Ares Management’s SWOT analysis: stock expansion amid market challenges

Ares Management Corporation (NYSE:ARES), a global alternative asset manager with a market capitalization of $52.35 billion, has been navigating a complex financial landscape characterized by market disruptions and strategic expansions. This comprehensive analysis examines the company’s recent performance, strategic moves, and future outlook, providing investors with a detailed perspective on Ares’ position in the alternative asset management sector. According to InvestingPro analysis, the stock is currently trading above its Fair Value, with a beta of 1.42 indicating higher market sensitivity than average.

Company Overview and Recent Performance

Ares Management has demonstrated resilience in the face of market challenges, showcasing strong fundraising capabilities and robust Assets Under Management (AUM) growth. As of the fourth quarter of 2024, the company reported a 4.5% increase in AUM to $484 billion, reflecting its ability to attract capital even in uncertain market conditions. This growth complements the company’s impressive 21% year-over-year revenue growth to $4.27 billion in the last twelve months. InvestingPro data reveals that Ares has maintained dividend payments for 12 consecutive years, with a current dividend yield of 2.72%.

However, the company’s recent financial performance has been mixed. In Q4 2024, Ares reported earnings per share (EPS) of $1.225, falling short of the estimated and consensus figure of $1.30. This shortfall was primarily attributed to reduced management fees and Fee Related Performance Revenues (FRPR), as well as slightly lower net realized performance revenues. Despite these challenges, the company’s compensation ratio and general and administrative expenses were modestly better than expected, leading to a Fee Related Earnings (FRE) margin that exceeded projections.

Strategic Acquisitions and Expansion

A significant development in Ares’ growth strategy is the acquisition of GCP International for $3.7 billion, announced in November 2024. This strategic move is set to nearly double Ares’ real estate assets under management and significantly enhance its international exposure, particularly in Asia. The acquisition also includes valuable data center assets, positioning Ares to capitalize on the growing demand for digital infrastructure.

The GCP acquisition is expected to close in the first quarter of 2025 and is projected to be immediately accretive to earnings. It will add approximately $44 billion of AUM to Ares’ portfolio, further solidifying the company’s position in the global alternative asset management market.

Fundraising and Capital Deployment

Ares’ fundraising machine continues to be a significant strength for the company. In Q4 2024, the company raised $28 billion, bringing the full-year 2024 total to an impressive $93 billion. This robust fundraising activity demonstrates the continued trust investors place in Ares’ investment strategies and management capabilities.

Capital deployment has also been strong, with $32 billion deployed in Q4 2024. The company maintains a substantial amount of available capital at $133 billion, with $81 billion expected to start earning fees upon deployment. This significant dry powder positions Ares well for future investment opportunities and potential earnings growth.

Investment Performance and Market Outlook

Ares’ investment performance has been mixed across its various strategies. Credit and Real Assets segments have shown strong performance, while Private Equity (PE) and Secondaries have remained relatively flat. This diverse performance across different asset classes highlights the importance of Ares’ diversified investment approach in navigating varying market conditions.

Looking ahead, management anticipates transaction activity to rise in 2025, with expectations for the gross-to-net deployment ratio to continue improving. This outlook suggests potential for increased earnings and operational efficiency in the coming years. InvestingPro analysis indicates strong growth potential, with net income expected to grow this year. However, investors should note that 9 analysts have recently revised their earnings expectations downward for the upcoming period. Want deeper insights? InvestingPro offers 8 additional exclusive tips and comprehensive analysis for ARES, available with a subscription.

Management Changes and Corporate Governance

In a move seen as a natural evolution given the firm’s growth, Ares announced the appointment of Kipp deVeer and Blair Jacobson as Co-Presidents. This change in leadership structure is expected to support the company’s continued expansion and strategic initiatives.

Future Outlook and Earnings Projections

Analysts have adjusted their forward estimates for Ares following the Q4 2024 earnings report. EPS projections for 2025 and 2026 have been revised, with some analysts increasing their estimates while others have made downward adjustments due to lower FRE expectations and a higher anticipated tax rate.

Management has reiterated expectations for net realized performance income related to European Style Waterfalls to be between $225-$275 million in 2025, with considerable growth anticipated in 2026. However, the potential for realized performance revenues from American-style funds in the near term appears limited.

Bear Case

How might ongoing market disruption affect Ares’ performance?

Ongoing market disruption could create temporary headwinds to business output for cyclical Capital Markets-centric companies like Ares. The increased uncertainty in the macro environment has already led to reduced EPS estimates and forward-looking uncertainties. If these market disruptions persist or intensify, Ares may face challenges in maintaining its current level of fundraising and capital deployment, potentially impacting its fee-earning AUM and overall profitability.

What risks does the GCP acquisition pose to Ares?

While the GCP acquisition presents significant growth opportunities, it also comes with potential risks. The complexity and cost of integration post-acquisition could pose challenges, potentially diverting management attention and resources from other core operations. Additionally, the high number of advisors involved in the deal may indicate potential complexities or challenges in the transaction structure. If the integration process is not managed effectively, it could lead to operational inefficiencies and potentially impact the expected accretion to earnings.

Bull Case

How could Ares’ strong fundraising capabilities drive future growth?

Ares’ robust fundraising capabilities, as evidenced by the $93 billion raised in 2024, position the company well for future growth. This strong ability to attract capital allows Ares to continually expand its AUM, which in turn drives management fees and potential performance revenues. As the company deploys this capital into attractive investment opportunities, it could lead to increased fee-earning AUM and potentially higher realized performance income in the future. The company’s track record of successful fundraising also enhances its reputation in the market, potentially attracting more investors and further fueling growth.

What potential benefits could the GCP acquisition bring to Ares?

The acquisition of GCP International presents several potential benefits for Ares. Firstly, it nearly doubles the company’s real estate AUM, significantly enhancing its scale and market position in this sector. The increased international exposure, particularly in Asia, opens up new markets and diversification opportunities for Ares. Additionally, the acquisition includes valuable data center assets, positioning Ares to capitalize on the growing demand for digital infrastructure. If successfully integrated, this acquisition could lead to increased fee revenues, enhanced global presence, and potential synergies in operations and investment strategies.

SWOT Analysis

Strengths:

• Strong fundraising capabilities
• Robust AUM growth
• Diversified investment strategies
• Healthy underlying business trends

Weaknesses:

• Recent earnings shortfall in Q4 2024
• Lower than expected management fees and FRPR
• Limited near-term potential for realized performance revenues from American-style funds

Opportunities:

• Strategic acquisition of GCP International
• Expansion into international markets, particularly Asia
• Growing demand for alternative investments
• Potential for increased transaction activity in 2025

Threats:

• Ongoing market disruptions and economic uncertainties
• Potential recession impact on investment performance
• Increased competition in the alternative asset management sector
• Regulatory changes affecting the financial services industry

Analysts Targets

• JMP Securities: $185 (May 8th, 2025)
• Barclays (LON:BARC): $217 (February 6th, 2025)
• JMP Securities: $165 (April 8th, 2025)

This analysis is based on information available up to May 28, 2025, and reflects the most recent data and analyst projections for Ares Management Corporation. The company’s next earnings report is scheduled for July 24, 2025. For comprehensive analysis including Fair Value estimates, financial health scores, and exclusive insights, visit InvestingPro. Access our detailed Pro Research Report, part of our coverage of 1,400+ top US stocks, to transform complex Wall Street data into clear, actionable intelligence for smarter investing decisions.

InvestingPro: Smarter Decisions, Better Returns

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