The market appreciation was driven by the recovery of investment valuations from the market lows from the COVID-19 pandemic.
Real estate funds	103.5		Market appreciation from properties within real estate equity funds, primarily driven by gains generated across several industrial and multi-family assets, generated carried interest allocation of $11.5 million from US Real Estate Fund VIII, L.P. (“US VIII”), $35.8 million from US Real Estate Fund IX, L.P. ("US IX"), $12.7 million from Ares U.S. Real Estate Opportunity Fund III, L.P. (“AREOF III”), $11.0 million from Ares European Real Estate Fund IV, L.P. ("EF IV") and $13.8 million from Ares European Real Estate Fund V SCSp. ("EF V").	24.1		Market appreciation from properties within real estate equity funds that was driven by the recovery of valuations from the market lows from the COVID-19 pandemic, primarily from two of our U.S. real estate equity funds and EF IV in the amount of $9.1 million and $11.2 million, respectively.
Secondary solutions funds	37.7		Market appreciation of certain investments held in Landmark Equity Partners XVI, L.P. (“LEP XVI”) and Landmark Real Estate Partners VIII, L.P. (“LREP VIII”) that generated carried interest allocation of $14.1 million and $17.3 million, respectively.	—		N/A
Strategic initiatives funds	(0.4)		Reversal driven by the market influence of residential housing lending in Asia on certain investments held in Ares SSG Secured Lending Opportunities III, L.P. ("SLO III").	—		N/A
Carried interest allocation	$	460.6		$	169.0

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($ in millions)	Nine months ended September 30, 2021		Primary Drivers	Nine months ended September 30, 2020		Primary Drivers
Credit funds	$	292.8	Primarily from four direct lending funds and one alternative credit fund with $16.1 billion of IGAUM generating returns in excess of their hurdle rates. PCS and ACE IV generated carried interest allocation of $45.3 million and $84.7 million, respectively. ACE V also generated carried interest allocation of $32.5 million. The carried interest allocation generated by these funds was driven by net investment income on an increasing invested capital base. ACE III generated carried interest allocation of $36.4 million primarily driven by net investment income during the period. In addition, Pathfinder generated carried interest allocation of $43.3 million that was driven by market appreciation of various investments.	$	77.9	Primarily from two direct lending funds and one alternative credit fund with $8.0 billion of IGAUM generating returns in excess of their hurdle rates. PCS and ACE IV generated carried interest allocation of $25.7 million and $34.1 million, respectively, driven by net investment income on an increasing invested capital base that was partially offset by net unrealized losses on investments that were primarily incurred during the first quarter of 2020 due to the market volatility driven by the COVID-19 pandemic. Pathfinder generated carried interest allocation of $10.1 million primarily driven by net investment income during the period.
Private equity funds	992.0		ACOF IV generated carried interest allocation of $171.1 million primarily due to market appreciation of its investment in AZEK driven by its higher stock price. In addition, market appreciation across several portfolio company investments, primarily operating in the services and technology, retail and healthcare industries, generated carried interest allocation of $532.2 million from ACOF V, $192.4 million from ASOF and $63.9 million from ACOF VI.	152.6		ACOF IV generated carried interest allocation of $199.7 million primarily due to market appreciation of its investment in AZEK following its initial public offering. In addition, market appreciation across several investments generated carried interest allocation of $53.1 million for ASOF. Market depreciation across several investments led to the reversal of unrealized carried interest allocation of $75.1 million for ACOF V and $27.4 million for Ares Energy Opportunities Fund, L.P. ("AEOF"). The market depreciation for investments of these funds was driven by depressed prices in the energy market.
Real estate funds	226.9		Market appreciation from properties within real estate equity funds, primarily driven by gains generated across several industrial and multi-family assets, generated carried interest allocation of $33.1 million from US VIII, $61.6 million from US IX, $17.5 million from AREOF III, $10.9 million from EF IV and $61.3 million from EF V.	10.9		Market appreciation from properties within real estate equity funds that was driven by the recovery of valuations from the market lows from the COVID-19 pandemic. In addition, there were gains generated in multiple funds resulting from the sale of a pan-European logistics portfolio at a higher price than the December 31, 2019 price. This activity was offset by net market depreciation that led to the reversal of unrealized carried interest allocation, primarily from US IX and EF IV in the amount of $6.8 million and $4.6 million, respectively.
Secondary solutions funds	98.9		Market appreciation of certain investments held in LEP XVI and LREP VIII that generated carried interest allocation of $54.6 million and $26.1 million, respectively.	—		N/A
Strategic initiatives funds	0.1		Market appreciation of certain investments held in SLO III.	—		N/A
Carried interest allocation	$	1,610.7		$	241.4

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Incentive Fees. Incentive fees decreased by $6.5 million, or 90%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and increased by $15.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The activity was principally composed of the following:


($ in millions)	Three months ended September 30, 2021		Primary Drivers	Three months ended September 30, 2020		Primary Drivers
Credit funds	$	0.1	Incentive fees that crystallized during the period from one alternative credit fund.	$	7.2	Incentive fees that crystallized during the period from one alternative credit fund.
Real estate funds	0.6		Incentive fees generated from ACRE.	—		No activity.
Incentive fees	$	0.7		$	7.2

($ in millions)	Nine months ended September 30, 2021		Primary Drivers	Nine months ended September 30, 2020		Primary Drivers
Credit funds	$	17.5	Incentive fees that crystallized during the period from one alternative credit fund and from one CLO as a result of restructuring activity.	$	4.0	Incentive fees that crystallized during the period from one alternative credit fund, partially offset by a one-time reversal of incentive fees following management's decision to extend the measurement period after the fees were crystallized.
Real estate funds	1.9		Incentive fees generated from ACRE.	0.3		Incentive fees generated from ACRE.
Incentive fees	$	19.4		$	4.3

Principal Investment Income. Principal investment income increased by $2.8 million, or 25%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $78.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The activity for the three months ended September 30, 2021 was driven by market appreciation of several investments in funds within our private equity secondaries, real estate secondaries and special opportunities strategies. The activity for the nine months ended September 30, 2021 was primarily driven by market appreciation of various investments within our corporate private equity extended value fund, ACOF VI and within our private equity secondaries, real estate secondaries and special opportunities strategies. The COVID-19 pandemic caused extreme volatility during 2020. The global equity and credit markets experienced significant downturns in the first quarter of 2020 that were followed by a recovery in the second and third quarters of 2020.

Administrative, Transaction and Other Fees. Administrative, transaction and other fees increased by $15.0 million, or 152%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $20.6 million, or 71%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily due to new fee streams following the completion of the Black Creek Acquisition. Black Creek serves as an integrated property development and real estate investment management specialist, generating various property-related fees, such as acquisition, development and property management, and the distribution of shares in our non-traded REITs. These fees collectively contributed $6.0 million for the three and nine months ended September 30, 2021. We also earn fees from the Black Creek funds that we manage for administrative and other services, which contributed $5.3 million for the three and nine months ended September 30, 2021. Separately, administrative fees from private funds increased by $1.2 million and $3.0 million for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, respectively. Certain private credit funds pay administrative fees on invested capital and an increase in deployment resulted in an increase to this fee base. The increase for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was also driven by higher transaction fees for certain funds as a result of increased originations.

Compensation and Benefits. Compensation and benefits increased by $141.3 million, or 73%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $277.6 million, or 50%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by headcount growth to support the expansion of our business, other strategic initiatives and acquisitions, and by higher incentive compensation and equity compensation attributable to improved operating performance and margin expansion from scaling our business. Average headcount for the year-to-date period increased by 25% to 1,674 professionals for the 2021 period from 1,336 professionals for the same period in 2020. Headcount growth attributable to the Landmark Acquisition and Black Creek Acquisition contributed $39.4 million and $45.0 million in recurring employment related costs to the three and nine months ended September 30, 2021, respectively. The performance-based, acquisition-related compensation arrangements

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that were established in connection with the Landmark Acquisition and Black Creek Acquisition also contributed $28.2 million and $32.8 million to the three and nine months ended September 30, 2021, respectively. Compensation and benefits are further driven by an increase in Part I Fees compensation of $7.8 million and $19.6 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020. Part I Fees compensation is driven by Part I Fees revenue earned during the respective periods.

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



	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Non-recurring awards:
Multi-year future grants	$	8,588	$	—	$	(8,588)	—%	$	25,966	$	—	$	(25,966)	—%
Performance-based awards	186		300		114		38	20,499		980		(19,519)		NM
Performance-based awards - accelerated	29,415		—		(29,415)		—	43,426		3,749		(39,677)		NM
Other non-recurring awards	4,397		7,664		3,267		43	16,887		20,236		3,349		17
Total non-recurring awards	42,586		7,964		(34,622)		NM	106,778		24,965		(81,813)		NM
Recurring annual awards:
Discretionary awards	11,986		13,274		1,288		10	47,938		36,709		(11,229)		(31)
Bonus awards	11,419		9,098		(2,321)		(26)	36,428		29,902		(6,526)		(22)
Total recurring annual awards	23,405		22,372		(1,033)		(5)	84,366		66,611		(17,755)		(27)
Equity compensation expense, net	$	65,991	$	30,336	(35,655)		(118)	$	191,144	$	91,576	(99,568)		(109)

Equity compensation expense increased by $35.7 million and by $99.6 million for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, respectively, primarily due to performance-based restricted units granted to certain executive officers in the first quarter of 2021 and to the approval of multi-year future grant awards to these executive officers, as well as to certain other senior leaders, that will be granted during the first quarter of 2022, 2023 and 2024. The 2021 periods included accelerated expense from the performance-based restricted awards from the vesting of Tranche II, III and IV of the performance-based restricted units as a result of meeting the applicable performance condition of $60.00, $65.00 and $75.00 per share, respectively, during the third quarter of 2021 and the vesting of Tranche I as a result of meeting the applicable performance condition of $55.00 per share during the second quarter of 2021. The nine months ended September 30, 2020 also included accelerated expense from the vesting of restricted units granted to our Chief Executive Officer as a result of achieving the applicable performance conditions of $35.00 per share. Additional equity compensation expense was incurred for the three and nine months ended September 30, 2021 from an increase in units awarded as part of the recurring annual award programs.

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

Performance Related Compensation. Performance related compensation increased by $208.8 million, or 171%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $1,017.4 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Changes in performance related compensation are directly associated with the changes in carried interest allocation and incentive fees described above and may include performance allocations to charitable organizations as part of our philanthropic initiatives.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $64.5 million, or 92%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $95.1 million, or 50%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The Landmark Acquisition and Black Creek Acquisition have contributed $31.1 million and $37.9 million in general, administrative and other expenses to the three and nine months ended September 30, 2021, respectively. These expenses were primarily driven by amortization expense of $20.1 million and $26.8 million for the three and nine months ended September 30, 2021, respectively, related to the intangible assets recorded in connection with the Landmark Acquisition during the second quarter of 2021 and the Black Creek Acquisition during the third quarter of 2021. In addition, the SSG Acquisition during the second half of 2020 resulted in an increase in amortization expense of $17.8 million for the nine months ended September 30, 2021 when compared to the same period in 2020.

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Placement fees for the three and nine months ended September 30, 2021 increased by $33.3 million and $22.4 million, respectively, primarily due to new commitments to Ares Private Credit Solutions II, L.P. (“PCS II”) and our second U.S. senior direct lending fund. Certain expenses have also increased during the current period, including occupancy costs to support our growing headcount and information services and information technology to support the expansion of our business. Collectively, these expenses increased by $5.2 million and $10.6 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020. The increase was also driven by higher professional service fees of $4.0 million and $7.4 million, respectively, for the three and nine months ended September 30, 2021, largely as a result of due diligence and legal expenses related to our recent acquisitions and higher recruiting fees to support the expanding platform.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the third quarter of 2021.For the three months ended September 30, 2021, our travel, entertainment and marketing sponsorships expenses increased by $2.3 million when compared to the same period in 2020. We, however, recognized cost savings when comparing the nine months ended September 30, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services and fringe benefits from the modified remote working environment, decreased by $5.8 million for the nine months ended September 30, 2021, when compared to the same period in 2020. These expenses were $18.2 million lower for the nine months ended September 30, 2021 when compared to the pre-pandemic period in 2019, primarily driven by $12.2 million of travel expenses and $2.9 million of marketing expenses.

During the third quarter of 2020, we also recorded $3.8 million in one-time expenses related to expense concessions made to a limited number of funds.

Net Realized and Unrealized Gains (Losses) on Investments. Net realized and unrealized gains (losses) on investments increased from a loss of $2.6 million for the three months ended September 30, 2020 to a gain of $8.3 million for the three months ended September 30, 2021 and from a loss of $10.4 million for the nine months ended September 30, 2020 to a gain of $18.7 million for the nine months ended September 30, 2021. The activity for the three and nine months ended September 30, 2021 was primarily attributable to unrealized gains on certain strategic initiative related investments and on our U.S. CLO investments. The activity for the three months ended September 30, 2020 was primarily attributable to unrealized losses of certain strategic initiative related investments. The unrealized loss was partially offset by unrealized gains from CLO securities due to prices rebounding from the market lows that were driven by the COVID-19 pandemic. The activity for the nine months ended September 30, 2020 was primarily attributable to an unrealized loss from market depreciation of properties held by an investment vehicle in our U.S. real estate equity strategy, to net unrealized losses from CLO securities driven by the COVID-19 pandemic and unrealized losses of certain strategic initiative related investments.

Interest Expense. Interest expense increased by $4.7 million, or 69%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $6.9 million, or 38%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The issuance of the 2051 Subordinated Notes on the last day of the second quarter increased interest expense by $4.7 million for both the three and nine months ended September 30, 2021. The issuance of the 2030 Senior Notes late in the second quarter of 2020 increased interest expense by $6.1 million for the nine months ended September 30, 2021. The increase for the nine months ended September 30, 2020 was partially offset by a lower average outstanding balance of the Credit Facility in the current year period compared to the prior year period.

Other Income, Net. Other income, net increased by $34.5 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $20.8 million, or 212%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Other income, net for the three and nine months ended September 30, 2021 included a $42.3 million bargain purchase gain from the Black Creek Acquisition. The bargain purchase gain resulted from the fair value of the identifiable tangible and intangible assets that we acquired exceeding the purchase consideration. The purchase agreement with Black Creek contains provisions that required us to record a contingent liability that is excluded from purchase consideration as its payment is subject to the continued and future services of senior professionals and advisors. Other income, net also includes the changes in fair value of contingent obligations recognized in connection with the Black Creek Acquisition. For the three and nine months ended September 30, 2021, we recorded $7.2 million in expense for the revaluation of contingent obligations. See “Note 9. Commitments and Contingencies” for a further description of the contingencies.

Other income, net also includes transaction gains (losses) associated with currency fluctuations impacting the revaluation of non-functional currency balances and is based on the fluctuations in currency exchange rates. Transaction gains

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(losses) fluctuated during the nine months ended September 30, 2021 primarily attributable to the British pound strengthening against Euro and creating transaction losses, and the fluctuation during the nine months ended September 30, 2020 was primarily attributable to the British pound weakening against the U.S. dollar and creating transaction gains.

Income Tax Expense Income tax expense increased by $12.0 million, or 65%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $82.4 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The changes in the comparative periods are primarily a result of increases in taxable income and weighted average daily ownership. The weighted average daily ownership for Ares Management Corporation (“AMC”) common stockholders increased from 55.6% and 53.3% for the three and nine months ended September 30, 2020, respectively, to 58.5% and 58.3% for the three and nine months ended September 30, 2021, respectively. The changes in ownership were primarily driven by the issuance of Class A common stock in connection with stock option exercises, vesting of restricted stock awards and private and public offerings of Class A and non-voting common stock. The increase in the weighted average daily ownership for the AMC common stockholders was partially offset by the issuance of AOG Units in connection with the Landmark Acquisition and the Black Creek Acquisition that increased the ownership of AOG Units not held by AMC.

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

Net income (loss) attributable to non-controlling interests in AOG entities is generally allocated based on the weighted average daily ownership of the other AOG unitholders, except for income (loss) generated from certain joint venture partnerships. Net income (loss) is allocated to other strategic distribution partners with whom we have established joint ventures based on the respective ownership percentages and to Crestline Denali Class B membership interests based on the activity of those financial interests. For the three and nine months ended September 30, 2021 and 2020, net income of $1.7 million, $3.4 million, $2.9 million, and net loss of $12.3 million, respectively, was also allocated to the Crestline Denali Class B membership interests related to the gains and losses from those CLO securities held.

Net income attributable to non-controlling interests in AOG entities increased by $32.1 million, or 62%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $215.7 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The changes in the comparative periods are a result of the respective changes in income before taxes and weighted average daily ownership. While income before taxes increased, the weighted average daily ownership for the non-controlling AOG unitholders decreased from 44.4% and 46.7% for the three and nine months ended September 30, 2020, respectively to 41.5% and 41.7% for the three and nine months ended September 30, 2021, respectively.

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Consolidated Results of Operations of the Consolidated Funds

The following table presents the results of operations of the Consolidated Funds:



	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Expenses of the Consolidated Funds	$	(12,104)	$	(6,019)	$	(6,085)	(101)%	$	(31,575)	$	(16,706)	$	(14,869)	(89)%
Net realized and unrealized gains (losses) on investments of Consolidated Funds	34,245		17,971		16,274		91	44,720		(153,268)		197,988		NM
Interest and other income of Consolidated Funds	104,028		116,581		(12,553)		(11)	333,745		346,120		(12,375)		(4)
Interest expense of Consolidated Funds	(61,578)		(66,322)		4,744		7	(191,577)		(222,860)		31,283		14
Income (loss) before taxes	64,591		62,211		2,380		4	155,313		(46,714)		202,027		NM
Income tax expense of Consolidated Funds	(2)		(117)		115		98	(76)		(147)		71		48
Net income (loss)	64,589		62,094		2,495		4	155,237		(46,861)		202,098		NM
Less: Revenues attributable to Ares Management Corporation eliminated upon consolidation	21,784		22,839		(1,055)		(5)	58,072		12,499		45,573		NM
Less: Other expense, net attributable to Ares Management Corporation eliminated upon consolidation	(4,565)		(3,372)		(1,193)		(35)	(5,090)		(20,767)		15,677		75
Net income (loss) attributable to non-controlling interests in Consolidated Funds	$	47,370	$	42,627	4,743		11	$	102,255	$	(38,593)	140,848		NM

NM - Not Meaningful

The results of operations of the Consolidated Funds primarily represents activity from certain CLOs that we are deemed to control. Expenses primarily reflect professional fees that were incurred as a result of debt issuance costs related to the issuance of new, refinanced or restructured CLOs. These fees were expensed in the period incurred, as CLO debt is recorded at fair value on our Consolidated Statements of Financial Condition. For the three and nine months ended September 30, 2021, expenses were driven by professional fees incurred from the issuance of a new U.S. CLO. The nine months ended September 30, 2021 also included the issuance of another new U.S. CLO and the restructure of our European CLO legal entities. For the three and nine months ended September 30, 2020, expenses were primarily driven by the issuance of one European CLO. Net realized and unrealized gains fluctuated for the comparative periods, primarily due to a significant change in the value of loans held by the CLOs. The CSLLI returned 1.1% and 4.7% for the quarter and year-to-date period of 2021 when compared to a 4.1% and negative 0.8% for the quarter and year-to-date period of 2020. The decrease in interest expense was attributable to the lower interest rates from newly issued and refinanced CLOs since the third quarter of 2020.

Revenues and other income (expense) attributable to AMC represents management fees, incentive fees, principal investment income and administrative, transaction and other fees that are attributable to AMC’s proportional share in the activity of the Consolidated Funds and is eliminated from the respective components of AMC's results upon consolidation. The activity for other income (expense) and principal investment income was primarily due to the price fluctuations associated with the COVID-19 pandemic previously mentioned, resulting in a decrease for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and an increase for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Segment Analysis

For segment reporting purposes, revenues and expenses are presented before giving effect to the results of our Consolidated Funds and the results attributable to non-controlling interests of joint ventures that we consolidate. As a result, segment revenues from management fees, performance income and investment income are different than those presented on a consolidated basis in accordance with GAAP. Revenues recognized from Consolidated Funds are eliminated in consolidation and results attributable to the non-controlling interests of joint ventures have been excluded by us. Furthermore, expenses and the effects of other income (expense) are different than related amounts presented on a consolidated basis in accordance with GAAP due to the exclusion of the results of Consolidated Funds and the non-controlling interests of joint ventures.

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Non-GAAP Financial Measures

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

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

These non-GAAP financial measures supplement and should be considered in addition to and not in lieu of, the results of operations, which are discussed further under “—Components of Consolidated Results of Operations” and are prepared in accordance with GAAP. The following table sets forth FRE and RI by reportable segment and OMG:



	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Fee Related Earnings:
Credit Group	$	175,957	$	125,107	$	50,850	41%	$	492,697	$	354,964	$	137,733	39%
Private Equity Group	36,950		27,429		9,521		35	80,712		81,319		(607)		(1)
Real Estate Group	24,261		7,794		16,467		211	47,375		24,831		22,544		91
Secondary Solutions Group	26,516		—		26,516		NM	34,266		—		34,266		NM
Strategic Initiatives	9,456		7,571		1,885		25	28,025		7,571		20,454		270
Operations Management Group	(90,803)		(61,070)		(29,733)		(49)	(225,369)		(171,793)		(53,576)		(31)
Fee Related Earnings	$	182,337	$	106,831	75,506		71	$	457,706	$	296,892	160,814		54
Realized Income:
Credit Group	$	182,152	$	127,667	$	54,485	43%	$	532,359	$	364,839	$	167,520	46%
Private Equity Group	47,938		65,342		(17,404)		(27)	122,477		166,963		(44,486)		(27)
Real Estate Group	26,722		8,275		18,447		223	55,607		36,502		19,105		52
Secondary Solutions Group	26,788		—		26,788		NM	34,535		—		34,535		NM
Strategic Initiatives	6,509		6,838		(329)		(5)	23,234		6,838		16,396		240
Operations Management Group	(91,233)		(61,714)		(29,519)		(48)	(225,596)		(179,341)		(46,255)		(26)
Realized Income	$	198,876	$	146,408	52,468		36	$	542,616	$	395,801	146,815		37

NM - Not Meaningful

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


	Three months ended September 30,				Nine months ended September 30,
($ in thousands)	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
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 net investment (income) loss—unrealized	(5,407)		(2,375)		(57,112)		64,710
Realized Income	198,876		146,408		542,616		395,801
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	(4,926)		(13,850)		(20,227)		(31,824)
Fee Related Earnings	$	182,337	$	106,831	$	457,706	$	296,892

(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.

For the specific components and calculations of these non-GAAP measures, as well as a reconciliation of the reportable segments to the most comparable measures in accordance with GAAP, see “Note 15. Segment Reporting”, to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Discussed below are our results of operations for our reportable segments and OMG.

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Results of Operations by Segment

Credit Group—Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

Fee Related Earnings:

The following table presents the components of the Credit Group's FRE:


	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Management fees	$	271,591	$	208,371	$	63,220	30%	$	764,702	$	606,596	$	158,106	26%
Other fees	5,798		4,898		900		18	18,494		12,057		6,437		53
Compensation and benefits	(86,502)		(74,373)		(12,129)		(16)	(252,783)		(222,063)		(30,720)		(14)
General, administrative and other expenses	(14,930)		(13,789)		(1,141)		(8)	(37,716)		(41,626)		3,910		9
Fee Related Earnings	$	175,957	$	125,107	50,850		41	$	492,697	$	354,964	137,733		39

Management Fees. The chart below presents Credit Group management fees and effective management fee rates:

Management fees on existing direct lending funds increased primarily from deployment of capital with Pathfinder, ACE IV, ACE V and Ares Senior Direct Lending Fund L.P. (“SDL”), collectively generating additional fees of $17.0 million and $43.0 million for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, respectively. Management fees from ARCC, excluding Part I Fees described below, increased by $12.2 million and $22.8 million over the respective periods primarily due to an increase in the average size of ARCC's portfolio. The remaining increases in management fees from funds in existence in both periods was primarily driven by deployment of capital in other direct lending funds and SMAs. Part I Fees increased primarily due to an increase in pre-incentive fee net investment income generated by ARCC and CADC, driven by an increase in originations and in the average size of their portfolios. Management fees from CLOs also increased primarily due to the net addition of six CLOs for the three months ended

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September 30, 2021 compared to the three months ended September 30, 2020 and seven CLOs for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The launch of PCS II and our second U.S. senior direct lending fund also contributed to the increase in management fees, generating fees of $4.0 million and $5.8 million for the three and nine months ended September 30, 2021, respectively.

Other Fees. Other fees increased by $0.9 million, or 18%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and increased by $6.4 million, or 53%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increases were primarily driven by administrative fees from private funds. Certain private credit funds pay administrative fees on invested capital and an increase in deployment resulted in an increase to the fee basis. The increase for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was also driven by higher transaction fees for certain funds as a result of increased originations.

Compensation and Benefits. Compensation and benefits increased by $12.1 million, or 16%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $30.7 million, or 14%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was primarily driven by an increase in Part I Fees compensation of $7.8 million and $19.6 million, by higher incentive compensation attributable to improved operating performance and margin expansion from scaling our business and by headcount growth and merit increases for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020. The increases in compensation and benefits were further driven by increases in payroll related taxes of $4.2 million and $5.4 million for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, respectively, primarily attributable to the vesting of non-recurring equity compensation awards. The increase in salaries and benefits is partially offset by lower discretionary payments made during the nine months ended September 30, 2021 when compared to the same period in 2020.

Average headcount for the year-to-date period increased by 6% to 429 investment and investment support professionals for the 2021 period from 406 professionals for the same period in 2020 as we added additional investment professionals to support our growing U.S. and European direct lending platforms.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $1.1 million, or 8%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and decreased by $3.9 million, or 9%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. In connection with our fundraising efforts, placement fees have increased by $1.8 million and $2.5 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020. The increases were primarily associated with new commitments to PCS II and our second U.S. senior direct lending fund. Certain expenses have also increased during the current period, including information services and information technology to support the expansion of our business. Collectively, these expenses increased by $0.9 million and $1.6 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the third quarter of 2021. For the three months ended September 30, 2021, our travel, entertainment and marketing sponsorships expenses increased by $0.9 million when compared to the same period in 2020. We, however, recognized cost savings when comparing the nine months ended September 30, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services and fringe benefits from the modified remote working environment, decreased by $3.6 million for the nine months ended September 30, 2021, when compared to the same period in 2020.

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

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Realized Income:

The following table presents the components of the Credit Group's RI:


	Three months ended September 30,				Favorable (Unfavorable)				Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Fee Related Earnings	$	175,957	$	125,107	$	50,850	41	%	$	492,697	$	354,964	$	137,733	39	%
Performance income—realized	6,332		7,069		(737)		(10)		78,255		16,085		62,170		NM
Performance related compensation—realized	(3,079)		(4,131)		1,052		25		(49,433)		(12,142)		(37,291)		NM
Realized net performance income	3,253		2,938		315		11		28,822		3,943		24,879		NM
Investment income (loss)—realized	618		—		618		NM		1,858		(843)		2,701		NM
Interest and other investment income—realized	4,716		1,962		2,754		140		14,354		13,166		1,188		9
Interest expense	(2,392)		(2,340)		(52)		(2)		(5,372)		(6,391)		1,019		16
Realized net investment income (loss)	2,942		(378)		3,320		NM		10,840		5,932		4,908		83
Realized Income	$	182,152	$	127,667	54,485		43		$	532,359	$	364,839	167,520		46

NM - Not Meaningful

Realized net performance income for the three and nine months ended September 30, 2021 and 2020 was primarily attributable to tax distributions on direct lending funds with European-style waterfalls, driven by net investment income on an increasing invested capital base of those funds. The tax distributions were made to provide cash sufficient to pay tax liabilities attributable to the funds’ taxable income that is allocated to its carry participants prior to the funds making carried interest distributions. Realized net performance income for the three months ended September 30, 2020 was also attributable to incentive fees for an alternative credit fund that crystallized during the period.

Realized net investment income for the three and nine months ended September 30, 2021 and 2020 was primarily attributable to interest income generated from our CLO investments as well as income recognized in connection with distributions from an alternative credit fund. Realized net investment income for the nine months ended September 30, 2021 also included income recognized in connection with distributions from a commercial finance fund, while the three and nine months ended September 30, 2020 included a term loan investment that generated interest income.

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Credit Group— Carried Interest and Incentive Fees

The following table presents the accrued carried interest and incentive fees receivable, also referred to as accrued performance income, and related performance compensation for the Credit Group:


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


($ in thousands)	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income		Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income
Accrued Carried Interest
ACE III	$	105,850	$	63,510	$	42,340	$	77,959	$	46,776	$	31,183
ACE IV	151,198		93,743		57,455		93,462		57,946		35,516
ACE V	34,929		20,958		13,971		2,435		1,461		974
PCS	130,163		76,768		53,395		101,656		60,084		41,572
Other credit funds	188,874		123,892		64,982		97,803		60,437		37,366
Total accrued carried interest	611,014		378,871		232,143		373,315		226,704		146,611
Incentive fees	1,333		805		528		31,653		18,601		13,052
Total Credit Group	$	612,347	$	379,676	$	232,671	$	404,968	$	245,305	$	159,663

The following table presents the change in accrued carried interest during the period for the Credit Group:












		As of December 31, 2020		Activity during the period						As of September 30, 2021
($ in thousands)	Waterfall Type	Accrued Carried Interest		Change in Unrealized		Realized		Other Adjustments		Accrued Carried Interest
ACE III	European	$	77,959	$	36,443	$	(8,646)	$	94	$	105,850
ACE IV	European	93,462		84,720		(26,984)		—		151,198
ACE V	European	2,435		32,494		—		—		34,929
PCS	European	101,656		45,332		(17,525)		700		130,163
Other credit funds	European	97,545		93,641		(6,089)		3,522		188,619
Other credit funds	American	258		(3)		—		—		255
Total Credit Group		$	373,315	$	292,627	$	(59,244)	$	4,316	$	611,014

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Credit Group—Assets Under Management

The tables below present rollforwards of AUM for the Credit Group:


($ in millions)	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 6/30/2021	$	29,306	$	3,152	$	3,929	$	14,493	$	68,586	$	48,121	$	167,587

Net new par/equity commitments	151		284		427		3,173		3,795		1,220		9,050
Net new debt commitments	1,010		—		100		—		3,670		753		5,533
Capital reductions	(339)		—		—		—		(43)		1		(381)
Distributions	(21)		—		14		(273)		(392)		(272)		(944)
Redemptions	(82)		(81)		(65)		—		(39)		—		(267)
Change in fund value	(90)		36		56		123		776		(246)		655
Balance at 9/30/2021	$	29,935	$	3,391	$	4,461	$	17,516	$	76,353	$	49,577	$	181,233
Average AUM(1)	$	29,621	$	3,272	$	4,195	$	16,005	$	72,470	$	48,849	$	174,412

	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 6/30/2020	$	25,451	$	2,660	$	2,812	$	8,821	$	50,784	$	26,885	$	117,413

Net new par/equity commitments	19		139		1		1,017		139		8,796		10,111
Net new debt commitments	501		—		—		—		1,200		—		1,701
Capital reductions	(38)		—		—		—		(46)		(122)		(206)
Distributions	(19)		—		(7)		(115)		(239)		(188)		(568)
Redemptions	(64)		(213)		(4)		—		(20)		—		(301)
Change in fund value	304		117		111		381		953		1,212		3,078
Balance at 9/30/2020	$	26,154	$	2,703	$	2,913	$	10,104	$	52,771	$	36,583	$	131,228
Average AUM(1)	$	25,803	$	2,682	$	2,863	$	9,463	$	51,778	$	31,734	$	124,323

(1) Represents the quarterly average of beginning and ending balances.

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

Net new par/equity commitments	754		609		1,388		4,968		12,395		4,885		24,999
Net new debt commitments	2,306		—		100		—		7,966		3,124		13,496
Capital reductions	(603)		—		—		—		(1,801)		(87)		(2,491)
Distributions	(81)		—		8		(467)		(1,129)		(835)		(2,504)
Redemptions	(249)		(237)		(206)		(415)		(124)		(11)		(1,242)
Change in fund value	(159)		156		218		533		2,530		225		3,503
Balance at 9/30/2021	$	29,935	$	3,391	$	4,461	$	17,516	$	76,353	$	49,577	$	181,233
Average AUM(1)	$	28,913	$	3,083	$	3,669	$	14,712	$	65,202	$	45,774	$	161,353

	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 12/31/2019	$	22,320	$	3,492	$	2,611	$	7,571	$	48,431	$	26,118	$	110,543
Acquisitions	2,693		—		—		—		—		—		2,693
Net new par/equity commitments	140		367		431		2,874		1,553		8,892		14,257
Net new debt commitments	1,236		—		—		—		3,349		1,119		5,704
Capital reductions	(70)		—		—		—		(128)		(152)		(350)
Distributions	(52)		—		(15)		(299)		(899)		(640)		(1,905)
Redemptions	(241)		(1,093)		(96)		(96)		(66)		—		(1,592)
Change in fund value	128		(63)		(18)		54		531		1,246		1,878
Balance at 9/30/2020	$	26,154	$	2,703	$	2,913	$	10,104	$	52,771	$	36,583	$	131,228
Average AUM(1)	$	24,649	$	2,922	$	2,640	$	8,495	$	50,306	$	28,912	$	117,924

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

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


			AUM: $181.2						AUM: $131.2


						FPAUM						AUM not yet paying fees						Non-fee paying(1)(2)

(1) Includes $8.5 billion of AUM of funds from which we indirectly earn management fees as of September 30, 2021 and 2020.

(2) Includes $1.0 billion and $0.6 billion of non-fee paying AUM based on our general partner commitment as of September 30, 2021 and 2020, respectively.

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Credit Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Credit Group:


($ in millions)	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 6/30/2021	$	28,211	$	3,149	$	3,423	$	7,916	$	36,101	$	20,788	$	99,588

Commitments	1,099		284		514		303		664		—		2,864
Subscriptions/deployment/increase in leverage	19		—		41		391		3,153		2,491		6,095
Capital reductions	(290)		—		—		—		(36)		(9)		(335)
Distributions	(15)		—		(34)		(201)		(1,108)		(110)		(1,468)
Redemptions	(82)		(77)		(61)		—		(40)		(36)		(296)
Change in fund value	(128)		35		53		(90)		390		(306)		(46)

Balance at 9/30/2021	$	28,814	$	3,391	$	3,936	$	8,319	$	39,124	$	22,818	$	106,402
Average FPAUM(1)	$	28,513	$	3,270	$	3,680	$	8,118	$	37,613	$	21,803	$	102,997

	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 6/30/2020	$	24,832	$	2,621	$	2,278	$	5,352	$	28,679	$	14,982	$	78,744

Commitments	9		126		1		48		139		—		323
Subscriptions/deployment/increase in leverage	15		13		7		152		1,699		266		2,152
Capital reductions	(38)		—		—		(227)		(27)		(255)		(547)
Distributions	(13)		—		(10)		(161)		(373)		(129)		(686)
Redemptions	(64)		(185)		(11)		—		(20)		(1)		(281)
Change in fund value	226		116		108		194		468		488		1,600

Balance at 9/30/2020	$	24,967	$	2,691	$	2,373	$	5,358	$	30,565	$	15,351	$	81,305
Average FPAUM(1)	$	24,900	$	2,657	$	2,326	$	5,355	$	29,622	$	15,167	$	80,027

(1) Represents the quarterly average of beginning and ending balances.

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

Commitments	2,265		609		1,194		1,119		1,518		—		6,705
Subscriptions/deployment/increase in leverage	714		—		356		1,694		7,463		6,951		17,178
Capital reductions	(554)		—		(18)		—		(790)		(256)		(1,618)
Distributions	(37)		—		(68)		(441)		(2,656)		(581)		(3,783)
Redemptions	(249)		(234)		(189)		(294)		(99)		(233)		(1,298)
Change in fund value	(496)		155		204		(90)		1,351		77		1,201

Balance at 9/30/2021	$	28,814	$	3,391	$	3,936	$	8,319	$	39,124	$	22,818	$	106,402
Average FPAUM(1)	$	27,749	$	3,082	$	3,162	$	7,403	$	34,966	$	20,045	$	96,407

	Syndicated Loans		High Yield		Multi-Asset Credit		Alternative Credit		U.S. Direct Lending		European Direct Lending		Total Credit Group
Balance at 12/31/2019	$	21,458	$	3,495	$	2,144	$	4,340	$	27,876	$	12,567	$	71,880
Acquisitions	2,596		—		—		—		—		—		2,596
Commitments	1,309		354		379		527		275		—		2,844
Subscriptions/deployment/increase in leverage	15		13		57		1,184		5,220		3,202		9,691
Capital reductions	(89)		—		(59)		(227)		(857)		(287)		(1,519)
Distributions	(39)		—		(31)		(370)		(1,905)		(521)		(2,866)
Redemptions	(241)		(1,065)		(99)		(96)		(65)		(39)		(1,605)
Change in fund value	(42)		(66)		(18)		—		21		429		324
Change in fee basis	—		(40)		—		—		—		—		(40)
Balance at 9/30/2020	$	24,967	$	2,691	$	2,373	$	5,358	$	30,565	$	15,351	$	81,305
Average FPAUM(1)	$	23,845	$	2,912	$	2,127	$	4,805	$	28,982	$	14,251	$	76,922

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

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


			FPAUM: $106.4						FPAUM: $81.3


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

(1)Includes $24.6 billion and $19.3 billion from funds that primarily invest in illiquid strategies as of September 30, 2021 and 2020, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

Credit Group—Fund Performance Metrics as of September 30, 2021

ARCC contributed approximately 45% of the Credit Group’s total management fees for the nine months ended September 30, 2021. In addition, seven other significant funds, ACE III, ACE IV, ACE V, CADC, PCS, SDL and an open-ended secured finance fund, collectively contributed approximately 22% of the Credit Group’s management fees for the nine months ended September 30, 2021.

The following table presents the performance data for our significant funds that are not drawdown funds in the Credit Group as of September 30, 2021:


				Returns(%)(1)
($ in millions)	Year of Inception	AUM		Current Quarter		Year-To-Date		Since Inception(2)		Primary Investment Strategy
Fund		Gross		Net	Gross	Net	Gross	Net
ARCC(3)	2004	$	23,683	N/A	4.2	N/A	16.6	N/A	12.0	U.S. Direct Lending
CADC(4)	2017	2,488		N/A	2.2	N/A	7.1	N/A	6.7	U.S. Direct Lending
Open-ended secured finance fund(5)	2018	1,893		0.8	0.7	3.0	2.6	3.3	2.6	Alternative Credit

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

(2)Since inception returns are annualized.

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

(5)Gross returns do not reflect the deduction of management fees or other expenses. Net returns are calculated by subtracting the applicable management fees and other expenses from the gross returns on a monthly basis. This fund is a master/feeder structure and its AUM and returns include activity from its' investment in an affiliated Ares fund. Returns presented in the table are expressed in U.S. Dollars and are for the master fund, excluding the share class hedges. The current quarter, year-to-date, and since inception returns (gross / net) for the pound sterling hedged Cayman feeder, the fund's sole feeder, are as follows: 0.8% / 0.6%, 2.5% / 2.1% and 1.8% / 1.2%.

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The following table presents the performance data of our significant drawdown funds as of September 30, 2021:


($ in millions)	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Funds Harvesting Investments
ACE III(7)	2015	$	5,250	$	2,822	$	2,539		$	836		$	2,676		$	3,512		1.5x	1.4x	11.9	8.6	European Direct Lending
PCS	2017	4,053		3,365		2,649			932			2,435			3,367			1.3x	1.2x	13.5	9.7	U.S. Direct Lending
Funds Deploying Capital
ACE IV Unlevered(8)	2018	10,800		2,851		2,429			225			2,519			2,744			1.2x	1.1x	9.2	6.6	European Direct Lending
ACE IV Levered(8)		4,819		4,056		523			4,356			4,879			1.3x			1.2x	13.7	10.1
SDL Unlevered	2018	5,267		922		681			120			630			750			1.1x	1.1x	9.8	7.3	U.S. Direct Lending
SDL Levered		2,045		1,510		398			1,395			1,793			1.3x			1.2x	19.1	14.1
ACE V Unlevered(9)	2020	15,540		7,026		1,367			1			1,446			1,447			1.1x	1.1x	N/A	N/A	European Direct Lending
ACE V Levered(9)		6,376		1,273		3			1,388			1,391			1.1x			1.1x	N/A	N/A

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

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

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

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

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

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

(7)ACE III is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and MoIC presented in the table are for the Euro denominated feeder fund. The gross and net IRR for the U.S. dollar denominated feeder fund are 13.1% and 9.6%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.6x and 1.4x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE III are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(8)ACE IV is made up of four parallel funds, two denominated in Euros and two denominated in pound sterling: ACE IV (E) Unlevered, ACE IV (G) Unlevered, ACE IV (E) Levered and ACE IV (G) Levered. The gross and net IRR and MoIC presented in the table are for ACE IV (E) Unlevered and ACE IV (E) Levered. Metrics for ACE IV (E) Levered are inclusive of a U.S. dollar denominated feeder fund, which has not been presented separately The gross and net IRR for ACE IV (G) Unlevered are 10.9% and 7.8%, respectively. The gross and net MoIC for ACE IV (G) Unlevered are 1.2x and 1.1x, respectively. The gross and net IRR for ACE IV (G) Levered are 15.1% and 11.0%, respectively. The gross and net MoIC for ACE IV (G) Levered are 1.3x and 1.2x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE IV Unlevered and ACE IV Levered are for the combined levered and unlevered parallel funds and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

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

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Private Equity Group—Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

Fee Related Earnings:

The following table presents the components of the Private Equity Group's FRE:


	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)

($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Management fees	$	69,591	$	54,653	$	14,938	27%	$	171,019	$	160,206	$	10,813	7%
Other fees	370		2		368		NM	726		142		584		NM
Compensation and benefits	(26,773)		(21,224)		(5,549)		(26)	(73,534)		(62,946)		(10,588)		(17)
General, administrative and other expenses	(6,238)		(6,002)		(236)		(4)	(17,499)		(16,083)		(1,416)		(9)
Fee Related Earnings	$	36,950	$	27,429	9,521		35	$	80,712	$	81,319	(607)		(1)

NM - Not Meaningful

Management Fees. The chart below presents Private Equity Group management fees and effective management fee rates:

Management fees increased primarily due to additional commitments and one-time catch up fees. Management fees from ACOF VI increased by $28.6 million and $53.3 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020, and management fees from our first climate infrastructure fund increased by $5.1 million and $8.7 million, respectively, over the comparative periods. Excluding one-time catch up fees, management fees from ACOF VI increased by $17.0 million and $50.8 million over the comparative periods, offset by a decrease of $18.6 million and $55.1 million of fees from ACOF V over the same periods. The decrease in management fees from ACOF V over the comparative periods was due to the step down in fee rate and change in fee base from committed capital to invested capital in the first quarter of 2021 as a result of ACOF VI beginning to pay fees in the fourth quarter of 2020.

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Excluding one-time catch up fees, fees from our first climate infrastructure fund increased by $1.9 million and $6.2 million over the comparative periods. Management fees from ASOF increased by $4.9 million and $15.4 million from the respective periods that was driven by increased deployment.

The decreases in effective management fee rate for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 were primarily driven by the step down in fee rate to 0.75% for ACOF V, partially offset by increased deployment in ASOF that has a higher fee rate than the Private Equity Group’s average effective management fee rate.

Compensation and Benefits. Compensation and benefits increased by $5.5 million, or 26%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $10.6 million, or 17%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increases were driven by certain annual discretionary payments and by higher incentive compensation resulting from increased management fees, specifically one-time catch up fees from ACOF VI and our first climate infrastructure fund.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $0.2 million, or 4%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $1.4 million, or 9%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. In connection with our fundraising efforts, placement fees have increased by $1.1 million and $3.0 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020. The increase was primarily associated with new commitments to ASOF, ACOF VI and our first climate infrastructure fund. The increase was also driven by higher professional service fees to support the expanding platform of $1.0 million for the nine months ended September 30, 2021 when compared to the same period in 2020.

For the three and nine months ended September 30, 2020, we also recorded $0.9 million and $1.5 million, respectively, in association with the launch of ACOF VI, ASOF and AEOF.

Realized Income:

The following table presents the components of the Private Equity Group's RI:


	Three months ended September 30,				Favorable (Unfavorable)				Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Fee Related Earnings	$	36,950	$	27,429	$	9,521	35	%	$	80,712	$	81,319	$	(607)	(1)	%
Performance income—realized	34,316		115,997		(81,681)		(70)		159,479		276,469		(116,990)		(42)
Performance related compensation—realized	(27,483)		(93,284)		65,801		71		(127,706)		(222,949)		95,243		43
Realized net performance income	6,833		22,713		(15,880)		(70)		31,773		53,520		(21,747)		(41)
Investment income—realized	2,020		16,351		(14,331)		(88)		5,308		35,866		(30,558)		(85)
Interest and other investment income—realized	4,861		1,065		3,796		NM		10,716		2,364		8,352		NM
Interest expense	(2,726)		(2,216)		(510)		(23)		(6,032)		(6,106)		74		1
Realized net investment income	4,155		15,200		(11,045)		(73)		9,992		32,124		(22,132)		(69)
Realized Income	$	47,938	$	65,342	(17,404)		(27)		$	122,477	$	166,963	(44,486)		(27)

NM - Not Meaningful

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Realized net performance income and realized net investment income for the three and nine months ended September 30, 2021 was primarily attributable to realizations from monetization of ACOF IV’s investment in Farrow & Ball following the sale of the company and from the monetization of various assets in a fund within our special opportunities strategy. Realized net performance income for the nine months ended September 30, 2021 also included realizations from partial sales of ACOF IV’s position in AZEK. Realized net investment income for the nine months ended September 30, 2021 was also attributable to the monetization of various assets in an infrastructure and power fund and a special opportunities fund, offset by a realized loss recognized in connection with an Asian corporate private equity fund’s sale of its investment in a dairy farm company.

Realized net performance income and realized net investment income for the three and nine months ended September 30, 2020 were primarily attributable to realizations from the sale of ACOF III's remaining position in Floor & Decor Holdings, Inc. and the partial sale of ACOF IV's position in AZEK. Realized net performance income and realized net investment income for the nine months ended September 30, 2020 also included realizations from the monetization of ACOF IV's investment in National Veterinary Associates following the sale of the company. Realized net investment income for the three and nine months ended September 30, 2020 was also attributable to the monetization of an infrastructure and power fund's investment in a wind project.

Private Equity Group—Carried Interest

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


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

($ in thousands)	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income		Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income
ACOF III	$	48,928	$	39,143	$	9,785	$	55,022	$	44,018	$	11,004
ACOF IV	363,532		290,826		72,706		345,748		276,598		69,150
ACOF V	532,215		425,772		106,443		—		—		—
ACOF VI	66,493		53,194		13,299		2,624		2,099		525

ASOF	305,758		214,031		91,727		113,313		79,319		33,994
EIF V	57,880		43,265		14,615		54,086		40,429		13,657
Other funds	28,717		18,664		10,053		175		175		—
Total Private Equity Group	$	1,403,523	$	1,084,895	$	318,628	$	570,968	$	442,638	$	128,330

The following table presents the change in accrued carried interest during the period for the Private Equity Group:


		As of December 31, 2020		Activity during the period				As of September 30, 2021
($ in thousands)	Waterfall Type	Accrued Carried Interest		Change in Unrealized		Realized			Accrued Carried Interest
ACOF III	American	$	55,022	$	98	$	(6,192)		$	48,928
ACOF IV	American	345,748		171,071		(153,287)			363,532
ACOF V	American	—		532,215		—			532,215
ACOF VI	American	2,624		63,869		—			66,493

ASOF	European	113,313		192,445		—			305,758
EIF V	European	54,086		3,794		—			57,880
Other funds	European	—		10,781		—			10,781
Other funds	American	175		17,761		—			17,936
Total Private Equity Group		$	570,968	$	992,034	$	(159,479)		$	1,403,523

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Private Equity Group—Assets Under Management

The tables below present rollforwards of AUM for the Private Equity Group:


($ in millions)	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 6/30/2021	$	20,603	$	6,307	$	3,822	$	30,732

Net new par/equity commitments	1,453		200		324		1,977
Net new debt commitments	—		200		—		200
Capital reductions	(2)		—		—		(2)
Distributions	(864)		(269)		(358)		(1,491)

Change in fund value	828		506		(54)		1,280
Balance at 9/30/2021	$	22,018	$	6,944	$	3,734	$	32,696
Average AUM(1)	$	21,311	$	6,626	$	3,778	$	31,715

	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 6/30/2020	$	18,090	$	5,343	$	3,169	$	26,602

Net new par/equity commitments	270		(30)		235		475

Capital reductions	(3)		(15)		—		(18)
Distributions	(966)		(10)		(90)		(1,066)
Redemptions	(5)		—		—		(5)
Change in fund value	473		170		59		702
Balance at 9/30/2020	$	17,859	$	5,458	$	3,373	$	26,690
Average AUM(1)	$	17,975	$	5,401	$	3,271	$	26,647

(1) Represents the quarterly average of beginning and ending balances.

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

Net new par/equity commitments	1,554		150		592		2,296
Net new debt commitments	—		200		—		200
Capital reductions	(7)		—		—		(7)
Distributions	(2,273)		(554)		(692)		(3,519)

Change in fund value	4,511		1,427		349		6,287
Balance at 9/30/2021	$	22,018	$	6,944	$	3,734	$	32,696
Average AUM(1)	$	20,059	$	6,241	$	3,672	$	29,972

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

Net new par/equity commitments	3,558		1,800		235		5,593

Capital reductions	(8)		(125)		—		(133)
Distributions	(3,173)		(12)		(108)		(3,293)
Redemptions	(5)		—		—		(5)
Change in fund value	(919)		268		13		(638)
Balance at 9/30/2020	$	17,859	$	5,458	$	3,373	$	26,690
Average AUM(1)	$	17,357	$	4,511	$	3,251	$	25,119


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

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


			AUM: $32.7						AUM: $26.7


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

(1) Includes $1.2 billion of non-fee paying AUM based on our general partner commitment as of September 30, 2021 and 2020.

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Private Equity Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Private Equity Group:


($ in millions)	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 6/30/2021	$	11,748	$	3,259	$	3,725	$	18,732

Commitments	1,427		—		324		1,751
Subscriptions/deployment/increase in leverage	89		487		—		576

Distributions	(471)		(44)		(294)		(809)

Change in fund value	5		—		—		5
Change in fee basis	(6)		—		—		(6)
Balance at 9/30/2021	$	12,792	$	3,702	$	3,755	$	20,249
Average FPAUM(1)	$	12,270	$	3,481	$	3,740	$	19,491

	Corporate Private Equity		Special Opportunities		Infrastructure & Power		Total Private Equity Group
Balance at 6/30/2020	$	11,748	$	2,425	$	3,300	$	17,473

Commitments	—		—		210		210
Subscriptions/deployment/increase in leverage	16		294		—		310

Distributions	(170)		(42)		(7)		(219)

Change in fund value	(33)		—		—		(33)
Change in fee basis	(17)		—		(5)		(22)
Balance at 9/30/2020	$	11,544	$	2,677	$	3,498	$	17,719
Average FPAUM(1)	$	11,646	$	2,551	$	3,399	$	17,596

(1) Represents the quarterly average of beginning and ending balances.

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

Commitments	1,579		—		592		2,171
Subscriptions/deployment/increase in leverage	535		1,308		—		1,843

Distributions	(1,332)		(329)		(341)		(2,002)

Change in fund value	5		—		—		5
Change in fee basis	(2,765)		—		(175)		(2,940)
Balance at 9/30/2021	$	12,792	$	3,702	$	3,755	$	20,249
Average FPAUM(1)	$	12,779	$	3,181	$	3,710	$	19,670

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

Commitments	—		—		210		210
Subscriptions/deployment/increase in leverage	35		1,295		—		1,330

Distributions	(404)		(338)		(59)		(801)

Change in fund value	(39)		—		—		(39)
Change in fee basis	(16)		—		(5)		(21)
Balance at 9/30/2020	$	11,544	$	2,677	$	3,498	$	17,719
Average FPAUM(1)	$	11,753	$	2,184	$	3,376	$	17,313

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

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


			FPAUM: $20.3						FPAUM: $17.7


			Invested capital						Capital commitments

Private Equity Group—Fund Performance Metrics as of September 30, 2021

Four significant funds, U.S. Power Fund IV (“USPF IV”), ACOF V, ASOF and ACOF VI, collectively contributed approximately 69% of the Private Equity Group’s management fees for the nine months ended September 30, 2021.

The following table presents the performance data as of September 30, 2021 for our significant funds in the Private Equity Group, all of which are drawdown funds:


($ in millions)	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Funds Harvesting Investments
USPF IV	2010	$	993	$	1,688	$	2,121		$	1,633		$	981		$	2,614		1.2x	1.1x	5.1	1.2	Infrastructure and Power
Funds Deploying Capital
ACOF V	2017	9,716		7,850		7,365			1,713			9,011			10,724			1.5x	1.3x	15.9	10.8	Corporate Private Equity
ASOF	2019	5,285		3,518		4,248			1,966			3,916			5,882			1.7x	1.6x	64.7	50.3	Special Opportunities
ACOF VI	2020	6,127		5,743		1,972			185			2,217			2,402			1.2x	1.1x	N/A	N/A	Corporate Private Equity

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

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

(3)For the corporate private equity and infrastructure and power funds, the gross MoIC is calculated at the investment-level and is based on the interests of all partners. The gross MoIC is before giving effect to management fees, carried interest, as applicable, and other expenses. For the special opportunities funds, the gross MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC is before giving effect to management fees, carried interest as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. The gross MoICs for the corporate private equity and special opportunities funds are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the gross MoIC would be 1.4x for ACOF V, 1.2x for ACOF VI, and 1.7x for ASOF.

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

(5)For the corporate private equity and infrastructure and power funds, the gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. The cash flow dates used in the gross IRR calculation are assumed to occur at month-end. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses. For the special opportunities funds the gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRRs reflect returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The gross IRRs for the corporate private equity and special opportunities funds are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the gross IRRs would be 15.7% for ACOF V, "N/A" for ACOF VI, and 63.3% for ASOF.

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

Real Estate Group—Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

Fee Related Earnings:

The following table presents the components of the Real Estate Group's FRE:


	Three months ended September 30,				Favorable (Unfavorable)				Nine months ended September 30,				Favorable (Unfavorable)

($ in thousands)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Management fees	$	55,160	$	23,787	$	31,373	132	%	$	115,602	$	71,459	$	44,143	62	%
Other fees	3,681		5		3,676		NM		4,604		716		3,888		NM
Compensation and benefits	(29,160)		(13,011)		(16,149)		(124)		(60,767)		(38,159)		(22,608)		(59)
General, administrative and other expenses	(5,420)		(2,987)		(2,433)		(81)		(12,064)		(9,185)		(2,879)		(31)
Fee Related Earnings	$	24,261	$	7,794	16,467		211		$	47,375	$	24,831	22,544		91

NM - Not Meaningful

Management Fees. The chart below presents Real Estate Group management fees and effective management fee rates:

Management fees increased for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 primarily due to the Black Creek Acquisition. Additional commitments to AREOF III increased fees by $1.4 million and $4.1 million for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, respectively, and also generated one-time catch-up fees of $2.8 million for the nine

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months ended September 30, 2021. Additional commitments to Ares European Property Enhancement Partners III, SCSp. (“EPEP III”) also generated one-time catch-up fees of $6.8 million and $7.0 million for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, respectively. Excluding one-time catch-up fees, fees from EPEP III increased by $2.6 million and $9.0 million over the respective periods. Management fees from real estate debt funds increased by $2.2 million and $4.7 million for the respective periods primarily due to the continued fundraising and subsequent deployment within these open-ended funds. Management fees included $2.0 million of one-time fees for the nine months ended September 30, 2020, driven by our Real Estate Group completing the sale of its stake in a 40-property pan-European logistics portfolio.

The decrease in effective management fee rate for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily due to deployment in real estate debt funds with effective management fee rates below 0.75% and to certain funds previously managed by Black Creek with effective management fee rates below 0.75%. The decrease in effective management fee rate is partially offset by an increase in management fees from real estate equity funds. Our most recent real estate equity funds pay a fee on committed capital that increases once that capital is invested. As a result, our effective management fee rate decreases immediately following capital raising and increases as capital is subsequently deployed.

Other Fees: Other fees increased by $3.7 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $3.9 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These increases were primarily due to fees generated from funds previously managed by Black Creek, including property-related fees, such as acquisition, development and property management.

Compensation and Benefits. Compensation and benefits increased by $16.1 million, or 124%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $22.6 million, or 59%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase in salaries and benefits was primarily driven by headcount growth from the Black Creek Acquisition and in the U.S. real estate equity strategy, by higher incentive compensation attributable to improved operating performance and margin expansion from scaling our business. During the three months ended September 30, 2021, we recorded $8.1 million of compensation and benefit expenses associated with the investment professionals hired as part of the Black Creek Acquisition.

Average headcount for the third quarter of 2021 increased by 115% to 232 investment and investment support professionals for the 2021 period from 108 professionals for the same period in 2020, including 119 professionals from the Black Creek Acquisition. Average headcount for the year-to-date period increased by 48% to 148 investment and investment support professionals for the 2021 period from 100 professionals for the same period in 2020, including 40 professionals from the Black Creek Acquisition.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $2.4 million, or 81%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $2.9 million, or 31%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The change was principally driven by an increase in expenses of $2.0 million from the Black Creek Acquisition and by placement fees of $0.2 million and $0.8 million for the three and nine months ended September 30, 2021, respectively, primarily associated with new commitments to AREOF III.

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Realized Income:

The following table presents the components of the Real Estate Group's RI:


	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)

($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Fee Related Earnings	$	24,261	$	7,794	$	16,467	211%	$	47,375	$	24,831	$	22,544	91%
Performance income—realized	4,693		199		4,494		NM	12,255		27,106		(14,851)		(55)
Performance related compensation—realized	(3,166)		(123)		(3,043)		NM	(8,167)		(17,484)		9,317		53
Realized net performance income	1,527		76		1,451		NM	4,088		9,622		(5,534)		(58)
Investment income—realized	1,699		486		1,213		250	4,182		2,740		1,442		53
Interest and other investment income—realized	918		1,308		(390)		(30)	3,892		3,024		868		29
Interest expense	(1,683)		(1,389)		(294)		(21)	(3,930)		(3,715)		(215)		(6)
Realized net investment income	934		405		529		131	4,144		2,049		2,095		102
Realized Income	$	26,722	$	8,275	18,447		223	$	55,607	$	36,502	19,105		52

NM - Not Meaningful

Realized net performance income and realized net investment income for the three and nine months ended September 30, 2021 and 2020 were primarily attributable to realizations from the sale of multiple properties held in U.S. real estate equity funds. Realized net investment income for the nine months ended September 30, 2021 also included distributions from real estate debt vehicles, driven by operating income during the period.

Realized net performance income and realized net investment income also included realizations from the sale of a 40-property pan-European logistics portfolio held within multiple European real estate funds for the nine months ended September 30, 2020.

Real Estate Group— Carried Interest and Incentive Fees

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The following table presents the accrued carried interest and incentive fees receivable, also referred to as accrued performance income, and related performance compensation for the Real Estate Group:


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


($ in thousands)	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income		Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income
Accrued Carried Interest
US VIII	$	90,151	$	57,697	$	32,454	$	57,074	$	36,527	$	20,547
US IX	88,312		54,753		33,559		26,704		16,556		10,148
EF IV	66,766		40,061		26,705		55,829		33,498		22,331
EF V	61,308		42,915		18,393		—		—		—
AREOF III	17,490		10,494		6,996		—		—		—
Other real estate funds	94,105		58,420		35,685		61,962		38,535		23,427
Other fee generating funds(1)	3,825		—		3,825		2,786		—		2,786
Total accrued carried interest	421,957		264,340		157,617		204,355		125,116		79,239
Incentive fees	579		347		232		525		315		210
Total Real Estate Group	$	422,536	$	264,687	$	157,849	$	204,880	$	125,431	$	79,449

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

The following table presents the change in accrued carried interest during the period for the Real Estate Group:












		As of December 31, 2020		Activity during the period						As of September 30, 2021
($ in thousands)	Waterfall Type	Accrued Carried Interest		Change in Unrealized		Realized		Other Adjustments		Accrued Carried Interest
US VIII	European	$	57,074	$	33,077	$	—	$	—	$	90,151
US IX	European	26,704		61,608		—		—		88,312
EF IV	American	55,829		10,937		—		—		66,766
EF V	American	—		61,306		—		2		61,308
AREOF III	European	—		17,490		—		—		17,490
Other real estate funds	European	29,518		10,845		(117)		—		40,246
Other real estate funds	American	32,444		31,615		(10,200)		—		53,859
Other fee generating funds(1)	European	426		18		—		(246)		198
Other fee generating funds(1)	American	2,360		1,267		—		—		3,627
Total Real Estate Group		$	204,355	$	228,163	$	(10,317)	$	(244)	$	421,957

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

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Real Estate Group—Assets Under Management

The tables below present rollforwards of AUM for the Real Estate Group:


($ in millions)	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 6/30/2021	$	5,702	$	5,648	$	8,375	$	19,725
Acquisitions	13,719		—		—		13,719
Net new par/equity commitments	791		1,040		246		2,077
Net new debt commitments	—		—		250		250
Capital reductions	—		—		(41)		(41)
Distributions	(488)		(180)		(39)		(707)
Redemptions	(28)		—		—		(28)
Change in fund value	1,399		57		50		1,506
Balance at 9/30/2021	$	21,095	$	6,565	$	8,841	$	36,501
Average AUM(1)	$	13,399	$	6,107	$	8,608	$	28,114

	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 6/30/2020	$	4,148	$	4,606	$	5,641	$	14,395

Acquisitions	30		(25)		21		26
Net new debt commitments	—		—		23		23
Capital reductions	—		—		(186)		(186)
Distributions	(70)		(71)		(20)		(161)

Change in fund value	82		171		29		282
Balance at 9/30/2020	$	4,190	$	4,681	$	5,508	$	14,379
Average AUM(1)	$	4,169	$	4,644	$	5,575	$	14,388

(1) Represents the quarterly average of beginning and ending balances.

	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 12/31/2020	$	4,404	$	4,811	$	5,593	$	14,808
Acquisitions	13,719		—		—		13,719
Net new par/equity commitments	1,985		1,917		843		4,745
Net new debt commitments	—		—		2,655		2,655
Capital reductions	—		—		(273)		(273)
Distributions	(788)		(475)		(107)		(1,370)
Redemptions	(28)		—		(7)		(35)
Change in fund value	1,803		312		137		2,252
Balance at 9/30/2021	$	21,095	$	6,565	$	8,841	$	36,501
Average AUM(1)	$	9,028	$	5,449	$	7,565	$	22,042

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

Net new par/equity commitments	664		687		641		1,992
Net new debt commitments	—		—		287		287
Capital reductions	—		—		(222)		(222)
Distributions	(214)		(722)		(57)		(993)

Change in fund value	(53)		128		33		108
Balance at 9/30/2020	$	4,190	$	4,681	$	5,508	$	14,379
Average AUM(1)	$	4,076	$	4,597	$	5,351	$	14,024

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

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


			AUM: $36.5						AUM: $14.4


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

(1) Includes $0.4 billion and $0.3 billion of non-fee paying AUM based on our general partner commitment as of September 30, 2021 and 2020, respectively.

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Real Estate Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Real Estate Group:


($ in millions)	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 6/30/2021	$	4,365	$	4,339	$	3,113	$	11,817
Acquisitions	7,155		—		—		7,155
Commitments	721		602		—		1,323
Subscriptions/deployment/increase in leverage	931		234		299		1,464

Distributions	(114)		(158)		(103)		(375)
Redemptions	(28)		—		—		(28)
Change in fund value	610		(65)		43		588
Change in fee basis	—		(5)		—		(5)
Balance at 9/30/2021	$	13,640	$	4,947	$	3,352	$	21,939
Average FPAUM(1)	$	9,003	$	4,643	$	3,233	$	16,879

	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 6/30/2020	$	3,508	$	3,965	$	1,858	$	9,331

Commitments	43		—		—		43
Subscriptions/deployment/increase in leverage	18		3		55		76
Capital reductions	—		—		(2)		(2)
Distributions	(17)		(48)		(20)		(85)

Change in fund value	—		130		26		156
Change in fee basis	(86)		—		—		(86)
Balance at 9/30/2020	$	3,466	$	4,050	$	1,917	$	9,433
Average FPAUM(1)	$	3,487	$	4,008	$	1,888	$	9,383

(1) Represents the quarterly average of beginning and ending balances.

	U.S. Real Estate Equity		European Real Estate Equity		Real Estate Debt		Total Real Estate Group
Balance at 12/31/2020	$	3,659	$	4,088	$	2,505	$	10,252
Acquisitions	7,155		—		—		7,155
Commitments	1,630		1,053		202		2,885
Subscriptions/deployment/increase in leverage	1,067		271		849		2,187
Capital reductions	—		—		(32)		(32)
Distributions	(322)		(298)		(283)		(903)
Redemptions	(28)		—		(7)		(35)
Change in fund value	611		(162)		118		567
Change in fee basis	(132)		(5)		—		(137)
Balance at 9/30/2021	$	13,640	$	4,947	$	3,352	$	21,939
Average FPAUM(1)	$	6,425	$	4,348	$	2,935	$	13,708

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

Commitments	874		594		73		1,541
Subscriptions/deployment/increase in leverage	114		151		343		608
Capital reductions	—		(17)		(32)		(49)
Distributions	(71)		(267)		(56)		(394)

Change in fund value	—		108		53		161
Change in fee basis	(86)		(311)		—		(397)
Balance at 9/30/2020	$	3,466	$	4,050	$	1,917	$	9,433
Average FPAUM(1)	$	3,257	$	3,930	$	1,800	$	8,987

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

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


			FPAUM: $21.9						FPAUM: $9.4


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

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

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

Real Estate Group—Fund Performance Metrics as of September 30, 2021

Five significant funds, EF V, AREOF III, Black Creek Diversified Property Fund, Inc. (“DPF”), Black Creek Industrial REIT IV, Inc. (“BCI IV”) and an open-ended industrial real estate fund, collectively contributed approximately 44% of the Real Estate Group’s management fees for the nine months ended September 30, 2021.

The following table presents the performance data for our significant funds that are not drawdown funds in the Real Estate Group as of September 30, 2021:


				Returns(%)(1)
($ in millions)	Year of Inception	AUM		Current Quarter		Year-To-Date		Since Inception(2)		Primary Investment Strategy
Fund		Gross		Net	Gross	Net	Gross	Net
Open-ended industrial real estate fund(3)	2017	$	3,819	10.1	8.7	28.9	24.2	27.2	22.4	U.S. Real Estate Equity
DPF(4)	2012	3,017		N/A	3.5	N/A	7.8	N/A	7.0	U.S. Real Estate Equity
BCI IV(5)	2017	4,407		N/A	10.5	N/A	18.3	N/A	9.5	U.S. Real Estate Equity

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

(2)Since inception returns are annualized.

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

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

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

The following table presents the performance data of our significant drawdown funds as of as of September 30, 2021:


($ in millions)	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Funds Deploying Capital
EF V(7)	2018	$	2,288	$	1,968	$	1,080		$	332		$	1,196		$	1,528		1.4x	1.2x	24.8	15.9	European Real Estate Equity
AREOF III	2019	1,787		1,697		480			41			568			609			1.3x	1.2x	N/A	N/A	U.S. Real Estate Equity

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

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

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

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

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

(7)EF V is made up of two parallel funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and MoIC presented in the table are for the Euro denominated parallel fund. The gross and net MoIC and IRR presented in the chart is for the Euro denominated parallel fund. The gross and net MoIC for the U.S. Dollar denominated parallel fund are 1.4x and 1.3x, respectively. The gross and net IRR for the U.S. Dollar denominated parallel fund are 25.2% and 17.5%, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of fund's closing. All other values for EF V are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

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Secondary Solutions Group—Three and Nine Months Ended September 30, 2021

The Secondary Solutions Group is an operating segment formed during the second quarter of 2021 in connection with the Landmark Acquisition that focuses on investing in secondary markets across a range of alternative asset class strategies, including private equity, real estate and infrastructure. The Secondary Solutions Group includes three significant funds, Landmark Equity Partners XV, L.P. (“LEP XV”), LEP XVI and LREP VIII, amongst other funds and related co-investment vehicles.

The following table presents the components of the Secondary Solutions Group's FRE and RI:


($ in thousands)	For the three months ended September 30, 2021		For the period June 2, 2021 through September 30, 2021

Management fees	$	41,064	$	53,962

Compensation and benefits	(11,955)		(16,244)
General, administrative and other expenses	(2,593)		(3,452)
Fee Related Earnings	$	26,516	$	34,266

Realized net investment income	272		269
Realized Income	$	26,788	$	34,535

Secondary Solutions Group—Management Fees

Management fees for the funds in the Secondary Solutions Group typically range from 0.50% to 1.00% of capital commitments, NAV of the underlying funds, or NAV plus unfunded commitments. Funds in each strategy are comprised of closed-end funds with either investment period termination or management contract termination dates and of co-investment accounts that generally do not have termination dates.

The activity for the period presented represents management fees recognized since the closing of the Landmark Acquisition on June 2, 2021. The effective management fee rate for the three months ended September 30, 2021 and for the period from June 2, 2021 through September 30, 2021 was 0.90% and 0.92%, respectively. The funds across the strategies had an average management contract term from the closing date of more than 10 years.

Secondary Solutions Group—Carried Interest

For funds in the Secondary Solutions Group, carried interest is allocated to us based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms in each fund’s governing documents. For the private equity and real estate secondaries strategies, carried interest represents 10.0% to 12.5% of each carried interest eligible fund’s profits, subject to a preferred return of approximately 8.0% per annum. We are entitled to carried interest from the funds with closings subsequent to the completion of the Landmark Acquisition and to carried interest we acquired through the purchase of an ownership interest in certain Landmark GP Entities.

The following table presents accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Secondary Solutions Group:


	As of September 30, 2021
($ in thousands)	Accrued Performance Income		Accrued Performance Compensation		Accrued Net Performance Income

LEP XVI	$	91,902	$	78,117	$	13,785
LREP VIII	50,497		42,923		7,574



Other fee generating funds	32,083		26,976		5,107


Total Secondary Solutions Group	$	174,482	$	148,016	$	26,466

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The following table presents the change in accrued carried interest during the period for the Secondary Solutions Group:


		Opening balance as of June 2, 2021		Activity during the period				As of September 30, 2021
($ in thousands)	Waterfall Type	Accrued Carried Interest		Change in Unrealized		Realized		Accrued Carried Interest
LEP XVI	European	37,281		54,621		—		91,902
LREP VIII	European	24,398		26,099		—		50,497



Other fee generating funds	European	15,146		16,937		—		32,083
Total Secondary Solutions Group		$	76,825	$	97,657	$	—	$	174,482

Secondary Solutions Group—Assets Under Management

The table below presents the rollforward of AUM for the Secondary Solutions Group:


($ in millions)	Private Equity Secondaries		Real Estate Secondaries		Infrastructure Secondaries		Total Secondary Solutions Group
Balance at 6/30/2021	$	12,316	$	5,570	$	1,590	$	19,476

Net new par/equity commitments	1,130		—		—		1,130


Distributions	(250)		(268)		(17)		(535)

Change in fund value	463		184		25		672
Balance at 9/30/2021	$	13,659	$	5,486	$	1,598	$	20,743
Average AUM(1)	$	12,988	$	5,528	$	1,594	$	20,110














(1) Represents the quarterly average of beginning and ending balances.

($ in millions)	Private Equity Secondaries		Real Estate Secondaries		Infrastructure Secondaries		Total Secondary Solutions Group
Balance at 12/31/2020	$	—	$	—	$	—	$	—
Acquisitions	12,275		5,641		1,597		19,513
Net new par/equity commitments	1,231		—		—		1,231


Distributions	(301)		(335)		(23)		(659)

Change in fund value	454		180		24		658
Balance at 9/30/2021	$	13,659	$	5,486	$	1,598	$	20,743
Average AUM(1)	$	12,750	$	5,566	$	1,595	$	19,911













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

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


			AUM: $20.8


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

(1) Includes $0.4 billion of non-fee paying AUM based on our general partner commitment as of September 30, 2021.

Secondary Solutions Group—Fee Paying AUM

The table below presents the rollforward of fee paying AUM for the Secondary Solutions Group:


($ in millions)	Private Equity Secondaries		Real Estate Secondaries		Infrastructure Secondaries		Total Secondary Solutions Group
Balance at 6/30/2021	$	10,828	$	4,928	$	1,171	$	16,927

Commitments	278		—		—		278
Subscriptions/deployment/increase in leverage	—		—		7		7

Distributions	(38)		(28)		(7)		(73)

Change in fund value	44		28		11		83
Change in fee basis	—		(37)		—		(37)
Balance at 9/30/2021	$	11,112	$	4,891	$	1,182	$	17,185
Average FPAUM(1)	$	10,970	$	4,910	$	1,177	$	17,057














(1) Represents the quarterly average of beginning and ending balances.

	Private Equity Secondaries		Real Estate Secondaries		Infrastructure Secondaries		Total Secondary Solutions Group
Balance at 12/31/2020	$	—	$	—	$	—	$	—
Acquisitions	10,740		4,928		1,171		16,839
Commitments	378		—		—		378
Subscriptions/deployment/increase in leverage	2		—		7		9

Distributions	(38)		(28)		(7)		(73)

Change in fund value	42		28		11		81
Change in fee basis	(12)		(37)		—		(49)
Balance at 9/30/2021	$	11,112	$	4,891	$	1,182	$	17,185
Average FPAUM(1)	$	10,893	$	4,916	$	1,175	$	16,984













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

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


			FPAUM: $17.2


			Capital commitments						Market value(1)						Invested capital/other

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Secondary Solutions Group—Fund Performance Metrics as of September 30, 2021

Secondary Solutions includes three significant funds, LEP XV, LEP XVI and LREP VIII, that collectively contributed approximately 66% of the Secondary Solutions Group’s management fees for the nine months ended September 30, 2021.

The following table presents the performance data as of September 30, 2021 for our significant funds in the Secondary Solutions Group, all of which are drawdown funds:


($ in millions)	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Funds Harvesting Investments
LEP XV(7)	2013	$	2,362	$	3,250	$	2,626		$	2,085		$	1,768		$	3,853		1.6x	1.5x	20.9	15.2	Private Equity Secondaries
Funds Deploying Capital
LEP XVI(7)	2016	5,962		4,896		2,200			616			2,837			3,453			1.7x	1.6x	67.5	41.5	Private Equity Secondaries
LREP VIII(7)	2016	3,428		3,300		1,571			747			1,255			2,002			1.4x	1.3x	26.0	16.4	Real Estate Secondaries

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

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

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

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

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

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

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

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

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Strategic Initiatives—Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

Strategic Initiatives represents an all-other category formed in 2020 that includes operating segments and strategic investments that are seeking to broaden our distribution channels or expand our access to global markets. It includes the AUM and results of Ares SSG subsequent to the completion of the SSG Acquisition on July 1, 2020, Ares Insurance Solutions (“AIS”) and Aspida Holdings Ltd. (“Aspida”) following the acquisition of the outstanding common shares of F&G Reinsurance Ltd (rebranded to Aspida Life Re Ltd. post-acquisition, “Aspida Life Re”) on December 18, 2020 and SPACs subsequent to the consummation of AAC’s initial public offering on February 4, 2021.

Fee Related Earnings:

The following table presents the components of Strategic Initiatives’ FRE:


	Three months ended September 30,				Favorable (Unfavorable)				Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Management fees	$	16,544	$	13,320	$	3,224	24	%	$	48,963	$	13,320	$	35,643	268	%
Other fees	2		6		(4)		(67)		82		6		76		NM
Compensation and benefits	(5,316)		(4,241)		(1,075)		(25)		(15,440)		(4,241)		(11,199)		(264)
General, administrative and other expenses	(1,774)		(1,514)		(260)		(17)		(5,580)		(1,514)		(4,066)		(269)
Fee Related Earnings	$	9,456	$	7,571	1,885		25		$	28,025	$	7,571	20,454		270

NM - Not Meaningful

Management Fees. The chart below presents Strategic Initiatives management fees and effective management fee rates:

Management fees increased for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020 primarily due to the acquisition of Aspida Life Re that occurred in the fourth quarter of 2020 and to additional commitments to SLO III. In addition, the increase for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to the full year-to-date impact of the SSG Acquisition which closed at the beginning of the third quarter of 2020.

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The decrease in effective management fee rate for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 was primarily driven by the acquisition of Aspida Life Re that occurred in the fourth quarter of 2020. The insurance strategy has an effective management fee rate below 0.50% and is driving the decrease in the overall effective management fee rate.

Compensation and Benefits. Compensation and benefits increased by $1.1 million, or 25%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $11.2 million, or 264%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase in salaries and benefits for the three months ended September 30, 2021 was primarily driven by headcount growth across the Asian special situations, Asian secured lending and insurance strategies. Average headcount for the third quarter of 2021 increased by 43% to 50 investment and investment support professionals from 35 professionals for the same period in 2020.

The increase in salaries and benefits for the nine months ended September 30, 2021 when compared to the same period in 2020 was also due to the full impact of the SSG Acquisition which closed at the beginning of the third quarter of 2020 and to the insurance platform which has been included within Strategic Initiatives subsequent to the acquisition of Aspida Life Re in the fourth quarter of 2020.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $0.3 million, or 17%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $4.1 million, or 269%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to the full impact of the SSG Acquisition which closed at the beginning of the third quarter of 2020.

Realized Income:

The following table presents the components of the Strategic Initiatives RI:


	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)
($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Fee Related Earnings	$	9,456	$	7,571	$	1,885	25%	$	28,025	$	7,571	$	20,454	270%



Investment income—realized	1,025		—		1,025		NM	1,347		—		1,347		NM
Interest and other investment income (loss)—realized	163		(4)		167		NM	2,824		(4)		2,828		NM
Interest expense	(4,135)		(729)		(3,406)		NM	(8,962)		(729)		(8,233)		NM
Realized net investment loss	(2,947)		(733)		(2,214)		NM	(4,791)		(733)		(4,058)		NM
Realized Income	$	6,509	$	6,838	(329)		(5)	$	23,234	$	6,838	16,396		240

NM - Not Meaningful

Realized net investment loss for the three and nine months ended September 30, 2021 and 2020 was primarily attributable to interest expense allocations based on the cost basis of investments. The activity for the nine months ended September 30, 2021 also included realized net investment income attributable to distributions from an investment vehicle that manages a portfolio of non-performing loans.

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Strategic Initiatives—Assets Under Management

The tables below present rollforwards of AUM for the Strategic Initiatives:


($ in millions)	Asian Special Situations		Asian Secured Lending		Insurance				SPACs		Total Strategic Initiatives
Balance at 6/30/2021	$	5,025	$	2,467	$	1,874	$	—	$	1,000	$	10,366

Net new par/equity commitments	—		70		143				—		213

Capital reductions	—		(29)		—				—		(29)
Distributions	252		(2)		(48)				—		202

Change in fund value	94		(21)		11				—		84
Balance at 9/30/2021	$	5,371	$	2,485	$	1,980			$	1,000	$	10,836
Average AUM(1)	$	5,198	$	2,476	$	1,927			$	1,000	$	10,601

	Asian Special Situations		Asian Secured Lending		Insurance				SPACs		Total Strategic Initiatives
Balance at 6/30/2020	$	—	$	—	$	—			$	—	$	—
Acquisitions	5,220		1,651		—				—		6,871
Net new par/equity commitments	—		190		—				—		190


Distributions	(122)		—		—				—		(122)

Change in fund value	(1)		2		—				—		1
Balance at 9/30/2020	$	5,097	$	1,843	$	—			$	—	$	6,940
Average AUM(2)	$	5,159	$	1,747	$	—			$	—	$	6,906

(1) Represents the quarterly average of beginning and ending balances.
(2) Represents the average calculated using AUM on the date of the SSG Acquisition and the subsequent quarter-end.

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

Net new par/equity commitments	3		620		(230)				1,000		1,393


Distributions	(73)		(2)		(103)				—		(178)

Change in fund value	287		3		70				—		360
Balance at 9/30/2021	$	5,371	$	2,485	$	1,980			$	1,000	$	10,836
Average AUM(1)	$	5,167	$	2,172	$	2,000			$	750	$	10,089

	Asian Special Situations		Asian Secured Lending		Insurance				SPACs		Total Strategic Initiatives
Balance at 12/31/2019	$	—	$	—	$	—			$	—	$	—
Acquisitions	5,220		1,651		—				—		6,871
Net new par/equity commitments	—		190		—				—		190


Distributions	(122)		—		—				—		(122)

Change in fund value	(1)		2		—				—		1
Balance at 9/30/2020	$	5,097	$	1,843	$	—			$	—	$	6,940
Average AUM(2)	$	5,159	$	1,747	$	—			$	—	$	6,906

(1) Represents a four-point average of quarter-end balances for each period.
(2) Represents the average calculated using AUM on the date of the SSG Acquisition and the subsequent quarter-end.

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


			AUM: $10.8						AUM: $6.9


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

(1) Includes $0.1 billion of non-fee paying AUM based on our general partner commitment as of September 30, 2021 and 2020.

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Strategic Initiatives—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Strategic Initiatives:


($ in millions)	Asian Special Situations		Asian Secured Lending		Insurance		Total Strategic Initiatives
Balance at 6/30/2021	$	3,618	$	1,055	$	1,948	$	6,621

Commitments	—		—		233		233
Subscriptions/deployment/increase in leverage	236		143		—		379
Capital reductions	—		(121)		—		(121)
Distributions	(163)		(62)		(48)		(273)

Change in fund value	—		—		53		53

Balance at 9/30/2021	$	3,691	$	1,015	$	2,186	$	6,892
Average FPAUM(1)	$	3,655	$	1,035	$	2,067	$	6,757

	Asian Special Situations		Asian Secured Lending		Insurance		Total Strategic Initiatives
Balance at 6/30/2020	$	—	$	—	$	—	$	—
Acquisitions	3,615		568		—		4,183

Subscriptions/deployment/increase in leverage	96		182		—		278
Capital reductions	(22)		—		—		(22)
Distributions	(143)		(31)		—		(174)


Change in fee basis	24		—		—		24
Balance at 9/30/2020	$	3,570	$	719	$	—	$	4,289
Average FPAUM(2)	$	3,592	$	644	$	—	$	4,236

(1) Represents the quarterly average of beginning and ending balances.
(2) Represents the average calculated using FPAUM on the date of the SSG Acquisition and the subsequent quarter-end.

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

Commitments	—		—		(66)		(66)
Subscriptions/deployment/increase in leverage	952		552		—		1,504
Capital reductions	(180)		(122)		—		(302)
Distributions	(695)		(154)		(103)		(952)

Change in fund value	—		—		112		112

Balance at 9/30/2021	$	3,691	$	1,015	$	2,186	$	6,892
Average FPAUM(1)	$	3,672	$	923	$	2,089	$	6,684

	Asian Special Situations		Asian Secured Lending		Insurance		Total Strategic Initiatives
Balance at 12/31/2019	$	—	$	—	$	—	$	—
Acquisition	3,615		568		—		4,183

Subscriptions/deployment/increase in leverage	96		182		—		278
Capital reductions	(22)		—		—		(22)
Distributions	(143)		(31)		—		(174)


Change in fee basis	24		—		—		24
Balance at 9/30/2020	$	3,570	$	719	$	—	$	4,289
Average FPAUM(2)	$	3,592	$	644	$	—	$	4,236

(1) Represents a four-point average of quarter-end balances for each period.
(2) Represents the average calculated using FPAUM on the date of the SSG Acquisition and the subsequent quarter-end.

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


			FPAUM: $6.9						FPAUM: $4.3


			Market value						Invested capital/other						Capital commitments

Strategic Initiatives—Fund Performance Metrics as of September 30, 2021

Strategic Initiatives includes one significant fund, SSG Capital Partners V, L.P. (“SSG Fund V”), that contributed approximately 35% of the management fees reported in Strategic Initiatives for the nine months ended September 30, 2021.

The following table presents the performance data as of September 30, 2021 for our significant fund reported in Strategic Initiatives, which is a drawdown fund:


($ in millions)	Year of Inception	AUM		Original Capital Commitments		Capital Invested to Date			Realized Value(1)			Unrealized Value(2)			Total Value			MoIC		IRR(%)		Primary Investment Strategy
Fund								Gross(3)			Net(4)			Gross(5)			Net(6)
Funds Deploying Capital
SSG Fund V	2018	$	2,073	$	1,878	$	1,570		$	804		$	958		$	1,762		1.2x	1.1x	45.1	25.5	Asian Special Situations

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

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

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

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

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

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Operations Management Group—Three and Nine Months Ended September 30, 2021 Compared to Three and Nine Months Ended September 30, 2020

Fee Related Earnings:

The following table presents the components of the Operations Management Group’s FRE:


	Three months ended September 30,				Favorable (Unfavorable)			Nine months ended September 30,				Favorable (Unfavorable)

($ in thousands)	2021		2020		$ Change		% Change	2021		2020		$ Change		% Change
Other fees	$	3,446	$	—	$	3,446	NM	$	3,446	$	—	$	3,446	NM
Compensation and benefits	(66,107)		(41,551)		(24,556)		(59)	(158,943)		(114,916)		$	(44,027)	(38)
General, administrative and other expenses	(28,142)		(19,519)		(8,623)		(44)	(69,872)		(56,877)		(12,995)		(23)
Fee Related Earnings	$	(90,803)	$	(61,070)	(29,733)		(49)	$	(225,369)	$	(171,793)	(53,576)		(31)

NM - Not Meaningful

Other Fees. Other fees of $3.4 million for the three and nine months ended September 30, 2021 represents fees earned through WMS for the sale and distribution of our non-traded REITs. The fees earned include trade-based commissions and facilitation fees as well as asset-based distribution fees that we earn following the Black Creek Acquisition.

Compensation and Benefits. Compensation and benefits increased by $24.6 million, or 59%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $44.0 million, or 38%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increases were primarily driven by the headcount growth from the Black Creek Acquisition and Landmark Acquisition, the expansion of our strategy and relationship management teams to support global fundraising, and the expansion of our business operations teams to support the growth of our business and other strategic initiatives. In connection with the sale and distribution of shares in our non-traded REITs, we incurred commission expense of $5.1 million during the three and nine months ended September 30, 2021. The increases in compensation and benefits were further driven by increases in payroll related taxes of $3.9 million and $5.2 million for the three and nine months ended September 30, 2021 compared to the three and nine months ended September 30, 2020, respectively, primarily attributable to the vesting of non-recurring equity compensation awards.

Average headcount increased by 43% to 1,055 operations management professionals for the third quarter of 2021 from 740 professionals for the same period in 2020. Average headcount for our operations management professionals increased by 44 to support the expansion of our team in India and by 6 in connection with the SSG Acquisition. Average headcount also increased by 232 professionals from the Landmark Acquisition and Black Creek Acquisition, including the increase from WMS. Average headcount increased by 28% to 868 operations management professionals for the year-to-date period from 679 professionals for the same period in 2020. Average headcount for our operations management professionals increased by 41 to support the expansion of our team in India and by 32 in connection with the SSG Acquisition. Average headcount also increased by 84 professionals from the Landmark Acquisition and Black Creek Acquisition, including the increase from WMS.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $8.6 million, or 44%, for the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and by $13.0 million, or 23%, for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The change included an increase in general, administrative and other expenses of $1.4 million and $1.6 million for the three and nine months ended September 30, 2021, respectively, from the Black Creek Acquisition and Landmark Acquisition. The impact from the acquisitions has been excluded from the discussion below.

Certain expenses have also increased during the current period, including occupancy costs to support our growing headcount and information services and information technology to support the expansion of our business, despite the temporary cost savings recognized with our transition to a modified remote working environment. Collectively, these expenses increased by $0.7 million and $3.7 million for the three and nine months ended September 30, 2021, respectively, when compared to the same periods in 2020. The increase was also driven by higher professional service fees and recruiting fees of $3.0 million and $2.9 million, for the three and nine months ended September 30, 2021, respectively, largely to support the expanding platform. The three and nine months ended September 30, 2021 also included a $1.5 million donation to the Ares Charitable Foundation that launched in the second quarter of 2021.

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There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the third quarter of 2021. For the three months ended September 30, 2021, our travel, entertainment and marketing sponsorships expenses increased by $0.8 million when compared to the same period in 2020. We, however, recognized cost savings when comparing the nine months ended September 30, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, and certain office services and fringe benefits from the modified remote working environment, decreased by $1.5 million for the nine months ended September 30, 2021, when compared to the same period in 2020.

Realized Income:

The following table presents the components of the OMG's RI:


	Three months ended September 30,				Favorable (Unfavorable)				Nine months ended September 30,				Favorable (Unfavorable)

($ in thousands)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change
Fee Related Earnings	$	(90,803)	$	(61,070)	$	(29,733)	(49)	%	$	(225,369)	$	(171,793)	$	(53,576)	(31)	%
Investment loss—realized	—		—		—		—		—		(5,698)		5,698		100
Interest and other investment income (loss)—realized	(270)		(503)		233		(46)		170		(588)		758		NM
Interest expense	(160)		(141)		(19)		(13)		(397)		(1,262)		865		69
Realized net investment loss	(430)		(644)		214		33		(227)		(7,548)		7,321		97
Realized Income	$	(91,233)	$	(61,714)	(29,519)		(48)		$	(225,596)	$	(179,341)	(46,255)		(26)

NM - Not Meaningful

Realized net investment loss for the nine months ended September 30, 2020 was primarily driven by a realized loss associated with the sale of a non–core insurance-related investment.

Liquidity and Capital Resources

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

Sources and Uses of Liquidity

Our sources of liquidity are (1) cash on hand, (2) net working capital, (3) cash from operations, including management fees, which are collected monthly, quarterly or semi-annually, and net realized performance income, which is unpredictable as to amount and timing, (4) fund distributions related to our investments that are also unpredictable as to amount and timing and (5) net borrowing from the Credit Facility. As of September 30, 2021, our cash and cash equivalents were $295.7 million, and we had $150.0 million borrowings outstanding under our Credit Facility. Our ability to draw from the Credit Facility is subject to a leverage and other covenants. We remain in compliance with all covenants as of September 30, 2021. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the ordinary course of business and under the current market conditions for the foreseeable future. Cash flows from management fees may be impacted by a slowdown or declines in deployment, declines or write downs in valuations, or a slowdown or negatively impacted fundraising. In addition, management fees may be subject to deferral. Declines or delays and transaction activity may impact our fund distributions and net realized performance income which could adversely impact our cash flows and liquidity. Market conditions may make it difficult to extend the maturity or refinance our existing indebtedness or obtain new indebtedness with similar terms.

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

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payments to our Class A and non-voting common stockholders in accordance with our dividend policies and (9) pay distributions to AOG unitholders.

In the normal course of business, we expect to pay dividends to our Class A and non-voting common stockholders that are aligned with the expected changes in our after-tax fee related earnings. If cash flows from operations were insufficient to fund dividends over a sustained period of time, we expect that we would suspend or reduce paying such dividends. In addition, there is no assurance that dividends would continue at the current levels or at all. The final dividend was paid to our Series A Preferred stockholders in connection with the redemption on June 30, 2021.

Our ability to obtain debt financing and complete stock offerings provides us with additional sources of liquidity. For further discussion of financing transactions occurring in the current period, see “Cash Flows” within this section and “Note 8. Debt” and “Note 14. Equity and Redeemable Interest” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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

Cash Flows

We consolidate funds where we are deemed to hold a controlling interest. The Consolidated Funds are not necessarily the same entities in each year presented due to changes in ownership, changes in limited partners' rights and the creation or termination of funds. The consolidation of these funds had no effect on cash flows attributable to us for the periods presented. As such, we evaluate the activity of the Consolidated Funds and the eliminations resulting from consolidation separately. The following tables and discussion summarize our condensed consolidated statements of cash flows by activities attributable to the Company and to our Consolidated Funds. For more details on the activity of the Company and Consolidated Funds, refer to “Note 16. Consolidation” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.


	Nine months ended September 30,
($ in thousands)	2021		2020
Net cash provided by operating activities	$	368,259	$	480,848
Net cash used in the Consolidated Funds' operating activities, net of eliminations	(2,212,010)		(468,386)
Net cash provided by (used in) operating activities	(1,843,751)		12,462
Net cash used in the Company's investing activities	(1,072,578)		(126,437)
Net cash provided by the Company's financing activities	476,110		360,171
Net cash provided by the Consolidated Funds' financing activities, net of eliminations	2,216,874		467,379
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

Operating Activities

As summarized in the table below, cash flow from operations is principally composed of (i) cash generated from our core operating activities, primarily consisting of profits generated principally from management fees after covering for operating expenses, (ii) net realized performance income and (iii) net cash from investment related activities including purchases, sales and net realized investment income. We generated meaningful cash flow from operations in each period presented. Although cash generated from our core operating activities increased when compared to the prior year, cash provided by the Company’s operating activities decreased due to greater net purchases associated with our investment portfolio, which represent a use of cash, when compared to the prior year period.

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	Nine months ended September 30,				Favorable (Unfavorable)
	2021		2020		$ Change		% Change
Core operating activities	$	457,884	$	371,480	$	86,404	23%
Net realized performance income	53,515		78,585		(25,070)		(32)
Net cash from investment related activities	(143,140)		30,783		(173,923)		NM
Net cash provided by operating activities	$	368,259	$	480,848	(112,587)		(23)

NM - Not Meaningful

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

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

Investing Activities


	Nine months ended September 30,
	2021		2020
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)

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

Financing Activities


	Nine months ended September 30,
	2021		2020
Net proceeds from issuance of Class A and non-voting common stock	$	827,430	$	383,154
Net borrowings of Credit Facility	150,000		(70,000)
Proceeds from issuance of senior and subordinated notes	450,000		399,084

Class A and non-voting common stock dividends	(239,816)		(169,870)
AOG unitholder distributions	(198,752)		(165,087)
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)
Net cash provided by the Company's financing activities	$	476,110	$	360,171

Net cash provided by the Company's financing activities for the nine months ended September 30, 2021 was principally composed of net proceeds from the public offering of Class A common stock, a private offering of Class A common stock and non-voting common stock to SMBC and the issuance of the 2051 Subordinated Notes. A portion of the proceeds were used to redeem the Series A Preferred Stock and to pay higher dividends and distributions to Class A and non-voting common stockholders and AOG unitholders, respectively, as we generated higher fee related earnings and increased our shareholder base.

In connection with the vesting of restricted units that are granted to our employees under the Equity Incentive Plan, we withhold shares equal to the fair value of our employee's withholding tax liabilities and pay the taxes on their behalf. This use of cash increased from the prior period primarily as a result of our appreciating stock price, which is the basis on which employee compensation is recognized. The net settlement of shares minimizes the dilutive impact of our Equity Incentive Plan as fewer shares are issued upon vesting. For the nine months ended September 30, 2021 and 2020, we retained and did not issue 3.8 million shares and 2.0 million shares, respectively.

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Net cash provided by the Company's financing activities for nine months ended September 30, 2020 was principally composed of net proceeds from the issuance of the 2030 Senior Notes to provide additional liquidity at a reduced cost of capital in response to the uncertainty caused by the COVID-19 pandemic and to leverage our growth in future periods. A portion of these proceeds was used to repay revolving borrowings under our Credit Facility. In addition, net cash provided by the Company's financing activities includes cash proceeds from the private offering of Class A common stock to SMBC. These proceeds were partially offset by cash used to pay higher dividends and distributions to Class A common stockholders and AOG unitholders, respectively.


	Nine months ended September 30,
	2021		2020
Contributions from redeemable and non-controlling interests in Consolidated Funds, net of eliminations	$	919,666	$	123,713
Distributions to non-controlling interests in Consolidated Funds, net of eliminations	(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 the Consolidated Funds' financing activities	$	2,216,874	$	467,379

Net cash provided by the Consolidated Funds' financing activities for the nine months ended September 30, 2021 was principally attributable to contributions from shareholders in the initial public offering of the SPAC and to the borrowings of two newly issued CLOs.

Net cash provided by the Consolidated Funds’ financing activities for nine months ended September 30, 2020 was principally attributable to the borrowings of a newly issued CLO.

Capital Resources

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

We are required to maintain minimum net capital balances for regulatory purposes for our broker-dealer entities and certain subsidiaries operating outside the U.S. These net capital requirements in the U.S. are met in part by retaining cash, cash equivalents and investment securities. As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions. As of September 30, 2021, we were required to maintain approximately $37.4 million in net assets within these subsidiaries to meet regulatory net capital and capital adequacy requirements. We remain in compliance with all regulatory requirements.

Holders of AOG Units, subject to the terms of the exchange agreement, may exchange their AOG Units for shares of our Class A common stock on a one-for-one basis. These exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of AMC that otherwise would not have been available. These increases in tax basis may increase depreciation and amortization for U.S. income tax purposes and thereby reduce the amount of tax that we would otherwise be required to pay in the future. We entered into the TRA that provides payment to the TRA recipients of 85% of the amount of actual cash savings, if any, in U.S. federal, state, local and foreign income tax or franchise tax that we actually realize as a result of these increases in tax basis and of certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA and interest accrued thereon. Future payments under the TRA in respect of subsequent exchanges are expected to be substantial. The TRA liability balance was $97.7 million as of September 30, 2021.

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

Series A Preferred Stock

The Series A Preferred Stock was redeemed in full on June 30, 2021. For a discussion of our equity, including the redemption of our Series A Preferred Stock, see "Note 14. Equity and Redeemable Interest,” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Critical Accounting Estimates

We prepare our condensed consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our condensed consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. Actual results may also differ from our estimates and judgments due to risks and uncertainties. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known.

Except as disclosed below, there have been no material changes to the critical accounting estimates previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. For a summary of our significant accounting policies, see "Note 2. Summary of Significant Accounting Policies,” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. For a summary of our critical accounting estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates" in our Annual Report on Form 10-K.

Acquisitions

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

Equity-Based Compensation

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

The grant date fair values are based on a probability distributed Monte-Carlo simulation. Due to the existence of the market condition, the vesting period for the awards is not explicit, and as such, compensation expense is recognized on a straight-line basis over the median vesting period derived from the positive iterations of the Monte Carlo simulations where the market condition is achieved. The market conditions were met for the market condition awards and the associated compensation expense was accelerated during the nine months ended September 30, 2021.

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

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

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and their impact on the Company can be found in “Note 2. Summary of Significant Accounting Policies” in the “Notes to the Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

In the normal course of business, we engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications and potential contingent repayment obligations. See “Note 9. Commitments and Contingencies,” to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Commitments and Contingencies

For further discussion of our capital commitments, indemnification arrangements and contingent obligations, see “Note 9. Commitments and Contingencies,” to our audited consolidated financial statements included in this Quarterly Report on Form 10-Q.

Previous: Item 1. Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk