Ares Management Corp - Quarter Report: 2016 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No. 001‑36429

ARES MANAGEMENT, L.P.

(Exact name of Registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)	80‑0962035 (I.R.S. Employer Identification Number)

2000 Avenue of the Stars, 12th Floor, Los Angeles, CA 90067

(Address of principal executive office) (Zip Code)

(310) 201‑4100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (Check one):


Large accelerated filer ☒	Accelerated filer ☐	Non‑accelerated filer ☐ (Do not check if a smaller reporting company)	Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ☐ No ☒

The number of common units representing limited partner interests outstanding as of August 3, 2016 was 80,794,003.

Table of Contents

TABLE OF CONTENTS


			Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Information
	Unaudited Condensed Consolidated Financial Statements:		1
		Condensed Consolidated Statements of Financial Condition as of June 30, 2016 and December 31, 2015	1
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2016 and June 30, 2015	2
		Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and June 30, 2015	3
		Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2016	4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and June 30, 2015	5
		Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		91
Item 4.	Controls and Procedures		91
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings		92
Item 1A.	Risk Factors		92
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		93
Item 3.	Defaults Upon Senior Securities		93
Item 4.	Mine Safety Disclosures		93
Item 5.	Other Information		93
Item 6.	Exhibits		94
Signatures			95

Table of Contents

Forward‑Looking Statements

This report contains forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward‑looking statements by the use of forward‑looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. The forward‑looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward‑looking statements are subject to various risks, and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. Some of these factors are described in this form under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the risk factors and other cautionary statements that are included in this form and in our other periodic filings. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these forward‑looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Therefore, you should not place undue reliance on these forward‑looking statements. Any forward‑looking statement speaks only as of the date on which it is made. We do not undertake any obligation to publicly update or review any forward‑looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Under generally accepted accounting principles in the United States (“GAAP”), we are required to consolidate (a) entities other than limited partnerships and entities similar to limited partnerships in which we hold a majority voting interest or have majority ownership and control over the operational, financial and investing decisions of that entity, including Ares‑affiliates and affiliated funds and co‑investment entities, for which we are presumed to have controlling financial interests, and (b) entities that we concluded are variable interest entities (“VIEs”), including limited partnerships and CLOs, for which we are deemed to be the primary beneficiary. When an entity is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the entity in our condensed consolidated financial statements on a gross basis, subject to eliminations from consolidation, including the elimination of the management fees, performance fees and other fees that we earn from the entity. However, the presentation of performance fee compensation and other expenses associated with generating such revenues is not affected by the consolidation process. In addition, as a result of the consolidation process, the net income attributable to third‑party investors in consolidated entities is presented as net income attributable to redeemable interests and non‑controlling interests in Consolidated Funds in our Condensed Consolidated Statements of Operations.

In this form, in addition to presenting our results on a consolidated basis in accordance with GAAP, we present revenues, expenses and other results on a (i) “segment basis,” which deconsolidates these entities and therefore shows the results of our reportable segments without giving effect to the consolidation of the entities and (ii) “Stand Alone basis,” which shows the results of our reportable segments on a combined segment basis together with our Operations Management Group. In addition to our three segments, we have an Operations Management Group (the “OMG”) that consists of five independent, shared resource groups to support our reportable segments by providing infrastructure and administrative support in the areas of accounting/finance, operations/information technology, business development, legal/compliance and human resources. The OMG’s expenses are not allocated to our three reportable segments but we consider the cost structure of the OMG when evaluating our financial performance. This information constitutes non‑GAAP financial information within the meaning of Regulation G, as promulgated by the SEC. Our management uses this information to assess the performance of our reportable segments and our OMG, and we believe that this information enhances the ability of unitholders to analyze our performance. For more information, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Consolidation and Deconsolidation of Ares Funds,” “—Managing Business Performance—Non‑GAAP Financial Measures” and “—Segment Analysis—ENI and Other Measures.”

Table of Contents

Glossary

When used in this report, unless the context otherwise requires:

“ARCC Part I Fees” refers to a quarterly performance fee on the investment income from Ares Capital Corporation (NASDAQ: ARCC) (“ARCC”)

“Ares Operating Group Unit” or an “AOG Unit” refer to, collectively, a partnership unit in each of the Ares Operating Group entities.

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

“CLOs” refers to “our funds” which are structured as collateralized loan obligations;

“Consolidated Funds” refers collectively to certain Ares‑ affiliated funds, related co‑investment entities and certain CLOs that are required under GAAP to be consolidated in our condensed consolidated financial statements;

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

“economic net income” or “ENI”, a non-GAAP measure, is an operating metric used by management to evaluate total operating performance, a decision tool for deployment of resources, and an assessment of the performance of our business segments. ENI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, and (e) certain other items that we believe are not indicative of our total operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers and acquisitions and capital transactions, placement fees and underwriting costs and expenses incurred in connection with corporate reorganization;

“fee earning AUM” or “FEAUM” refers to the AUM on which we directly or indirectly earn management fees. Fee earning AUM is equal to the sum of all the individual fee bases of our funds that contribute directly or indirectly to our management fees;

Table of Contents

“fee paying AUM” or “FPAUM” refers to the AUM on which we directly earn management fees. Fee paying AUM is equal to the sum of all the individual fee bases of our funds that directly contribute to our management fees;

“fee related earnings” or “FRE”, a non-GAAP measure, refers to a component of ENI that is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it adjusts for the items included in the calculation of ENI and excludes performance fees, performance fee compensation, investment income from our Consolidated Funds and non-consolidated funds and certain other items that we believe are not indicative of our performance;

“management fees” refers to fees we earn for advisory services provided to our funds, which are generally based on a defined percentage of fair value of assets, total commitments, invested capital, net asset value, net investment income, total assets or par value of the investment portfolios managed by us and also include ARCC Part I Fees that are classified as management fees as they are predictable and recurring in nature, not subject to contingent repayment and generally cash‑settled each quarter;

“net performance fees” refers to performance fees net of performance fee compensation, which is the portion of the performance fees earned from certain funds that is payable to professionals;

“our funds” refers to the funds, alternative asset companies, co-investment vehicles and other entities and accounts that are managed or co‑managed by the Ares Operating Group, and which are structured to pay fees. It also includes funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of ARCC, and a registered investment adviser;

“performance fees” refers to fees we earn based on the performance of a fund, which are generally based on certain specific hurdle rates as defined in the fund’s investment management or partnership agreements and may be either an incentive fee or carried interest; and

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

“Credit Facility” refers to revolving credit facility of the Ares Operating Group;

“SEC” refers to Securities and Exchange Commission;

“Senior Notes” refers to senior notes of a wholly owned subsidiary of Ares Holding;

“Term Loan” refers to term loan of a wholly owned subsidiary of AM LLC;

Many of the terms used in this report, including AUM, FEAUM, FPAUM, ENI, FRE, PRE and DE, may not be comparable to similarly titled measures used by other companies. In addition, our definitions of AUM and FEAUM and FPAUM are not based on any definition of AUM, FEAUM or FPAUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM set forth in other agreements to which we are a party. Further, ENI, FRE, PRE and DE are not measures of performance calculated in accordance with GAAP. We use ENI, FRE, PRE and DE as measures of operating performance, not as measures of liquidity. ENI, FRE, PRE and DE should not be considered in isolation or as substitutes for operating income, net income, operating cash flows, or other income or cash flow statement data prepared in accordance with GAAP. The use of ENI, FRE, PRE and DE without consideration of related GAAP measures is not adequate due to the adjustments described above. Our management compensates for these limitations by using ENI, FRE, PRE and DE as supplemental measures to our GAAP results. We present these measures to provide a more complete understanding of our performance as our management measures it.

iii

Table of Contents

Amounts and percentages throughout this report may reflect rounding adjustments and consequently totals may not appear to sum.

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Ares Management, L.P.

Condensed Consolidated Statements of Financial Condition

(Amounts in Thousands, Except Unit Data)


	As of June 30,		As of December 31,
	2016		2015
	(unaudited)
Assets
Cash and cash equivalents	$	264,588	$	121,483
Investments (includes fair value investments of $463,530 and $446,779 at June 30, 2016 and December 31, 2015, respectively)		484,537		468,287
Performance fees receivable		626,064		534,661
Due from affiliates		166,039		144,982
Other assets		65,160		62,975
Intangible assets, net		70,568		84,971
Goodwill		143,855		144,067
Assets of Consolidated Funds:
Cash and cash equivalents		233,532		159,507
Investments, at fair value		2,529,173		2,559,783
Due from affiliates		10,125		12,923
Dividends and interest receivable		9,545		13,005
Receivable for securities sold		65,384		13,416
Other assets		3,034		1,348
Total assets	$	4,671,604	$	4,321,408
Liabilities
Accounts payable, accrued expenses and other liabilities	$	104,617	$	102,626
Accrued compensation		91,743		125,032
Due to affiliates		19,096		12,901
Performance fee compensation payable		480,979		401,715
Debt obligations		279,430		389,120
Equity compensation put option liability		20,000		20,000
Deferred tax liability, net		6,628		21,288
Liabilities of Consolidated Funds:
Accounts payable, accrued expenses and other liabilities		10,741		18,951
Payable for securities purchased		162,898		51,778
CLO loan obligations, at fair value		2,168,346		2,174,352
Fund borrowings		12,484		11,734
Total liabilities		3,356,962		3,329,497
Commitments and contingencies
Redeemable interest in Ares Operating Group entities		23,521		23,505
Preferred equity (12,400,000 units issued and outstanding at June 30, 2016)		298,971		—
Non-controlling interest in Consolidated Funds:
Non-controlling interest in Consolidated Funds		334,207		320,238
Equity appropriated for Consolidated Funds		—		3,367
Non-controlling interest in Consolidated Funds		334,207		323,605
Non-controlling interest in Ares Operating Group entities		397,640		397,883
Controlling interest in Ares Management, L.P. :
Partners' Capital (80,791,108 units and 80,697,600 units issued and outstanding at June 30, 2016 and at December 31, 2015, respectively)		268,835		251,537
Accumulated other comprehensive loss		(8,532)		(4,619)
Total controlling interest in Ares Management, L.P		260,303		246,918
Total equity		1,291,121		968,406
Total liabilities, redeemable interest, non-controlling interests and equity	$	4,671,604	$	4,321,408

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Ares Management, L.P.

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Unit Data)

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Revenues
Management fees (includes ARCC Part I Fees of $28,999, $57,624 and $29,250, $58,292 for the three and six months ended June 30, 2016 and 2015, respectively)	$	158,521	$	156,589	$	316,954	$	315,290
Performance fees		203,151		77,649		173,204		182,574
Administrative and other fees		7,863		6,926		15,392		13,205
Total revenues		369,535		241,164		505,550		511,069
Expenses
Compensation and benefits		112,654		99,085		223,333		200,936
Performance fee compensation		151,896		56,544		130,566		132,936
General, administrative and other expenses		38,686		53,331		78,648		98,878
Consolidated Funds' expenses		699		3,609		926		14,282
Total expenses		303,935		212,569		433,473		447,032
Other income (expense)
Net interest and investment income (net of interest expense of $4,828, $9,683 and $3,654, $7,338 for the three and six months ended June 30, 2016 and 2015, respectively)		4,993		2,646		1,634		4,059
Other income (expense), net		5,673		(1,693)		10,914		(3,568)
Net realized and unrealized gain (loss) on investments		(3,151)		4,880		1,991		19,719
Net interest and investment income of the Consolidated Funds (net of interest expense of $18,607, $41,056 and $19,043, $36,144 for the three and six months ended June 30, 2016 and 2015, respectively)		9,690		12,637		17,022		21,542
Net realized and unrealized gain (loss) on investments of Consolidated Funds		201		10,486		(29,606)		(1,788)
Total other income		17,406		28,956		1,955		39,964
Income before taxes		83,006		57,551		74,032		104,001
Income tax expense (benefit)		(4,434)		6,103		231		10,162
Net income		87,440		51,448		73,801		93,839
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds		1,054		12,629		(10,925)		1,515
Less: Net income attributable to redeemable interests in Ares Operating Group entities		339		185		349		428
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		48,473		26,548		49,893		61,354
Net income attributable to Ares Management, L.P.	$	37,574	$	12,086	$	34,484	$	30,542
Net income attributable to Ares Management, L.P. per common unit:
Basic	$	0.46	$	0.15		0.42		0.37
Diluted	$	0.46	$	0.15		0.42		0.37
Weighted-average common units
Basic		80,715,723		80,671,316		80,699,387		80,669,527
Diluted		82,332,193		81,720,919		81,752,468		80,669,527
Distribution declared and paid per common unit	$	0.15	$	0.25	$	0.35	$	0.49

Substantially all revenue is earned from affiliated funds of the Company.

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Ares Management, L.P.

Condensed Consolidated Statements of Comprehensive Income

(Amounts in Thousands)

(unaudited)


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015

Net income	$	87,440	$	51,448	$	73,801	$	93,839
Other comprehensive income:
Foreign currency translation adjustments		(7,628)		4,083		(10,325)		1,134
Total comprehensive income		79,812		55,531		63,476		94,973
Less: Comprehensive income (loss) attributable to non-controlling interests in Consolidated Funds		1,054		12,753		(10,925)		1,540
Less: Comprehensive income attributable to redeemable interests in Ares Operating Group entities		306		205		304		436
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities		43,768		29,008		43,526		62,067
Comprehensive income attributable to Ares Management, L.P.	$	34,684	$	13,565	$	30,571	$	30,930

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Ares Management, L.P.

Condensed Consolidated Statements of Changes in Equity

(Amounts in Thousands)

(unaudited)


									Consolidated Funds
					Accumulated		Non-Controlling		Equity		Non-Controlling
					Other		Interest in Ares		Appropriated		Interest in
		Preferred	Partners'		Comprehensive		Operating		for Consolidated		Consolidated		Total
	Equity		Capital		Loss		Group Entities		Funds		Funds		Equity
Balance at December 31, 2015	$	—	$	251,537	$	(4,619)	$	397,883	$	3,367	$	320,238	$	968,406
Cumulative effect of accounting change due to the adoption of ASU 2014-13		—		—		—		—		(3,367)		—		(3,367)
Issuance of preferred equity		298,971		—		—		—		—		—		298,971
Changes in ownership interests		—		202		—		(949)		—		—		(747)
Deferred tax assets effects arising from allocation of Partners' capital		—		4,089		—		(26)		—		—		4,063
Contributions		—		—		—		—		—		48,122		48,122
Distributions		—		(28,259)		—		(53,840)		—		(23,228)		(105,327)
Net income (loss)		—		34,484		—		49,893		—		(10,925)		73,452
Currency translation adjustment		—		—		(3,913)		(6,367)		—		—		(10,280)
Equity compensation		—		6,782		—		11,046		—		—		17,828
Balance at June 30, 2016	$	298,971	$	268,835	$	(8,532)	$	397,640	$	—	$	334,207	$	1,291,121

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Ares Management, L.P.

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(unaudited)


	Six months ended June 30,
	2016		2015
Cash flows from operating activities:
Net income	$	73,801	$	93,839
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity compensation expense		18,709		15,719
Depreciation and amortization		19,439		31,667
Net realized and unrealized gain on investments		(1,991)		(19,719)
Contingent consideration		204		1,587
Investments purchased		(46,811)		(51,388)
Proceeds from sale of investments		33,553		36,081
Allocable to non-controlling interests in Consolidated Funds:
Receipt of non-cash interest income and dividends from investments		(3,496)		(3,154)
Net realized and unrealized loss on investments		29,606		1,788
Amortization on debt and investments		(1,038)		(140)
Investments purchased		(595,756)		(1,146,831)
Proceeds from sale or pay down of investments		629,085		630,893
Cash flows due to changes in operating assets and liabilities:
Net performance fees receivable		(13,107)		(2,137)
Due to/from affiliates		(21,290)		8,852
Other assets		2,983		30,623
Accrued compensation and benefits		(32,158)		(48,344)
Accounts payable, accrued expenses and other liabilities		1,876		(38,292)
Deferred taxes		(14,660)		1,411
Allocable to non-controlling interest in Consolidated Funds:
Change in cash and cash equivalents held at Consolidated Funds		(74,025)		1,085,596
Cash relinquished with deconsolidation of Consolidated Funds		—		(870,390)
Change in other assets and receivables held at Consolidated Funds		(47,108)		(8,536)
Change in other liabilities and payables held at Consolidated Funds		111,209		(281,978)
Net cash provided by (used in) operating activities		69,025		(532,853)
Cash flows from investing activities:
Acquisitions, net of cash acquired		—		(64,437)
Purchase of furniture, equipment and leasehold improvements, net		(5,273)		(6,768)
Net cash used in investing activities		(5,273)		(71,205)
Cash flows from financing activities:
Other financing activities		(569)		85
Proceeds from credit facility		147,000		80,000
Repayments of credit facility		(257,000)		(30,000)
Proceeds from the issuance of preferred equity, net		298,971		—
Distributions		(82,462)		(119,335)
Allocable to non-controlling interest in Consolidated Funds:
Contributions from non-controlling interests in Consolidated Funds		48,122		107,034
Distributions to non-controlling interests in Consolidated Funds		(23,228)		(48,325)
Borrowings under loan obligations by Consolidated Funds		750		606,536
Repayments under loan obligations by Consolidated Funds		(45,612)		(39,706)
Net cash provided by financing activities		85,972		556,289
Effect of exchange rate changes		(6,619)		444
Net change in cash and cash equivalents		143,105		(47,325)
Cash and cash equivalents, beginning of period		121,483		148,858
Cash and cash equivalents, end of period	$	264,588	$	101,533
Supplemental information:
Ares Management, L.P. and consolidated subsidiaries:
Cash paid during the period for interest	$	8,612	$	5,776
Cash paid during the period for income taxes	$	6,486	$	7,691
Consolidated Funds:
Cash paid during the period for interest	$	24,829	$	15,908
Cash paid during the period for income taxes	$	126	$	284
Non-cash increase in assets and liabilities:
Issuance of AOG Units to non-controlling interest holders in connection with acquisitions	$	—	$	25,468

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

1. ORGANIZATION

Ares Management, L.P. (the “Company”), a Delaware limited partnership formed on November 15, 2013, is a leading global alternative asset management firm that operates three distinct but complementary investment groups: the Credit Group, the Private Equity Group and the Real Estate Group. Information about segments should be read together with Note 14, “Segment Reporting.” Subsidiaries of Ares Management LLC (“AM LLC”), a subsidiary of the Company, serve as the general partners and/or investment managers to various investment funds and managed accounts within each investment group (the “Ares Funds”), which are generally organized as pass‑through entities for income tax purposes. Such subsidiaries provide investment advisory services to the Ares Funds in exchange for management fees. Ares is managed and operated by its general partner, Ares Management GP LLC. Unless the context requires otherwise, references to “Ares” or the “Company” refer to Ares Management, L.P. together with its subsidiaries.

The Company is a holding partnership, and the Company’s sole assets are equity interests in Ares Holdings Inc. (“AHI”), Ares Domestic Holdings, Inc. (“Domestic Holdings”), Ares Offshore Holdings, Ltd., AI Holdco LLC (“AI”), and Ares Real Estate Holdings LLC. In this quarterly report, the following of the Company’s subsidiaries are collectively referred to as the “Ares Operating Group”: Ares Domestic Holdings L.P. (“Ares Domestic”), Ares Offshore Holdings L.P. (“Ares Offshore”), Ares Real Estate Holdings L.P. (“Ares Real Estate”), Ares Holdings L.P. (“Ares Holdings”), and Ares Investments L.P. (“Ares Investments”). The Company, indirectly through its wholly owned subsidiaries, is the general partner of each of the Ares Operating Group entities. The Company operates and controls all of the businesses and affairs of and conducts all of its material business activities through the Ares Operating Group.

Non-Controlling Interests in Ares Operating Group Entities

The non-controlling interests in Ares Operating Group (“AOG”) (collectively, the “Ares Operating Group Units” or “AOG Units”) represent a component of equity and net income attributable to the owners of AOG Units that are not held directly or indirectly by the Company. These interests are adjusted for contributions to and distributions from AOG during the reporting period and are allocated income from the Ares Operating Group entities based on their historical ownership percentage for the proportional number of days in the reporting period.

Income Allocation

Income (loss) before taxes is allocated based on each partner’s average daily ownership of the Ares Operating Group entities for each period presented.

As of June 30, 2016, the Company owned a 37.92% direct interest, or 80,791,108 AOG Units, in each of the Ares Operating Group entities; Ares Owners Holding L.P. owns a 56.21% direct interest, or 119,771,334 AOG Units, in each of the Ares Operating Group entities; and an affiliate of Alleghany Corporation (such affiliate, “Alleghany”) owns a 5.87% direct interest, or 12,500,000 AOG Units, in each of the Ares Operating Group entities. For the six months ended June 30, 2016, the daily average ownership of AOG Units in each of the AOG entities by the Company, Ares Owners Holding L.P., and Alleghany was 37.87%, 56.26% and 5.87%, respectively.

Preferred Equity Offering

In June 2016, the Company issued preferred equity consisting of 12,400,000 units designated as Series A Preferred Equity (the “Preferred Equity”), for a total offering price of $310.0 million. When, as and if declared by the Company’s board of directors, distributions on the Preferred Equity will be payable quarterly starting September 2016 at a rate per annum equal to 7.00%. The Preferred Equity may be redeemed at the Company’s option, in whole or in part, at any time on or after June 30, 2021, at a price of $25.00 per unit. The proceeds net of expenses totaling $299.0 million were temporarily used to repay the outstanding balance on the Company’s Credit Facility pending consummation of the ARCC-ACAS Transaction (see Note 9). If the ARCC-ACAS Transaction is not consummated, the Company intends to use the

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

net proceeds for general corporate purposes, including for acquisitions and investments and for temporary repayments of borrowings under the Credit Facility.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and instructions to the Quarterly Report on Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments (consisting of only normal recurring items) so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.

The condensed consolidated financial statements include the accounts and activities of the AOG entities, their consolidated subsidiaries and certain Consolidated Funds. These Consolidated Funds include certain Ares-affiliated funds, related co-investment entities and collateralized loan obligations (“CLOs”) (collectively, the “Consolidated Funds”) managed by AM LLC and its wholly owned subsidiaries that have been consolidated pursuant to GAAP. Including the results of the Consolidated Funds significantly increases the reported amounts of the assets, liabilities, revenues, expenses and cash flows in the accompanying condensed consolidated financial statements; however, the Consolidated Funds results included herein have no direct effect on the net income attributable to controlling interests or on total controlling equity. Instead, economic ownership interests of the investors in the Consolidated Funds are reflected as non-controlling interests in Consolidated Funds in the accompanying condensed consolidated financial statements. Further, cash flows allocable to non-controlling interest in Consolidated Funds are specifically identifiable in the Condensed Consolidated Statements of Cash Flows. All intercompany balances and transactions have been eliminated upon consolidation.

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

Equity Appropriated for Consolidated Funds and Adoption of ASU 2014-13

Effective January 1, 2016, the Company adopted FASB Accounting Standards Update (“ASU”) No. 2014-13, Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (“ASU 2014-13”). The Company applied the guidance using a modified retrospective approach by recording a cumulative-effect adjustment of $3.4 million to equity appropriated for Consolidated Funds as of January 1, 2016.

Prior to the adoption of ASU 2014-13, the Company elected the fair value option for eligible liabilities to mitigate the accounting mismatch between the carrying value of the assets and liabilities of its consolidated CLOs. As a result, the Company accounted for the excess of fair value of assets over liabilities as an increase in equity appropriated for Consolidated Funds.

Pursuant to the adoption of ASU 2014-13, the Company is required to determine whether the fair values of the financial assets or financial liabilities are more observable. Beginning January 1, 2016, the Company has determined that the fair value of the financial assets of the consolidated CLOs, which are mostly Level II assets within the GAAP fair value hierarchy, are more observable than the fair value of the financial liabilities of its consolidated CLOs, which are mostly Level III liabilities. As a result, the financial assets of consolidated CLOs are measured at fair value and the financial liabilities of the consolidated CLOs are measured in consolidation as: (1) the sum of the fair value of the financial assets, and the carrying value of any nonfinancial assets held temporarily, less (2) the sum of the fair value of any beneficial

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

interests retained by the Company (other than those that represent compensation for services), and the Company’s carrying value of any beneficial interests that represent compensation for services. The resulting amount is allocated to the individual financial liabilities (other than the beneficial interests retained by the Company).

Equity Compensation

Forfeitures

During the quarter ended March 31, 2016, the Company adopted ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). In accordance with ASU No. 2016-09, the Company elected to recognize share-based award forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific awards forfeited during that period. Prior to the adoption of ASU 2016-09, the Company applied an estimated forfeiture rate as a reduction of current period equity compensation expense.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all ASUs issued. ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. This ASU provides alternative methods of adoption. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, Deferral of the Effective Date. ASU 2015-14 defers the effective date of ASU 2014-09 by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date and permits early adoption of the standard, but not before the original effective date for fiscal years beginning after December 15, 2016. In March, April and May 2016, the FASB issued additional ASUs clarifying certain aspects of ASU 2014-09. The core principle of ASU 2014-09 was not changed by the additional guidance. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The objective of the guidance in ASU 2016-01 is to enhance the reporting model for financial instruments to provide more decision-useful information. ASU 2016-01 requires an entity to carry all of its investments in equity securities at fair value, and to recognize periodic changes of that fair value in income. This guidance excludes equity method investments, investments that result in the consolidation of the investee and investments for which the entity has elected the practicability exception to the fair value measurement requirements. The guidance should be applied using a cumulative-effect adjustment to the beginning balance of retained earnings as of the beginning of the fiscal year in which the guidance becomes effective. ASU 2016-01 is effective for public entities for annual reporting periods beginning after December 15, 2017 and interim periods within those reporting periods. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The objective of the guidance in ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and liabilities in the balance sheet and disclosing key information. ASU 2016-02 amends previous lease guidance, which required a lessee to categorize and account for leases as either operating leases or capital leases, and instead requires a lessee to recognize a lease liability and a right-of-use asset on the entity’s balance sheet for all leases with terms that exceed one year. The lease liability and right-of-use asset are to be carried at the present value of remaining expected future lease payments. The guidance should be applied using a modified retrospective approach. ASU 2016-02 is effective for public entities for annual reporting periods beginning after December 15, 2018 and interim periods within those reporting periods, with early

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323). ASU 2016-07 removes the requirement to retroactively apply the equity method of accounting for an investment that becomes eligible for the equity method due to an increase in the level of ownership interest or degree of influence. The investment should be accounted for as an equity method investment as of the date that it becomes qualified for such treatment. At this date, any unrealized holding gain (loss), if the investment was an available-for-sale equity security, should be recognized in earnings. ASU 2016-07 is effective for public entities for annual reporting periods beginning after December 15, 2016 and interim periods within those reporting periods, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations. The objective of the guidance in ASU 2016-08 is to provide clarity on the application of the current principal versus agent guidance. ASU 2016-08 clarifies how an entity should determine whether it is acting as a principal or an agent for each specified good or service promised to a customer and how to determine the nature of each specified good or service. The effective date and transition requirements of ASU 2016-08 are the same as that of ASU 2014-09. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

During the second quarter of 2016, two ASUs: ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients, were issued to provide clarification to previously issued revenue recognition guidance (ASU 2014-09) that has not yet been implemented. The two updates are required to be adopted with ASU 2014-09, but are not expected to change its application by the Company. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

In May 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the guidance in ASU 2016-13 is to allow entities to recognize estimated credit losses in the period that the change in valuation occurs. ASU 2016-13 requires an entity to present financial assets measured on an amortized cost basis on the balance sheet net of an allowance for credit losses. Available for sale and held to maturity debt securities are also required to be held net of an allowance for credit losses. The guidance should be applied using a modified retrospective approach. ASU 2016-13 is effective for public entities for annual reporting periods beginning after December 15, 2019 and interim periods within those reporting periods. Early adoption is permitted for annual and quarterly reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

3. GOODWILL AND INTANGIBLE ASSETS

Finite‑Lived Intangible Assets, Net

The Company’s intangible assets include acquired management contracts, client relationships, a trade name, and the future benefits of managing new assets for existing clients that were recognized at fair value as of their acquisition dates.

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


	Weighted Average
	Amortization Period		As of June 30,		As of December 31,
	at June 30, 2016		2016		2015
Management contracts	2.3	years	$	111,939	$	163,469
Client relationships	12.0	years		38,600		38,600
Trade name	6.0	years		3,200		3,200
				153,739		205,269
Foreign currency translation				(2,529)		(1,436)
Total intangible assets acquired				151,210		203,833
Less: accumulated amortization				(80,642)		(118,862)
Intangible assets, net			$	70,568	$	84,971

Amortization expense associated with intangible assets was $7.1 million and $16.6 million for the three months ended June 30, 2016 and 2015, respectively, and $14.4 million and $27.5 million for the six months ended June 30, 2016 and 2015, respectively, and is included in general, administrative and other expenses within the Condensed Consolidated Statements of Operations. During the first quarter of 2016, the Company removed $51.5 million of intangible assets that were fully amortized.

Goodwill

The following table summarizes the carrying value of the Company's goodwill assets:


			Private		Real
	Credit		Equity		Estate		Total
Balance as of December 31, 2015	$	32,196	$	58,600	$	53,271	$	144,067
Foreign currency translation		—		—		(212)		(212)
Balance as of June 30, 2016	$	32,196	$	58,600	$	53,059	$	143,855

There was no impairment of goodwill recorded as of June 30, 2016 or December 31, 2015.

4. INVESTMENTS

The Company’s investments are comprised of investments at fair value as a result of the election of the fair value option or in accordance with investment company accounting, equity-method investments (using the equity method or fair value option) and held-to-maturity investments.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

Fair Value Investments, excluding Equity-method Investments Held at Fair Value


					Fair value as a
					percentage of total
	Fair value at				investments at
	June 30,		December 31,		June 30,		December 31,
	2016		2015		2016		2015
Private Investment Partnership Interests:
AREA Sponsor Holdings, LLC	$	32,435	$	37,275	7.2	%	8.7	%
ACE II Master Fund, L.P. (1)(2)		22,537		22,015	5.0	%	5.2	%
Ares Corporate Opportunities Fund III, L.P.		101,450		108,506	22.7	%	25.4	%
Ares Corporate Opportunities Fund IV, L.P. (2)		36,972		30,571	8.3	%	7.2	%
Resolution Life L.P.		39,646		40,703	8.9	%	9.5	%
Other private investment partnership interests (1)(3)		160,576		132,405	35.8	%	31.0	%
Total private investment partnership interests (cost: $309,434 and $297,026 at June 30, 2016 and December 31, 2015, respectively)		393,616		371,475	87.9	%	87.0	%
Collateralized Loan Obligations Interests:
Collateralized loan obligations(3)		54,155		55,752	12.1	%	13.0	%
Total collateralized loan obligations (cost: $57,827 and $53,669 at June 30, 2016 and December 31, 2015, respectively)		54,155		55,752	12.1	%	13.0	%
Common Stock:
Common stock(3)		87		81	0.0	%	0.0	%
Total common stock (cost: $120 and $116 at June 30, 2016 and December 31, 2015, respectively)		87		81	0.0	%	0.0	%
Total fair value investments (cost: $367,381 and $350,811 at June 30, 2016 and December 31, 2015, respectively)	$	447,858	$	427,308

(1)

Investment or portion of the investment is denominated in foreign currency; fair value is translated into U.S. dollars at each reporting date

(2)

Represents underlying security that is held through various legal entities

(3)

No single issuer or investment had a fair value that exceeded 5% of the Company's total investments.

Equity-Method Investments

The Company’s equity-method investments include investments that are not consolidated but over which the Company exerts significant influence. The Company's equity-method investments, including those where the fair value option was elected, are summarized below:


	As of June 30, 2016		As of December 31, 2015
Equity-method investments	$	3,639	$	4,486
Equity-method investments at fair value		15,672		19,471
Total equity-method investments	$	19,311	$	23,957

The following table presents summarized financial information for an equity-method investment that the Company has determined to be significant based on the change in fair value:


		Three Months Ended				Six Months Ended
		Ended June 30,				Ended June 30,
		2016		2015		2016		2015

Revenue	$	755	$	(172)	$	1,511	$	941
Expenses		4,239		5,099		8,752		9,925
Net loss	$	(3,484)	$	(5,271)	$	(7,241)	$	(8,984)

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

Held-to-Maturity Investments

The Company classifies certain investments as held-to-maturity investments when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are reported as investments and are recorded at amortized cost. A summary of the cost and fair value of CLO notes classified as held-to-maturity investments is as follows:


	As of June 30, 2016		As of December 31, 2015
Amortized Cost	$	17,368	$	17,022
Unrealized loss, net		(562)		(334)
Fair value	$	16,806	$	16,688

Based on the Company’s ability and intent to hold the investments until maturity and the underlying credit performance, the Company has determined that the net unrealized losses are temporary impairments as of June 30, 2016 and December 31, 2015.

There were no sales of held-to-maturity investments during the six months ended June 30, 2016 and 2015. All contractual maturities are greater than 10 years as of June 30, 2016. Actual maturities may differ from contractual maturities because underlying collateral may have the right to call or prepay obligations with or without call or prepayment penalties.

Investments of the Consolidated Funds

Investments held in the Consolidated Funds are summarized below:


					Fair value as a
					percentage of total
	Fair value at				investments at
		June 30,	December 31,		June 30,		December 31,
	2016		2015		2016		2015
United States:
Fixed income securities:
Consumer discretionary	$	407,161	$	393,902	16.2	%	15.4	%
Consumer staples		45,017		40,030	1.8	%	1.6	%
Energy		46,341		38,617	1.8	%	1.5	%
Financials		75,041		78,806	3.0	%	3.1	%
Healthcare, education and childcare		171,475		162,191	6.8	%	6.3	%
Industrials		151,775		161,830	6.0	%	6.3	%
Information technology		172,128		138,186	6.8	%	5.4	%
Materials		97,395		95,767	3.9	%	3.7	%
Partnership interests		115,440		86,902	4.6	%	3.4	%
Telecommunication services		176,548		202,256	7.0	%	7.9	%
Utilities		29,820		12,733	1.2	%	0.5	%
Total fixed income securities (cost: $1,504,932 and $1,462,570 at June 30, 2016 and December 31, 2015, respectively)		1,488,141		1,411,220	59.1	%	55.1	%
Equity securities:
Healthcare, education and childcare		344		344	0.0	%	0.0	%
Telecommunication services		286		510	0.0	%	0.0	%
Total equity securities (cost: $5,620 and $8,304 at June 30, 2016 and December 31, 2015, respectively)	$	630	$	854	0.0	%	0.0	%

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


					Fair value as a
					percentage of total
	Fair value at				investments at
	June 30,			December 31,	June 30,		December 31,
	2016		2015		2016		2015
Europe:
Fixed income securities:
Consumer discretionary	$	170,248	$	221,707	6.7	%	8.7	%
Consumer staples		48,278		50,625	1.9	%	2.0	%
Financials		27,256		29,922	1.1	%	1.2	%
Healthcare, education and childcare		104,814		104,704	4.1	%	4.1	%
Industrials		104,005		109,778	4.1	%	4.3	%
Information technology		32,944		31,562	1.3	%	1.2	%
Materials		103,071		98,450	4.1	%	3.8	%
Telecommunication services		128,271		149,105	5.1	%	5.8	%
Utilities		788		768	0.0	%	0.0	%
Total fixed income securities (cost: $765,916 and $836,217 at June 30, 2016 and December 31, 2015, respectively)		719,675		796,621	28.4	%	31.1	%
Equity securities:
Consumer discretionary		3,872		4,306	0.2	%	0.2	%
Consumer staples		1,415		1,286	0.1	%	0.1	%
Healthcare, education and childcare		54,064		37,294	2.1	%	1.5	%
Telecommunication services		23		159	0.0	%	0.0	%
Total equity securities (cost: $89,778 and $ 80,827 at June 30, 2016 and December 31, 2015, respectively)		59,374		43,045	2.4	%	1.8	%
Asia and other:
Fixed income securities:
Consumer discretionary		25,541		34,810	1.0	%	1.4	%
Financials		1,236		—	0.0	%	—	%
Healthcare, education and childcare		10,440		23,999	0.4	%	0.9	%
Telecommunication services		8,706		9,909	0.3	%	0.4	%
Total fixed income securities (cost: $47,987 and $57,868 at June 30, 2016 and December 31, 2015, respectively)		45,923		68,718	1.7	%	2.7	%
Equity securities:
Consumer discretionary		31,600		55,532	1.2	%	2.2	%
Consumer staples		48,447		55,442	1.9	%	2.2	%
Healthcare, education and childcare		32,598		32,865	1.3	%	1.3	%
Industrials		12,891		12,891	0.5	%	0.5	%
Total equity securities (cost: $118,730 at June 30, 2016 and December 31, 2015, respectively)	$	125,536	$	156,730	4.9	%	6.2	%

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


					Fair value as a
					percentage of total
	Fair value at				investments at
		June 30,		December 31,	June 30,		December 31,
	2016		2015		2016		2015
Canada:
Fixed income securities:
Consumer discretionary	$	1,414	$	827	0.1	%	0.0	%
Consumer staples		3,987		1,369	0.2	%	0.1	%
Energy		7,199		8,724	0.3	%	0.3	%
Healthcare, education and childcare		12,969		14,819	0.5	%	0.6	%
Industrials		631		513	0.0	%	0.0	%
Telecommunication services		13,487		6,627	0.5	%	0.3	%
Total fixed income securities (cost: $40,534 and $34,397 at June 30, 2016 and December 31, 2015, respectively)		39,687		32,879	1.6	%	1.3	%
Equity securities:
Consumer discretionary		413		—	—		—
Total equity securities (cost: $408 and $0 at June 30, 2016 and December 31, 2015, respectively)		413		—	—		—
Australia:
Fixed income securities:
Energy		8,827		8,888	0.3	%	0.3	%
Industrials		4,635		3,657	0.2	%	0.1	%
Utilities		15,955		16,041	0.6	%	0.6	%
Total fixed income securities (cost: $36,827 and $39,574 at June 30, 2016 and December 31, 2015, respectively)		29,417		28,586	1.1	%	1.0	%
Equity securities:
Telecommunication services		2,242		5,370	0.1	%	0.2	%
Utilities		18,135		15,760	0.7	%	0.6	%
Total equity securities (cost: $23,693 and $25,524 at June 30, 2016 and December 31, 2015, respectively)		20,377		21,130	0.8	%	0.8	%
Total fixed income securities		2,322,843		2,338,024	91.9	%	91.2	%
Total equity securities		206,330		221,759	8.1	%	8.8	%
Total investments, at fair value	$	2,529,173	$	2,559,783

At June 30, 2016 and December 31, 2015, no single issuer or investment, including derivative instruments and underlying portfolio investments of the Consolidated Funds, had a fair value that exceeded 5.0% of the Company's total consolidated net assets.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

5. FAIR VALUE

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

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

Level I—Quoted prices in active markets for identical instruments.

Level II—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; and model‑derived valuations with directly or indirectly observable significant inputs. Level II inputs include prices in markets with few transactions, non-current prices that are not current, prices for which little public information exists or prices that vary substantially over time or among brokered market makers. Other inputs include interest rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates.

Level III—Valuations that rely on one or more significant unobservable inputs. These inputs reflect the Company’s assessment of the assumptions that market participants would use to value the instrument based on the best information available. In some instances, an instrument may fall into more than one level of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair value measurement. The Company’s assessment of the significance of an input requires judgment and considers factors specific to the instrument.

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

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of June 30, 2016:


Investments of the Company, at fair value	Level I		Level II		Level III		Investments Measured at NAV		Total
Fixed income-collateralized loan obligations	$	—	$	—	$	54,155	$	—	$	54,155
Equity securities		87		—		—		—		87
Partnership interests		—		—		44,746		364,542		409,288
Total investments, at fair value		87		—		98,901		364,542		463,530
Derivative assets of the Company, at fair value
Foreign exchange contracts		—		3,366		—		—		3,366
Total derivative assets, at fair value		—		3,366		—		—		3,366
Total	$	87	$	3,366	$	98,901	$	364,542	$	466,896
Derivative liabilities of the Company, at fair value
Foreign exchange contracts	$	—	$	(729)	$	—	$	—	$	(729)
Interest rate contracts		—		—		—		—		—
Total derivative liabilities, at fair value	$	—	$	(729)	$	—	$	—	$	(729)

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


Investments of Consolidated Funds, at fair value	Level I		Level II		Level III		Total
Bonds	$	—	$	112,590	$	79,545	$	192,135
Loans		—		1,857,441		151,641		2,009,082
Collateralized loan obligations		—		—		6,186		6,186
Total fixed income		—		1,970,031		237,372		2,207,403
Equity securities		44,494		18,479		143,334		206,307
Partnership interests		—		—		115,440		115,440
Other		—		23		—		23
Total investments, at fair value	$	44,494	$	1,988,533	$	496,146	$	2,529,173
Derivative assets of Consolidated Funds, at fair value
Foreign exchange contracts		—		289		—		289
Total derivative assets, at fair value		—		289		—		289
Total	$	44,494	$	1,988,822	$	496,146	$	2,529,462
Foreign exchange contracts	$	—	$	(297)	$	—	$	(297)
Others		—		—		(2,076)		(2,076)
Total derivative liabilities, at fair value		—		(297)		(2,076)		(2,373)
Loan obligations of CLOs		—		(2,168,346)		—		(2,168,346)
Total	$	—	$	(2,168,643)	$	(2,076)	$	(2,170,719)

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of December 31, 2015:


Investments of the Company, at fair value	Level I		Level II		Level III		Investments Measured at NAV		Total
Fixed income-collateralized loan obligations	$	—	$	—	$	55,752	$	—	$	55,752
Equity securities		81		—		—		—		81
Partnership interests		—		—		51,703		339,243		390,946
Total investments, at fair value		81		—		107,455		339,243		446,779
Derivative assets of the Company, at fair value
Foreign exchange contracts		—		1,339		—		—		1,339
Total derivative assets, at fair value		—		1,339		—		—		1,339
Total	$	81	$	1,339	$	107,455	$	339,243	$	448,118
Derivative liabilities of the Company, at fair value
Foreign exchange contracts	$	—	$	(176)	$	—	$	—	$	(176)
Interest rate contracts		—		(214)		—		—		(214)
Total derivative liabilities, at fair value	$	—	$	(390)	$	—	$	—	$	(390)


Investments of Consolidated Funds, at fair value	Level I		Level II		Level III		Total
Bonds	$	—	$	126,289	$	109,023	$	235,312
Loans		—		1,875,341		134,346		2,009,687
Collateralized loan obligations		—		—		6,121		6,121
Total fixed income		—		2,001,630		249,490		2,251,120
Equity securities		76,033		15,760		129,809		221,602
Partnership interests		—		—		86,902		86,902
Other		—		159		—		159
Total investments, at fair value	$	76,033	$	2,017,549	$	466,201	$	2,559,783
Derivative liabilities of Consolidated Funds, at fair value
Foreign exchange contracts	$	—	$	(369)	$	—	$	(369)
Others		—		—		(10,307)		(10,307)
Total derivative liabilities, at fair value		—		(369)		(10,307)		(10,676)
Loan obligations of CLOs		—		—		(2,174,352)		(2,174,352)
Total	$	—	$	(369)	$	(2,184,659)	$	(2,185,028)

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended June 30, 2016:




Investments and Derivatives of the Company	Fixed Income		Partnership Interests		Total
Balance, beginning of period	$	54,118	$	58,203	$	112,321
Purchases(1)		4		1,667		1,671
Sales(2)		(1,517)		—		(1,517)
Realized and unrealized appreciation (depreciation), net		1,550		(15,124)		(13,574)
Balance, end of period	$	54,155	$	44,746	$	98,901
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	718	$	(15,123)	$	(14,405)


							Other
					Partnership		Financial
Investments and Derivatives of Consolidated Funds	Equity Securities		Fixed Income		Interests		Instruments		Total
Balance, beginning of period	$	141,805	$	212,209	$	103,621	$	(4,127)	$	453,508
Transfer in		—		83,608		—		—		83,608
Transfer out		(15,384)		(31,290)		—		—		(46,674)
Purchases(1)		9,668		32,622		5,800		—		48,090
Sales(2)		—		(48,276)		—		88		(48,188)
Amortized discounts/premiums		—		255		—		(206)		49
Realized and unrealized appreciation (depreciation), net		7,245		(11,756)		6,019		2,169		3,677
Balance, end of period	$	143,334	$	237,372	$	115,440	$	(2,076)	$	494,070
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	7,245	$	(2,340)	$	6,020	$	1,967	$	12,892

(1)

Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2)

Sales include distributions, principal redemptions and securities disposed of in connection with restructurings.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended June 30, 2015:


Investments and Derivatives of the Company	Fixed Income		Partnership Interests		Total
Balance, beginning of period	$	15,823	$	50,348	$	66,171
Purchases(1)		-		6,000		6,000
Sales(2)		(492)		—		(492)
Realized and unrealized appreciation (depreciation), net		132		—		132
Balance, end of period	$	15,463	$	56,348	$	71,811
Decrease in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(27)	$	—	$	(27)


						Other
					Financial
Investments and Derivatives of Consolidated Funds	Equity Securities		Fixed Income		Instruments		Total
Balance, beginning of period	$	174,035	$	234,121	$	(14,393)	$	393,763
Transfer in		—		65,683		—		65,683
Transfer out		(13,662)		(40,887)		—		(54,549)
Purchases(1)		98,002		10,363		1,947		110,312
Sales(2)		—		(9,590)		—		(9,590)
Amortized discounts/premiums		—		667		(226)		441
Realized and unrealized appreciation (depreciation), net		16,974		8,609		(958)		24,625
Balance, end of period	$	275,349	$	268,966	$	(13,630)	$	530,685
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	3,650	$	(564)	$	(621)	$	2,465

(1)

Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2)

Sales include distributions, principal redemptions and securities disposed of in connection with restructurings.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the six months ended June 30, 2016:



Investments and Derivatives of the Company	Fixed Income		Partnership Interests		Total
Balance, beginning of period	$	55,752	$	51,703	$	107,455
Purchases(1)		7		8,167		8,174
Sales(2)		(2,293)		—		(2,293)
Realized and unrealized appreciation (depreciation), net		689		(15,124)		(14,435)
Balance, end of period	$	54,155	$	44,746	$	98,901
Decrease in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(455)	$	(15,123)	$	(15,578)


							Other
					Partnership		Financial
Investments and Derivatives of Consolidated Funds	Equity Securities		Fixed Income		Interests		Instruments		Total
Balance, beginning of period	$	129,809	$	249,490	$	86,902	$	(10,307)	$	455,894
Transfer in		—		72,636		—		—		72,636
Transfer out		(344)		(68,427)		—		—		(68,771)
Purchases(1)		9,668		45,951		13,100		—		68,719
Sales(2)		—		(46,865)		(300)		589		(46,576)
Amortized discounts/premiums		—		696		—		84		780
Realized and unrealized appreciation (depreciation), net		4,201		(16,109)		15,738		7,558		11,388
Balance, end of period	$	143,334	$	237,372	$	115,440	$	(2,076)	$	494,070
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	4,202	$	(7,566)	$	15,654	$	6,878	$	19,168

The following tables set forth a summary of changes in the fair value of the Level III measurements for the six months ended June 30, 2015:


Investments and Derivatives of the Company		Fixed Income		Partnership Interests		Total
Balance, beginning of period	$	—	$	45,348	$	45,348
Investment in deconsolidated fund(3)		17,815		—		17,815
Purchases(1)		3		11,000		11,003
Sales(2)		(1,255)		—		(1,255)
Realized and unrealized depreciation, net		(1,100)		—		(1,100)
Balance, end of period	$	15,463	$	56,348	$	71,811
Decrease in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(27)	$	—	$	(27)

(1)

Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2)

Sales include distributions, principal redemptions and securities disposed of in connection with restructurings.

(3) Balance for the Company was previously eliminated upon consolidation and not reported as Level III investments.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


							Other
					Partnership		Financial
Investments and Derivatives of Consolidated Funds	Equity Securities		Fixed Income		Interests		Instruments		Total
Balance, beginning of period	$	3,263,311	$	2,192,395	$	137,272	$	(20,993)	$	5,571,985
Deconsolidation of funds (3)		(3,080,402)		(1,897,304)		(137,272)		12,980		(5,101,998)
Transfer in		—		32,849		—		678		33,527
Transfer out		(17,281)		(78,020)		—		—		(95,301)
Purchases(1)		98,000		66,300		—		2,116		166,416
Sales(2)		(772)		(37,655)		—		—		(38,427)
Amortized discounts/premiums		—		(285)		—		(501)		(786)
Realized and unrealized appreciation (depreciation), net		12,493		(9,314)		—		(7,910)		(4,731)
Balance, end of period	$	275,349	$	268,966	$	—	$	(13,630)	$	530,685
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	10,100	$	(12,220)	$	—	$	(7,427)	$	(9,547)

(1)

Purchases include paid‑in‑kind interest and securities received in connection with restructurings.

(2)

Sales include distributions, principal redemptions and securities disposed of in connection with restructurings.

(3)

Represents investment in Consolidated Funds that were deconsolidated during the period.

The Company recognizes transfers between the levels as of the beginning of the period. Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market activity during the period and thus were valued using observable inputs either from independent pricing services or multiple brokers. Transfers into Level III were generally attributable to certain investments that experienced a less significant level of market activity during the period and thus were only able to obtain one or fewer quotes from a broker or independent pricing service. For the six months ended June 30, 2016 and 2015, there were no transfers between Level I and Level II.

The following table sets forth a summary of changes in the fair value of the Level III liabilities for the CLO loan obligations for the three and six months ended June 30, 2016 and 2015:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Balance, beginning of period	$	—	$	2,299,970	$	2,174,352	$	12,049,019
Accounting change due to the adoption of ASU 2014-13(1)		—		—		(2,174,352)		—
Deconsolidation of funds		—		—		—		(10,264,884)
Borrowings		—		—		—		602,077
Paydowns		—		3		—		(406)
Realized and unrealized gains, net		—		24,991		—		(60,842)
Balance, end of period	$	—	$	2,324,964	$	—	$	2,324,964

(1)

Upon adoption of ASU 2014-13, the debt obligations of consolidated CLOs are no longer considered Level III financial liabilities under the GAAP fair value hierarchy. As of January 1, 2016, the debt obligations of consolidated CLOs are measured on the basis of the fair value of the financial assets of the CLO and are classified as Level II financial liabilities.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of June 30, 2016:


	Fair			Unobservable
	Value		Valuation Technique(s)	Input(s)	Range
Assets
Partnership interests	$	44,746	Discounted Cash Flow	Discount Rate	10% - 50%
Collateralized loan obligations		54,155	Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	98,901

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of December 31, 2015:


	Fair			Unobservable
	Value		Valuation Technique(s)	Input(s)	Range
Assets
Partnership interests	$	40,703	Discounted Cash Flow	Discount Rate	10%
Partnership interests		11,000	Recent Transaction Price(1)	N/A	N/A
Collateralized loan obligations		55,752	Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	107,455

(1)

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

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of June 30, 2016:


						Weighted
		Fair Value	Valuation Technique(s)	Unobservable Input(s)	Range	Average
Assets
Equity securities
	$	59,764	EV market multiple analysis	EBITDA multiple(2)	1.9x - 11.2x	3.7x
		32,598	Market approach (comparable companies)	Net income multiple Illiquidity discount	30.0x - 40.0x 25%	35.0x 25%
		115,440	Discounted cash flow	Discount rate	14.0%	14.0%
		50,972	Recent transaction price(1)	N/A	N/A	N/A
Fixed income securities
		139,556	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
		6,971	EV market multiple analysis	EBITDA multiple(2)	9.2x	9.2x
		70,815	Income approach	Yield	3.3% - 13.3%	9.8%
		4,359	Discounted cash flow	Discount rate	11.0% - 15.3%	13.2%
		1,759	Market approach (comparable companies)	EBITDA multiple(2)	6.5x	6.5x
		2,360	Income approach	Collection rates	1.2x	1.2x
		11,552	Income approach	Constant prepayment rate Constant default rate Recovery rate	5.0% - 10.0% 11.9% - 25.1% 0.0% - 40.0%	6.9% 14.2% 15.0%
Total assets	$	496,146
Liabilities
Derivatives instruments of Consolidated Funds		2,076	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	2,076

(1)

(2)

“EBITDA” in the table above refers to earnings before interest, tax, depreciation and amortization.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of December 31, 2015:


		Fair Value	Valuation Technique(s)	Unobservable Input(s)	Range	Average
Assets
Equity securities
	$	42,887	EV market multiple analysis	EBITDA multiple(2)	1.6x - 10.4x	4.1x
		73,686	Market approach (comparable companies)	Net income multiple	10.0x - 40.0x	21.7x
		344	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
		12,891	Recent transaction price(1)	N/A	N/A	N/A
		86,902	Discounted cash flow	Discount rate	14.0%	14.0%
Fixed income securities
		22,934	EV market multiple analysis	EBITDA multiple(2)	1.6x - 11.0x	7.8x
		1,626	Market approach (comparable companies)	EBITDA multiple(2)	6.5x	6.5x
		130,131	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
		5,516	Discounted cash flow	Discount rate	11.0% - 15.3%	12.7%
		84,464	Income approach	Yield	3.3% - 13.3%	9.1%
		1,133	Income approach	Collection rates	1.2x	1.2x
		3,687	Income approach	Constant prepayment rate Constant default rate Recovery rate	5.0% - 10.0% 11.9% - 25.1% 0.0% - 40.0%	7.1% 14.6% 16.8%
Total assets	$	466,201
Liabilities
Loans payable of Consolidated Funds:
Fixed income	$	2,146,255	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
		28,097	Discounted cash flow	Discount rate Constant prepayment rate Constant default rate Recovery rate	8.0% - 10.0% 19.7% - 20.0% 2.0% 70.0% - 71.1%	8.7% 19.8% 2.0% 70.8%
Derivatives instruments of Consolidated Funds		10,307	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	2,184,659

(1)

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

(2)

“EBITDA” in the table above refers to earnings before interest, tax, depreciation and amortization.

For investments valued using net asset value (“NAV”) per share, a summary of fair value by segment along with the remaining unfunded commitment and any redemption restrictions of such investments are presented below:


	As of June 30, 2016				As of December 31, 2015
Segment		Fair Value	Unfunded Commitments		Fair Value		Unfunded Commitments		Redemption Restriction(s)
Credit Group	$	104,855	$	78,475	$	98,251	$	89,917	(1)(2)(3)
Private Equity Group		156,797		77,095		157,234		78,700	(1)
Real Estate Group		62,309		45,031		56,547		99,802	(1)
Operations Management Group		40,581		37,624		27,211		22,789	(1)(2)
Totals	$	364,542	$	238,225	$	339,243	$	291,208

(1)

Includes certain closed‑ended funds that do not permit investors to redeem their interests.

(2)

Includes certain open‑ended funds that are subject to a lock‑up period of six months after the closing date; after which an investor has the right to withdraw its capital.

(3)

Includes certain funds that are separately managed investment vehicles, which may be redeemed only upon dissolution or liquidation of the fund at the discretion of a simple majority of investors.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

6. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company and the Consolidated Funds are exposed to certain risks relating to their ongoing operations and use various types of derivative instruments primarily to mitigate against credit and foreign exchange risk. The derivative instruments used by the Company and Consolidated Funds include warrants, currency options, interest rate swaps, total return swaps and forward contracts. The derivative instruments are not designated as hedging instruments under the accounting standards for derivatives and hedging. The Company recognizes all of its derivative instruments at fair value as either assets or liabilities in the Condensed Consolidated Statements of Financial Condition with changes in value presented in the Condensed Consolidated Statements of Operations.

Quantitative Disclosures of Derivative Financial Instruments

The following tables identify the fair value and notional amounts of derivative contracts by major product type on a gross basis for the Company and the Consolidated Funds as of June 30, 2016 and December 31, 2015. These amounts may be offset (to the extent that there is a legal right to offset) and presented on a net basis in either other assets or accounts payable, accrued expenses and other liabilities in the Condensed Consolidated Statements of Financial Condition:


	As of June 30, 2016								As of December 31, 2015
	Assets				Liabilities				Assets				Liabilities
The Company	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Interest rate contracts	$	—	$	—	$	—	$	—	$	—	$	—	$	250,000	$	214
Foreign exchange contracts		47,137		3,366		33,984		729		94,634		1,339		53,245		176
Total derivatives, at fair value	$	47,137	$	3,366	$	33,984	$	729	$	94,634	$	1,339	$	303,245	$	390


	As of June 30, 2016								As of December 31, 2015
	Assets				Liabilities				Assets				Liabilities
Consolidated Funds	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Foreign exchange contracts	$	11,580	$	289	$	12,226	$	297	$	—	$	—	$	25,572	$	369
Other financial instruments		—		—		4,633		2,076		—		—		4,063		10,307
Total derivatives, at fair value		11,580		289		16,859		2,373		—		—		29,635		10,676
Other—equity(2)		253		—		—		—		522		159		—		—
Total	$	11,833	$	289	$	16,859	$	2,373	$	522	$	159	$	29,635	$	10,676

(1)

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

(2)

Includes the fair value of warrants which are presented as equity securities within investments of the Consolidated Funds in the Condensed Consolidated Statements of Financial Condition.

The tables below set forth the rights of offset and related arrangements associated with the Company’s derivative and other financial instruments as of June 30, 2016 and December 31, 2015. The columns titled “Gross Amounts Not Offset in the Statement of Financial Condition” in the tables below relate to derivative instruments that are eligible to be offset in accordance with applicable accounting guidance but for which management has elected not to offset in the Condensed Consolidated Statements of Financial Condition.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


							Gross Amounts
							Not Offset
							in the Statement
	Gross Amounts of		Gross Amounts		Net Amounts of		of Financial Condition
	Recognized Assets		Offset in Assets		Assets (Liabilities)		Financial
The Company as of June 30, 2016	(Liabilities)		(Liabilities)		Presented		Instruments		Net Amount
Assets:
Derivatives	$	3,366	$	—	$	3,366	$	(729)	$	2,637
Liabilities:
Derivatives		(729)		—		(729)		729		—
Net derivatives liabilities	$	2,637	$	—	$	2,637	$	—	$	2,637


							Gross Amounts
							Not Offset
							in the Statement
	Gross Amounts of		Gross Amounts		Net Amounts of		of Financial Condition
	Recognized Assets		Offset in Assets		Assets (Liabilities)		Financial
The Company as of December 31, 2015	(Liabilities)		(Liabilities)		Presented		Instruments		Net Amount
Assets:
Derivatives	$	1,339	$	—	$	1,339	$	(176)	$	1,163
Liabilities:
Derivatives		(390)		—		(390)		176		(214)
Net derivatives assets	$	949	$	—	$	949	$	—	$	949

The tables below set forth the rights of offset and related arrangements associated with the Consolidated Funds’ derivative and other financial instruments as of June 30, 2016 and December 31, 2015. The columns titled “Gross Amounts Not Offset in the Statement of Financial Condition” in the tables below relate to derivative instruments that are eligible to be offset in accordance with applicable accounting guidance but for which management has elected not to offset in the Condensed Consolidated Statements of Financial Condition.


							Gross Amounts Not
							Offset in the Statement
							of Financial Condition
	Gross Amounts of		Gross Amounts		Net Amounts of				Cash Collateral
	Recognized Assets		Offset in Assets		Assets (Liabilities)		Financial		Received
Consolidated Funds as of June 30, 2016	(Liabilities)		(Liabilities)		Presented		Instruments		(Pledged)		Net Amount
Assets:
Derivatives	$	1,814	$	(1,525)	$	289	$	289	$	—	$	—
Liabilities:
Derivatives		(3,898)		1,525		(2,373)		(289)		(8)		(2,076)
Net derivatives liabilities	$	(2,084)	$	—	$	(2,084)	$	—	$	(8)	$	(2,076)


							Gross Amounts Not
							Offset in the Statement
							of Financial Condition
	Gross Amounts of		Gross Amounts		Net Amounts of				Cash Collateral
	Recognized Assets		Offset in Assets		Assets (Liabilities)		Financial		Received
Consolidated Funds as of December 31, 2015	(Liabilities)		(Liabilities)		Presented		Instruments		(Pledged)		Net Amount
Assets:
Derivatives	$	85	$	(85)	$	—	$	—	$	—	$	—
Liabilities:
Derivatives		(10,761)		85		(10,676)		—		—		(10,676)
Net derivatives liabilities	$	(10,676)	$	—	$	(10,676)	$	—	$	—	$	(10,676)

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

7. DEBT

Debt represents the (a) the Credit Facility, (b) the Senior Notes, (c) the Term Loan, (d) loan obligations of the consolidated CLOs and (e) credit facilities of the Consolidated Funds. The Company has elected to measure the loan obligations of the consolidated CLOs at fair value and reflect the other debt obligations and borrowings of the Company, its subsidiaries and Consolidated Funds at cost.

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


				As of June 30, 2016				As of December 31, 2015
		Original Borrowing		Carrying			Carrying
	Maturity	Amount		Value		Interest Rate	Value		Interest Rate
Credit Facility(1)	4/30/2019		—	$	—	—	$	110,000	2.11%
Senior Notes (2)	10/8/2024	$	250,000		244,377	4.21%		244,077	4.21%
Term Loan(3)	7/29/2026	$	35,250		35,053	2.49%		35,043	2.18%
Total debt obligations				$	279,430		$	389,120

(1)

The Ares Operating Group entities are borrowers under the Credit Facility, which provides a $1.03 billion revolving line of credit with the ability to upsize to $1.28 billion (subject to obtaining commitments for any such additional borrowing capacity). It has a variable interest rate based on either LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change with our underlying credit agency rating. Currently, base rate loans bear interest calculated based on the base rate plus 0.75% or and the LIBOR rate loans bear interest calculated based on LIBOR plus 1.75%. The unused commitment fee is 0.25% per annum. There is a base rate and LIBOR floor of zero.

(2)

The Senior Notes were issued in October 2014 by Ares Finance Co. LLC (“AFC”), a subsidiary of the Company, at 98.268% of the face amount with interest paid semi-annually. The Company may redeem the Senior Notes prior to maturity, subject to the terms of the indenture.

(3)

In connection with risk retention requirements, the Term Loan was entered into in August 2015 by a subsidiary of the Company that acts as a manager to a CLO. The Term Loan is secured by collateral in the form of CLO senior tranches owned by the Company. To the extent the assets are not sufficient to cover the Term Loan, there is no further recourse to the Company to fund or repay the remaining balance. Interest is paid quarterly, and the Company also pays a fee of 0.025% of a maximum investment amount.

As of June 30, 2016, the Company and its subsidiaries were in compliance with all covenants under the Credit Facility, Senior Notes and Term Loan obligations.

The Company typically incurs and pays debt issuance costs when entering into a new debt obligation. Debt issuance costs may be recorded as a reduction of the corresponding debt obligation and are amortized over the term of the obligation. In connection with amending the terms of the Credit Facility, new debt issuance costs of approximately $0.6 were incurred during the six months ended June 30, 2016. The unamortized portion of the Credit Facility’s debt issuance costs of $5.8 million and $6.2 million as of June 30, 2016 and December 31, 2015, respectively, is included in other assets in the Condensed Consolidated Statements of Financial Condition. The unamortized portion of the Senior Notes and Term Loan debt issuance costs of $2.1 million and $2.2 million as of June 30, 2016 and December 31, 2015, respectively, is included in the net carrying value of the Company’s debt obligations in the Condensed Consolidated Statements of Financial Condition. Amortization of debt issuance costs was $0.6 million and $0.3 million for the three months ended June 30, 2016 and 2015, respectively, and $1.1 million and $0.7 million for the six months ended June 30, 2016 and 2015, and is included in net interest and investment income in the Condensed Consolidated Statements of Operations.

Loan Obligations of the Consolidated CLOs

Loan obligations of the Consolidated Funds that are CLOs ("Consolidated CLOs") represent amounts due to holders of debt securities issued by the Consolidated CLOs. Several of the Consolidated CLOs issued preferred shares representing the subordinated interests that are mandatorily redeemable upon the maturity dates of the senior secured loan obligations. As a result, these shares have been classified as liabilities and are included in CLO loan obligations in the Condensed Consolidated Statements of Financial Condition.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

As of June 30, 2016 and December 31, 2015, the following loan obligations were outstanding and classified as liabilities of the Company’s consolidated CLOs:


	As of June 30, 2016						As of December 31, 2015
					Weighted Average					Weighted Average
	Loan		Fair Value of		Remaining		Loan		Fair Value of	Remaining
	Obligations		Loan Obligations		Maturity In Years		Obligations		Loan Obligations	Maturity In Years
Senior secured notes(1)	$	2,068,119	$	2,040,235	9.05	$	2,101,506	$	2,054,123	9.55
Subordinated notes / preferred shares(2)		197,059		128,111	9.04		194,443		120,229	9.53
Total loan obligations of Consolidated CLOs	$	2,265,178	$	2,168,346		$	2,295,949	$	2,174,352

(1)

Original borrowings under the senior secured notes totaled $2.2 billion, with various maturity dates ranging from October 2024 to December 2025. The weighted average interest rate as of June 30, 2016 was 3.55%.

(2)

Original borrowings under the subordinated notes totaled $197.1 million, with various maturity dates ranging from October 2024 to December 2025. They do not have contractual interest rates, but instead receive distributions from the excess cash flows generated by each Consolidated CLO.

Loan obligations of the Consolidated CLOs are collateralized by the assets held by the Consolidated CLOs, consisting of cash and cash equivalents, corporate loans, corporate bonds and other securities. The assets of one Consolidated CLO may not be used to satisfy the liabilities of another Consolidated CLO. Loan obligations of the Consolidated CLOs include floating rate notes, deferrable floating rate notes, revolving lines of credit and subordinated notes. Amounts borrowed under the notes are repaid based on available cash flows subject to priority of payments under each Consolidated CLO’s governing documents.

Credit Facilities of the Consolidated Funds

Certain Consolidated Funds maintain credit facilities to fund investments between capital drawdowns. These facilities generally are collateralized by the unfunded capital commitments of the Consolidated Funds’ limited partners, bear an annual commitment fee based on unfunded commitments and contain various affirmative and negative covenants and reporting obligations, including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments and portfolio asset dispositions. The creditors of these facilities have no recourse to the Company. As of June 30, 2016 and December 31, 2015, the Consolidated Funds were in compliance with all financial and non‑financial covenants under such credit facilities.

The Consolidated Funds had the following revolving bank credit facilities outstanding as of June 30, 2016 and December 31, 2015:


				As of June 30, 2016			As of December 31, 2015
	Maturity	Total		Outstanding			Outstanding
Type of Facility	Date	Capacity		Loan(1)		Effective Rate	Loan(1)		Effective Rate
Consolidated Funds credit facility	01/01/23	$	18,000	$	12,484	2.19%	$	11,734	2.00%
Total borrowings of Consolidated Funds				$	12,484		$	11,734

(1)

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

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

8. REDEEMABLE INTERESTS

The following table sets forth a summary of changes in the redeemable interests in the Ares Operating Group entities as of June 30, 2016:




Beginning balance at December 31, 2015	$	23,505
Change in ownership		(2)
Distributions		(363)
Net income		349
Currency translation adjustment		(45)
Equity compensation		77
Ending Balance	$	23,521

Upon acquisition of Indicus Advisors, LLP (“Indicus”) in November 2011, certain former owners of Indicus (“Former Owners”) were provided a put option on their equity interest at a strike price of $40 million to be exercised during 2016 (“Fixed Price Put Option”), among other consideration. The Company has been notified of the Former Owners’ intention to exercise their Fixed Price Put Option. The Company is obligated to make payment of $40 million to settle this option in November 2016, subject to continuing negotiations.

9. COMMITMENTS AND CONTINGENCIES

Indemnification Arrangements

Consistent with standard business practices in the normal course of business, the Company enters into contracts that contain indemnities for affiliates of the Company, persons acting on behalf of the Company or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the Company’s maximum exposure under these arrangements cannot be determined and have not been recorded in the Condensed Consolidated Statements of Financial Condition. As of June 30, 2016, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Capital Commitments

As of June 30, 2016 and December 31, 2015, the Company had aggregate unfunded commitments of $619.9 million and $436.4 million, respectively, including commitments to both non-consolidated funds and Consolidated Funds.

As of June 30, 2016, the Company had $37.6 million in unfunded commitments to invest in certain funds managed by Kayne Anderson Capital Advisors, L.P.

ARCC and American Capital, Ltd. Merger Agreement

On May 23, 2016, ARCC and American Capital, Ltd. (“ACAS”) entered into a definitive merger agreement pursuant to which ARCC will acquire ACAS in a cash and stock transaction valued at approximately $3.43 billion (the "ARCC-ACAS Transaction"). To support the ARCC-ACAS Transaction, the Company, through its subsidiary Ares Capital Management LLC, which serves as the investment adviser to ARCC, will (i) provide $275 million of cash consideration, in the form of $1.20 per share of ACAS common stock, payable to ACAS shareholders in accordance with the terms and conditions set forth in the merger agreement at the closing of the ARCC-ACAS Transaction and (ii) waive, for each of the first ten calendar quarters beginning with the first full calendar quarter after the closing of the ARCC-ACAS Transaction, the lesser of (x) $10 million of ARCC Part I Fees and (y) the amount of ARCC Part I Fees for such quarter, to the extent earned and payable by ARCC in such quarter (collectively, the "Transaction Support").

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The Transaction Support is conditioned upon completion of the ARCC-ACAS Transaction. While there can be no assurances as to the exact timing, or that the ARCC-ACAS Transaction will be completed at all, the ARCC-ACAS Transaction is expected to be completed as early as the fourth quarter of 2016. The completion of the ARCC-ACAS Transaction is subject to certain conditions, including, among others, ACAS and ARCC shareholder approvals, required regulatory approvals, receipt of certain third party consents and other customary closing conditions.

Guarantees

On July 30, 2014, AM LLC agreed to provide credit support to a $75.0 million credit facility, (the “Guaranteed Facility”) entered into by a wholly owned subsidiary of Ares Commercial Real Estate Corporation (NYSE: ACRE) with a national banking association. AM LLC is the parent entity to ACRE’s external manager. In connection with the facility, AM LLC agreed to purchase all loans and other obligations outstanding under the Guaranteed Facility at a price equal to 100% of the outstanding balance (i) upon an acceleration or certain events of default by ACRE under the Guaranteed Facility or (ii) in the event that AM LLC’s corporate credit rating is downgraded to below investment grade, among other things. ACRE pays AM LLC a credit support fee of 1.50% per annum times the average amount of the loans outstanding under the Guaranteed Facility, payable monthly, and reimburses AM LLC for its out‑of‑pocket costs and expenses in connection with the Guaranteed Facility. The Company’s maximum exposure to loss shall not exceed $75.0 million plus accrued interest. The fair value of this guarantee recorded as of June 30, 2016 and December 31, 2015 was $1.7 million, and is included within accounts payable, accrued expenses and other liabilities in the Condensed Consolidated Statements of Financial Condition. There was no outstanding balance under the Guaranteed Facility as of June 30, 2016. The total outstanding balance under the Guaranteed Facility was $66.2 million as of December 31, 2015. This guarantee was extended and is currently scheduled to expire on September 30, 2016. The Company believes the likelihood of default by the subsidiary of ACRE to be remote.

In connection with the acquisition of Energy Investors Funds (“EIF”), contingent consideration is payable to EIF’s former membership interest holders if certain funds and co-investment vehicles meet certain revenue and fee paying commitment targets. The fair value of the liability for contingent consideration is subject to change until the liability is settled with the related impact recorded to our Condensed Consolidated Statements of Operations within other income (expense), net. As of June 30, 2016 and December 31, 2015, the estimated fair value of the contingent consideration liability was $38.2 million and $38.1 million, respectively.

Performance Fees

Generally, if at the termination of a fund (and increasingly at interim points in the life of a fund), the fund has not achieved investment returns that (in most cases) exceed the preferred return threshold or (in all cases) the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, the Company will be obligated to repay carried interest that was received by the Company in excess of the amounts to which the Company is entitled. This contingent obligation is normally reduced by income taxes paid by the Company related to its carried interest.

At June 30, 2016 and December 31, 2015, if the Company assumed all existing investments were worthless, the amount of performance fees subject to potential repayment, net of tax, which may differ from the recognition of revenue, would have been approximately $356.5 million and $322.2 million, respectively, of which approximately $275.3 million and $247.9 million, respectively, is reimbursable to the Company by certain professionals. Management believes the possibility of all of the investments becoming worthless is remote. As of December 31, 2015, if the funds were liquidated at their fair values, there would be no repayment obligation, and accordingly, the Company did not record a contingent repayment liability as of that date. Based on fair values of certain funds as of June 30, 2016, the Company has recorded a liability within due to affiliates associated with the contingent repayment obligation of $5.7 million, of which $3.4 million is recoverable from the Company’s senior professionals and other professionals who previously received performance

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

fees, and as such has been recorded within due from affiliates on the Company’s Condensed Consolidated Statements of Financial Condition.

Litigation

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

10. RELATED PARTY TRANSACTIONS

Substantially all of the Company’s revenue is earned from its affiliates, including management fees, performance fees, administrative expense reimbursements and service fees. The related accounts receivable are included within due from affiliates within the Condensed Consolidated Statements of Financial Condition, except that performance fees receivable, which are entirely due from affiliated funds, are presented separately within the Condensed Consolidated Statements of Financial Condition.

The Company has investment management agreements with various funds and accounts that it manages. In accordance with these agreements, the Consolidated Funds bear certain operating costs and expenses, which are initially paid by the Company and subsequently reimbursed by the Consolidated Funds. In addition, the Company has agreements to provide administrative services to various entities.

The Company also has entered into agreements with related parties to be reimbursed for providing administrative services, including ARCC, ACRE, Ares Dynamic Credit Allocation Fund, Inc. (“ARDC”), Ivy Hill Asset Management, L.P., European Senior Secured Loan Programme S.à.r.l. and ACF FinCo I L.P.

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

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

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

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


	As of June 30,		As of December 31,
	2016		2015
Due from affiliates:
Management fees receivable from non-consolidated funds	$	122,158	$	112,405
Contingent obligations due from employees		3,451		—
Payments made on behalf of and amounts due from non-consolidated funds		40,430		32,577
Due from affiliates—Company	$	166,039	$	144,982
Amounts due from portfolio companies and non-consolidated funds	$	10,125	$	12,923
Due from affiliates—Consolidated Funds	$	10,125	$	12,923
Due to affiliates:
Management fee rebates payable to non-consolidated funds	$	6,767	$	6,679
Management fees paid in advance		3,539		1,738
Contingent obligations to non-consolidated funds		5,715		—
Payments made by non-consolidated funds on behalf of and amounts due from the Company		3,075		4,484
Due to affiliates—Company	$	19,096	$	12,901

Due from Ares Funds and Portfolio Companies

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

11. INCOME TAXES

A substantial portion of the Company’s earnings flow through to owners of the Company without being subject to entity level income taxes. Consequently, a significant portion of the Company’s earnings reflects no provision for income taxes except those for foreign, state, city and local income taxes incurred at the entity level. A portion of the Company’s operations is held through AHI and Domestic Holdings, as well as corporate subsidiaries of Ares Investments, which are U.S. corporations for tax purposes. Their income is subject to U.S. federal, state and local income taxes and certain of its foreign subsidiaries are subject to foreign income taxes (for which a foreign tax credit can generally offset U.S. corporate taxes imposed on the same income). A provision for corporate level income taxes is included in the Company’s tax provision. The Company’s tax provision also includes entity level income taxes incurred by certain affiliated funds that are consolidated in these financial statements. The Company’s income tax expense (benefit) were $(4.4) million and $6.1 million for the three months ended June 30, 2016 and 2015, respectively, and $0.2 million and $10.2 million for the six months ended June 30, 2016 and 2015, respectively.

The Company’s effective income tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues and expenses between U.S. corporate subsidiaries that are subject to income taxes and those subsidiaries that are not. For the three and six months ended June 30, 2016 and 2015, the Company has utilized the discrete effective tax rate method to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. Additionally, the Company’s effective tax rate is influenced by the amount of income tax provision recorded for any affiliated funds that are consolidated in these financial statements. Consequently, the effective income tax rate is subject to significant variation from period to period.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign tax regulators. As of

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

June 30, 2016, the Company’s U.S. federal income tax returns for the years 2012 through 2016 are open under the normal statute of limitations and therefore subject to examination. State and local tax returns are generally subject to audit from 2011 to 2016. Foreign tax returns are generally subject to audit from 2010 to 2016. Although the outcome of tax audits is always uncertain, the Company does not believe the outcome of any future audit will have a material adverse effect on the Company’s condensed consolidated financial statements.

12. EARNINGS PER COMMON UNIT

Basic earnings per common unit is computed by dividing income available to common unitholders by the weighted‑average number of common units outstanding during the period. Diluted earnings per common unit is computed using the more dilutive method of either the two-class method or the treasury stock method.

For the three months ended June 30, 2016 and 2015, and the six months ended June 30, 2016, the treasury stock method was the more dilutive method for the unvested restricted units and no participating securities had rights to undistributed earnings. For the six months ended June 30, 2015, the two-class method was the more dilutive method for the unvested restricted units. The computation of diluted earnings per common unit for the three and six months ended June 30, 2016 and 2015 excludes the following options, restricted units and AOG Units, as their effect would have been anti-dilutive:


	For the three months ended				For the six months ended
	June 30,				June 30,
	2016		2015		2016		2015
Options		23,363,784		25,013,577		23,429,835		25,018,280
Restricted units		64,516		166		94,363		381
AOG units		132,350,586		132,436,444		132,366,701		132,427,727

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Net income attributable to Ares Management, L.P.	$	37,574	$	12,086	$	34,484	$	30,542
Earnings distributed to participating securities (restricted units)		(180)		(99)		(408)		(409)
Preferred stock dividends		(4)		(4)		(8)		(7)
Net income available to common unitholders	$	37,390	$	11,983	$	34,068	$	30,126
Basic weighted-average common units		80,715,723		80,671,316		80,699,387		80,669,527
Basic earnings per common unit	$	0.46	$	0.15	$	0.42	$	0.37

Net income attributable to Ares Management, L.P.	$	37,574	$	12,086	$	34,484	$	30,542
Earnings distributed to participating securities (restricted units)		—		—		—		(409)
Preferred stock dividends		(4)		(4)		(8)		(7)
Net income available to common unitholders	$	37,570	$	12,082	$	34,476	$	30,126
Effect of dilutive units:
Restricted units		1,616,470		1,049,603		1,053,081		—
Diluted weighted-average common units		82,332,193		81,720,919		81,752,468		80,669,527
Diluted earnings per common unit	$	0.46	$	0.15	$	0.42	$	0.37

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

13. EQUITY COMPENSATION

Ares Management, L.P. 2014 Equity Incentive Plan

In 2014, the Company adopted its Equity Incentive Plan, under which the Company granted options to acquire 24,835,227 common units, 4,936,051 restricted units to be settled in common units and 686,395 phantom common units to be settled in cash. Based on a formula as defined in the Equity Incentive Plan, the total number of units available to be issued under the Equity Incentive Plan resets and increases on January 1 each year. Accordingly, on January 1, 2016, the total number of units available for issuance under the Equity Incentive Plan increased to 31,962,710 units. During the six months ended June 30, 2016, a total of 731,499 units and unit options, net of forfeitures and vesting, were issued and 31,231,211 units remain available to be issued as of June 30, 2016.

Equity‑based compensation expense, net of forfeitures is included in the following table:


	For the three months ended					For the six months ended
	June 30,					June 30,
	2016		2015			2016	2015
Restricted units	$	4,686	$	3,465	$	9,449	$	6,910
Options		4,547		3,876		8,460		7,729
Phantom units		305		457		801		1,080
Equity-based compensation expense	$	9,538	$	7,798	$	18,710	$	15,719

No options or phantom units were granted in the six months ended June 30, 2016.

Restricted Units

Each restricted unit represents an unfunded, unsecured right of the holder to receive a common unit on a specific date. The restricted units generally vest and are settled in common units either (i) at a rate of one‑third per year, beginning on the third anniversary of the grant date, (ii) in their entirety on the fifth anniversary of the grant date, or (iii) at a rate of one-quarter per year, beginning on the first anniversary of the grant date. Compensation expense associated with restricted units is recognized on a straight‑line basis over the requisite service period of the award.

The holders of restricted units generally have the right to receive as current compensation an amount in cash equal to (i) the amount of any distribution paid with respect to a common unit multiplied by (ii) the number of restricted units held at the time such distributions are declared (“Distribution Equivalent”). For the three and six months ended June 30, 2016, Distribution Equivalents were made to the holders of restricted units in the amount of $0.9 million and $2.1 million, respectively, which are presented as distributions within the Condensed Consolidated Statements of Changes in Equity until forfeited, at which time the cumulative payments are reclassified to compensation and benefits expense.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following table presents unvested restricted units’ activity during the six months ended June 30, 2016 and 2015:


	2016				2015
			Weighted Average				Weighted Average
			Grant Date Fair				Grant Date Fair
	Restricted Units		Value Per Unit		Restricted Units		Value Per Unit
Balance - January 1		4,657,761	$	18.01		4,776,053	$	18.08
Granted		1,822,623		11.32		171,444		17.27
Vested		(24,368)		16.77		(8,463)		18.49
Forfeited		(348,125)		17.23		(170,352)		18.05
Balance - June 30		6,107,891	$	16.08		4,768,682	$	18.06

The total compensation expense expected to be recognized in all future periods associated with the restricted units is approximately $61.3 million as of June 30, 2016 and is expected to be recognized over the remaining weighted average period of 2.99 years.

Adoption of ASU 2016-09

The Company adopted ASU 2016-09 effective January 1, 2016 using a modified retrospective approach and recorded a cumulative-effect adjustment with the following impact to beginning equity:


	Partners' Capital			Non-Controlling Interest in Ares Operating Group Entities		Redeemable Interest in Ares Operating Group Entities
Balance at December 31, 2015	$	251,537	$	397,883	$	23,505
Retained earnings		(3,357)		(5,470)		(38)
Paid-in-capital - Equity compensation		3,767		6,138		43
Distributions - dividend equivalent		(410)		(668)		(5)
Balance at December 31, 2015 (as adjusted)	$	251,537	$	397,883	$	23,505

14. SEGMENT REPORTING

The Company operates through its distinct operating segments. In 2016, the Company revised its reportable segments by combining two of its segments into a single segment to reflect a change in how the Company is managed. The previously disclosed Tradable Credit Group segment and the Direct Lending Group segment have been combined into a single Credit Group segment. This change was made to more effectively manage the Company’s broad array of credit products and to better position the Credit Group to capitalize on future growth opportunities. The Company has presented its reportable segments for the three and six months ended June 30, 2015 in conformity with the three and six months ended June 30, 2016 presentation.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The Company’s three revised operating segments are:

Credit Group: The Company’s Credit Group is a leading manager of credit strategies across the non-investment grade credit universe in the U.S. and Europe, with approximately $62.1 billion of assets under management and approximately 133 funds as of June 30, 2016. The Credit Group offers a range of credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, credit opportunities, special situations, structured credit investments and U.S. and European direct lending. The Credit Group provides solutions for traditional fixed income investors seeking to access the syndicated loans and high yield bond markets and capitalize on opportunities across traded corporate credit. It additionally provides investors access to directly originated fixed and floating rate credit assets and the ability to capitalize on illiquidity premiums across the credit spectrum. The Credit Group’s syndicated loans strategy (formerly known as the bank loan strategy) focuses on liquid, traded non-investment grade secured loans to corporate issuers. The high yield bond strategy seeks to deliver a diversified portfolio of liquid, traded non-investment grade corporate bonds, including secured, unsecured and subordinated debt instruments. Credit opportunities is a “go anywhere” strategy seeking to capitalize on market inefficiencies and relative value opportunities across the capital structure. The special situations strategy seeks to invest opportunistically across a broad spectrum of distressed or mispriced investments, including corporate debt, rescue capital, private asset-backed investments, post-reorganization securities and non-performing portfolios. The structured credit strategy (formerly known as the asset-backed strategy) invests across the capital structures of syndicated collateralized loan obligation vehicles (CLOs) and in directly-originated asset-backed instruments comprised of diversified portfolios of consumer and commercial assets. The Company is one of the largest self-originating direct lenders to the U.S. and European middle markets, providing one-stop financing solutions for small-to-medium sized companies, which we believe are increasingly underserved by traditional lenders. The Credit Group conducts its U.S. corporate lending activities primarily through ARCC, the largest business development company as of March 31, 2016, by both market capitalization and total assets. In addition, the Credit Group manages a commercial finance business that provides asset-based and cash flow loans to small and middle-market companies, as well as asset-based facilities to specialty finance companies. The Credit Group’s European direct lending platform is one of the most significant participants in the European middle-market, focusing on self-originated investments in illiquid middle-market credits.

Private Equity Group: The Company’s Private Equity Group has approximately $23.0 billion of assets under management as of June 30, 2016, broadly categorizing its investment strategies as corporate private equity and U.S. power and energy infrastructure. The group manages five corporate private equity commingled funds focused on North America and Europe, one commingled China growth fund, five commingled funds and six related co-investment vehicles focused on U.S. power and energy infrastructure as of June 30, 2016. In its North American and European flexible capital strategy, the Company targets opportunistic majority or shared-control investments in businesses with strong franchises and attractive growth opportunities in North America and Europe. The China growth capital strategy focuses on privately negotiated, minority growth equity investments in China in companies that operate in industries the Company believes will be the primary drivers of China’s economic growth over the next decade. The U.S. power and energy infrastructure strategy targets U.S. energy infrastructure-related assets across the power generation, transmission and midstream sectors, seeking attractive risk-adjusted equity returns with current cash flow and capital appreciation.

Real Estate Group: The Company’s Real Estate Group manages comprehensive public and private equity and debt strategies, with approximately $10.1 billion of assets under management across approximately 48 funds as of June 30, 2016. Real Estate equity strategies focus on applying hands-on value creation initiatives to mismanaged and capital-starved assets, as well as new development, ultimately selling stabilized assets back into the market. The Real Estate Group manages both a value-add strategy and an opportunistic strategy. The value-add strategy seeks to create value by buying assets at attractive valuations and through active asset management of income-producing property types across the U.S. and Western Europe. The opportunistic strategy focuses on manufacturing core assets through development, redevelopment and fixing distressed capital structures across major property types in the U.S. and Europe. The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and manage commercial mortgage investments on properties that

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

range from stabilized to requiring hands-on value creation. In addition to managing private debt funds, the Real Estate Group makes debt investments through a publicly traded commercial mortgage REIT, ACRE.

The Company has an Operations Management Group (the “OMG”) that consists of five shared resource groups to support the Company’s operating segments by providing infrastructure and administrative support in the areas of accounting/finance, operations/information technology, business development, legal/compliance and human resources. Additionally, the OMG provides services to certain of the Company’s investment companies and partnerships, which reimburse the OMG for expenses equal to the costs of services provided. The OMG’s expenses are not allocated to the Company’s three reportable segments but the Company does consider the cost structure of the OMG when evaluating its financial performance.

Economic net income (“ENI”), a non-GAAP measure, is an operating metric used by management to evaluate total operating performance, a decision tool for deployment of resources, and an assessment of the performance of our business segments. ENI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) placement fees and underwriting costs (e) the effects of changes arising from corporate actions, and (f) certain other items that we believe are not indicative of our total operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers and acquisitions and capital transactions, and expenses incurred in connection with corporate reorganization.

Fee related earnings (“FRE”), a non-GAAP measure, refers to a component of ENI that is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it adjusts for the items included in the calculation of ENI and excludes performance fees, performance fee compensation, investment income from our Consolidated Funds and non-consolidated funds and certain other items that we believe are not indicative our performance.

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

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

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

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

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended June 30, 2016:


			Private		Real						Total
	Credit		Equity		Estate		Total				Stand
	Group		Group		Group		Segments		OMG		Alone
Management fees (Credit Group includes ARCC Part I Fees of $28,999)	$	110,770	$	35,612	$	16,230	$	162,612	$	—	$	162,612
Other fees(1)		550		334		435		1,319		—		1,319
Compensation and benefits		(45,479)		(13,191)		(10,165)		(68,835)		(28,218)		(97,053)
General, administrative and other expenses		(6,609)		(2,925)		(2,399)		(11,933)		(15,380)		(27,313)
Fee related earnings		59,232		19,830		4,101		83,163		(43,598)		39,565
Performance fees—realized		16,024		62,779		2,801		81,604		—		81,604
Performance fees—unrealized		16,603		105,450		1,261		123,314		—		123,314
Performance fee compensation—realized		(754)		(50,224)		(53)		(51,031)		—		(51,031)
Performance fee compensation—unrealized		(14,755)		(84,337)		(1,773)		(100,865)		—		(100,865)
Net performance fees		17,118		33,668		2,236		53,022		—		53,022
Investment income (loss)—realized		123		3,003		695		3,821		(31)		3,790
Investment income (loss)—unrealized		7,032		420		(1,067)		6,385		(11,904)		(5,519)
Interest and other investment income		8,098		8,206		36		16,340		(19)		16,321
Interest expense		(2,450)		(1,397)		(272)		(4,119)		(709)		(4,828)
Net investment income (loss)		12,803		10,232		(608)		22,427		(12,663)		9,764
Performance related earnings		29,921		43,900		1,628		75,449		(12,663)		62,786
Economic net income	$	89,153	$	63,730	$	5,729	$	158,612	$	(56,261)	$	102,351
Distributable earnings	$	76,074	$	41,130	$	8,374	$	125,578	$	(48,758)	$	76,820

(1) For the three months ending June 30, 2016, the Company presented compensation and benefits expenses and general, administrative and other expenses net of the administrative fees earned from certain funds. As a result, for the three months ended June 30, 2016, $6.0 million and $0.5 million of administrative fees have been reclassified from other fees to compensation and benefits expenses and general, administrative and other expenses, respectively.

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended June 30, 2015:


			Private		Real						Total
	Credit		Equity		Estate		Total				Stand
	Group		Group		Group		Segments		OMG		Alone
Management fees (Credit Group includes ARCC Part I Fees of $29,250)	$	108,180	$	36,373	$	15,934	$	160,487	$	—	$	160,487
Other fees(1)		99		36		731		866		—		866
Compensation and benefits		(43,036)		(11,226)		(9,992)		(64,254)		(21,811)		(86,065)
General, administrative and other expenses		(6,825)		(3,200)		(3,709)		(13,734)		(15,067)		(28,801)
Fee related earnings		58,418		21,983		2,964		83,365		(36,878)		46,487
Performance fees—realized		40,081		18,878		102		59,061		—		59,061
Performance fees—unrealized		(26,175)		41,863		3,886		19,574		—		19,574
Performance fee compensation—realized		(22,617)		(15,102)		—		(37,719)		—		(37,719)
Performance fee compensation—unrealized		16,151		(33,795)		(1,181)		(18,825)		—		(18,825)
Net performance fees		7,440		11,844		2,807		22,091		—		22,091
Investment income (loss)—realized		5,903		3,105		255		9,263		—		9,263
Investment income (loss)—unrealized		(6,533)		2,085		953		(3,495)		—		(3,495)
Interest and other investment income		3,933		1,330		18		5,281		—		5,281
Interest expense		(1,736)		(1,658)		(260)		(3,654)		—		(3,654)
Net investment income (loss)		1,567		4,862		966		7,395		—		7,395
Performance related earnings		9,007		16,706		3,773		29,486		—		29,486
Economic net income	$	67,425	$	38,689	$	6,737	$	112,851	$	(36,878)	$	75,973
Distributable earnings	$	81,605	$	28,242	$	2,090	$	111,937	$	(38,981)	$	72,956

(1) For the three months ending June 30, 2015, the Company presented compensation and benefits expenses and general, administrative and other expenses net of the administrative fees earned from certain funds. As a result, for the three months ended June 30, 2015,

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

$5.3 million and $0.9 million of administrative fees have been reclassified from other fees to compensation and benefits expenses and general, administrative and other expenses, respectively.

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the six months ended June 30, 2016:


			Private		Real						Total
	Credit		Equity		Estate		Total				Stand
	Group		Group		Group		Segments		OMG		Alone
Management fees (Credit Group includes ARCC Part I Fees of $57,624)	$	220,211	$	72,094	$	32,975	$	325,280	$	—	$	325,280
Other fees(1)		659		674		693		2,026		—		2,026
Compensation and benefits		(89,393)		(25,358)		(20,879)		(135,630)		(57,208)		(192,838)
General, administrative and other expenses		(11,660)		(5,829)		(5,701)		(23,190)		(32,665)		(55,855)
Fee related earnings		119,817		41,581		7,088		168,486		(89,873)		78,613
Performance fees—realized		22,202		62,779		2,972		87,953		—		87,953
Performance fees—unrealized		(12,724)		93,307		5,383		85,966		—		85,966
Performance fee compensation—realized		(2,737)		(50,224)		(53)		(53,014)		—		(53,014)
Performance fee compensation—unrealized		1,850		(75,396)		(4,006)		(77,552)		—		(77,552)
Net performance fees		8,591		30,466		4,296		43,353		—		43,353
Investment income (loss)—realized		285		2,891		563		3,739		(88)		3,651
Investment income (loss)—unrealized		3,025		(7,325)		1,732		(2,568)		(11,519)		(14,087)
Interest and other investment income		15,677		8,115		928		24,720		(68)		24,652
Interest expense		(4,898)		(2,802)		(546)		(8,246)		(1,437)		(9,683)
Net investment income (loss)		14,089		879		2,677		17,645		(13,112)		4,533
Performance related earnings		22,680		31,345		6,973		60,998		(13,112)		47,886
Economic net income	$	142,497	$	72,926	$	14,061	$	229,484	$	(102,985)	$	126,499
Distributable earnings	$	144,157	$	60,735	$	11,717	$	216,609	$	(98,508)	$	118,101

(1) For the six months ending June 30, 2016, the Company presented compensation and benefits expenses and general, administrative and other expenses net of the administrative fees earned from certain funds. As a result, for the six months ended June 30, 2016, $11.8 million and $1.6 million of administrative fees have been reclassified from other fees to compensation and benefits expenses and general, administrative and other expenses, respectively.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the six months ended June 30, 2015:


			Private		Real						Total
	Credit		Equity		Estate		Total				Stand
	Group		Group		Group		Segments		OMG		Alone
Management fees (Credit Group includes ARCC Part I Fees of $58,292)	$	216,528	$	72,962	$	33,313	$	322,803	$	—	$	322,803
Other fees(1)		197		49		1,585		1,831		—		1,831
Compensation and benefits		(85,601)		(23,547)		(20,123)		(129,271)		(45,445)		(174,716)
General, administrative and other expenses		(13,950)		(6,318)		(6,253)		(26,521)		(29,288)		(55,809)
Fee related earnings		117,174		43,146		8,522		168,842		(74,733)		94,109
Performance fees—realized		75,295		19,303		102		94,700		—		94,700
Performance fees—unrealized		(45,376)		129,194		4,206		88,024		—		88,024
Performance fee compensation—realized		(43,621)		(15,442)		—		(59,063)		—		(59,063)
Performance fee compensation—unrealized		30,682		(103,776)		(779)		(73,873)		—		(73,873)
Net performance fees		16,980		29,279		3,529		49,788		—		49,788
Investment income (loss)—realized		14,521		7,277		387		22,185		—		22,185
Investment income (loss)—unrealized		(9,902)		643		1,149		(8,110)		—		(8,110)
Interest and other investment income		2,407		5,815		47		8,269		—		8,269
Interest expense		(3,470)		(3,338)		(530)		(7,338)		—		(7,338)
Net investment income (loss)		3,556		10,397		1,053		15,006		—		15,006
Performance related earnings		20,536		39,676		4,582		64,794		—		64,794
Economic net income	$	137,710	$	82,822	$	13,104	$	233,636	$	(74,733)	$	158,903
Distributable earnings	$	157,312	$	55,328	$	5,472	$	218,112	$	(77,861)	$	140,251

(1) For the six months ending June 30, 2015, the Company presented compensation and benefits expenses and general, administrative and other expenses net of the administrative fees earned from certain funds. As a result, for the six months ended June 30, 2015, $10.5 million and $2.1 million of administrative fees have been reclassified from other fees to compensation and benefits expenses and general, administrative and other expenses, respectively.

The following table presents the components of the Company’s operating segments’ revenue, expenses and other income (loss):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Segment Revenues
Management fees (includes ARCC Part I Fees of $28,999, $57,624 and $29,250, $58,292 for the three and six months ended June 30, 2016 and 2015, respectively)	$	162,612	$	160,487	$	325,280	$	322,803
Other fees		1,319		866		2,026		1,831
Performance fees—realized		81,604		59,061		87,953		94,700
Performance fees—unrealized		123,314		19,574		85,966		88,024
Total segment revenues	$	368,849	$	239,988	$	501,225	$	507,358
Segment Expenses
Compensation and benefits	$	68,835	$	64,254	$	135,630	$	129,271
General, administrative and other expenses		11,933		13,734		23,190		26,521
Performance fee compensation—realized		51,031		37,719		53,014		59,063
Performance fee compensation—unrealized		100,865		18,825		77,552		73,873
Total segment expenses	$	232,664	$	134,532	$	289,386	$	288,728
Other Income (Expense)
Investment income (loss)—realized	$	3,821	$	9,263		3,739		22,185
Investment income (loss)—unrealized		6,385		(3,495)		(2,568)		(8,110)
Interest and other investment income		16,340		5,281		24,720		8,269
Interest expense		(4,119)		(3,654)		(8,246)		(7,338)
Total other income	$	22,427	$	7,395	$	17,645	$	15,006

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following table reconciles segment revenue to Ares consolidated revenues:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Total segment revenue	$	368,849	$	239,988	$	501,225	$	507,358
Consolidated Fund revenue eliminated in consolidation		(4,842)		(2,972)		(7,453)		(5,831)
Other fees(1)		6,544		6,167		13,366		12,552
Performance fees reclass(2)		(1,016)		(2,019)		(1,588)		(3,010)
Total consolidated adjustments and reconciling items		686		1,176		4,325		3,711
Total consolidated revenue	$	369,535	$	241,164	$	505,550	$	511,069

(1)

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

(2)

Related to performance fees for AREA Sponsor Holdings LLC, an investment pool. Changes in value of this investment are reflected within other income (expense) in the Company’s Condensed Consolidated Statements of Operations.

The following table reconciles segment expenses to Ares consolidated expenses:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Total segment expenses	$	232,664	$	134,532	$	289,386	$	288,728
Consolidated Fund expenses added in consolidation		5,288		7,614		11,267		22,973
Consolidated Fund expenses eliminated in consolidation		(4,589)		(4,005)		(10,341)		(8,691)
Other fees(1)		6,544		6,167		13,366		12,552
OMG expenses		43,598		36,878		89,873		74,733
Acquisition and merger-related expenses		85		3,526		353		5,750
Equity compensation expense		9,536		7,798		18,709		15,719
Placement fees and underwriting costs		1,754		1,462		2,684		4,507
Amortization of intangibles		7,121		16,646		14,384		27,538
Depreciation expense		1,934		1,951		3,792		3,223
Total consolidation adjustments and reconciling items		71,271		78,037		144,087		158,304
Total consolidated expenses	$	303,935	$	212,569	$	433,473	$	447,032

(1)

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

The following table reconciles segment other income (expense) to Ares consolidated other income:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Total other income	$	22,427	$	7,395	$	17,645	$	15,006
Consolidated Funds other income (expense) added in consolidation, net		7,168		22,667		(15,635)		20,084
Other income (expense) from Consolidated Funds eliminated in consolidation, net		(566)		(3,124)		11,673		1,875
OMG other expense		(12,663)		—		(13,112)		—
Performance fee reclass(1)		1,016		2,019		1,588		3,010
Other non-cash expense		24		(1)		(204)		(11)
Total consolidation adjustments and reconciling items		(5,021)		21,561		(15,690)		24,958
Total consolidated other income (expense)	$	17,406	$	28,956	$	1,955	$	39,964

(1)

Related to performance fees for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations.

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


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Economic net income
Income before taxes	$	83,006	$	57,551	$	74,032	$	104,001
Adjustments:
Amortization of intangibles		7,121		16,646		14,384		27,538
Depreciation expense		1,934		1,951		3,792		3,223
Equity compensation expenses		9,536		7,798		18,709		15,719
Acquisition and merger-related expenses		61		3,526		557		5,750
Placement fees and underwriting costs		1,754		1,462		2,684		4,507
OMG expenses, net		56,261		36,878		102,985		74,733
Other non-cash expense		—		1		—		11
(Income) loss before taxes of non-controlling interests in Consolidated Funds, net of eliminations		(1,061)		(12,962)		12,341		(1,846)
Total consolidation adjustments and reconciling items		75,606		55,300		155,452		129,635
Economic net income		158,612		112,851		229,484		233,636
Total performance fees income - realized		(81,604)		(59,061)		(87,953)		(94,700)
Total performance fees income - unrealized		(123,314)		(19,574)		(85,966)		(88,024)
Total performance fee compensation - realized		51,031		37,719		53,014		59,063
Total performance fee compensation - unrealized		100,865		18,825		77,552		73,873
Total investment income		(22,427)		(7,395)		(17,645)		(15,006)
Fee related earnings		83,163		83,365		168,486		168,842
Performance fees—realized		81,604		59,061		87,953		94,700
Performance fee compensation—realized		(51,031)		(37,719)		(53,014)		(59,063)
Investment and other income realized, net		14,657		10,890		18,828		23,116
Additional adjustments:
Dividend equivalent(1)		(552)		(717)		(1,236)		(1,401)
One-time acquisition costs(1)		(12)		253		(282)		(471)
Income tax expense(1)		(249)		(391)		(481)		(867)
Non-cash items		683		(253)		847		(409)
Placement fees and underwriting costs(1)		(1,747)		(1,463)		(2,685)		(4,507)
Depreciation and amortization(1)		(938)		(1,089)		(1,807)		(1,828)
Distributable earnings	$	125,578	$	111,937	$	216,609	$	218,112
Performance related earnings
Economic net income	$	158,612	$	112,851	$	229,484	$	233,636
Less: fee related earnings		(83,163)		(83,365)		(168,486)		(168,842)
Performance related earnings	$	75,449	$	29,486	$	60,998	$	64,794

(1)

Certain costs are reduced by the amounts attributable to OMG, which is excluded from segment results.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

15. CONSOLIDATION

Investments in Consolidated Variable Interest Entities

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

Investments in Non-Consolidated Variable Interest Entities

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

The Company's interests and the Consolidated Funds' interests in consolidated and non-consolidated VIEs, as presented in the Condensed Consolidated Statements of Financial Condition, and their respective maximum exposure to loss relating to non-consolidated VIEs (excluding fixed arrangements) are as follows:


	As of June 30,		As of December 31,
	2016		2015
Maximum exposure to loss attributable to the Company's investment in non-consolidated VIEs	$	292,196	$	284,169
Maximum exposure to loss attributable to the Company's investment in consolidated VIEs	$	152,829	$	160,858
Assets of consolidated VIEs	$	2,850,793	$	2,759,981
Liabilities of consolidated VIEs	$	2,388,228	$	2,256,517

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2016		2015		2016		2015
Net income (loss) attributable to non-controlling interests related to consolidated VIEs	$	1,054	$	12,629	$	(10,925)	$	1,515

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)

CONSOLIDATING SCHEDULES

The following supplemental financial information illustrates the consolidating effects of the Consolidated Funds on the Company’s financial condition as of June 30, 2016 and December 31, 2015 and results from operations for the three and six months ended June 30, 2016 and 2015.


	As of June 30, 2016
	Consolidated		Consolidated
	Company Entities		Funds		Eliminations		Consolidated
Assets
Cash and cash equivalents	$	264,588	$	—	$	—	$	264,588
Investments (includes fair value investments of $463,533)		637,366		—		(152,829)		484,537
Performance fees receivable		632,382		—		(6,318)		626,064
Due from affiliates		169,265		—		(3,226)		166,039
Intangible assets, net		70,568		—		—		70,568
Goodwill		143,855		—		—		143,855
Other assets		65,160		—		—		65,160
Assets of Consolidated Funds
Cash and cash equivalents				233,532		—		233,532
Investments, at fair value		—		2,529,173		—		2,529,173
Due from affiliates		—		10,125		—		10,125
Dividends and interest receivable		—		9,545		—		9,545
Receivable for securities sold		—		65,384		—		65,384
Other assets		—		3,034		—		3,034
Total assets	$	1,983,184	$	2,850,793	$	(162,373)	$	4,671,604
Liabilities
Accounts payable, accrued expenses and other liabilities	$	104,617	$	—	$	—	$	104,617
Accrued compensation		91,743		—		—		91,743
Due to affiliates		19,352		—		(256)		19,096
Performance fee compensation payable		480,979		—		—		480,979
Debt obligations		279,430		—		—		279,430
Equity compensation put option liability		20,000		—		—		20,000
Deferred tax liability, net		6,628		—		—		6,628
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities		—		10,741		—		10,741
Due to affiliates		—		5,598		(5,598)		—
Payable for securities purchased		—		162,898		—		162,898
CLO loan obligations		—		2,196,507		(28,161)		2,168,346
Fund borrowings		—		12,484		—		12,484
Total liabilities		1,002,749		2,388,228		(34,015)		3,356,962
Commitments and contingencies
Redeemable interest in Ares Operating Group entities		23,521		—		—		23,521
Preferred equity (12,400,000 units issued and outstanding at June 30, 2016)		298,971		—		—		298,971
Non-controlling interest in Consolidated Funds		—		462,565		(128,358)		334,207
Non-controlling interest in Ares Operating Group entities		397,640		—		—		397,640
Controlling interest in Ares Management, L.P.:
Partners' Capital (80,791,108 units issued and outstanding)		268,835		—		—		268,835
Accumulated other comprehensive loss		(8,532)		—		—		(8,532)
Total controlling interest in Ares Management, L.P		260,303		—		—		260,303
Total equity		956,914		462,565		(128,358)		1,291,121
Total liabilities, redeemable interests, non-controlling interests and equity	$	1,983,184	$	2,850,793	$	(162,373)	$	4,671,604

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


	As of December 31, 2015
	Consolidated		Consolidated
	Company Entities		Funds		Eliminations		Consolidated
Assets
Cash and cash equivalents	$	121,483	$	—	$	—	$	121,483
Investments (includes fair value investments of $446,779)		636,092		—		(167,805)		468,287
Performance fees receivable		541,852		—		(7,191)		534,661
Due from affiliates		149,771		—		(4,789)		144,982
Other assets		62,975		—		—		62,975
Intangible assets, net		84,971		—		—		84,971
Goodwill		144,067		—		—		144,067
Assets of Consolidated Funds
Cash and cash equivalents		—		159,507		—		159,507
Investments, at fair value		—		2,559,783		—		2,559,783
Due from affiliates		—		13,360		(437)		12,923
Dividends and interest receivable		—		13,005		—		13,005
Receivable for securities sold		—		13,416		—		13,416
Other assets		—		1,348		—		1,348
Total assets	$	1,741,211	$	2,760,419	$	(180,222)	$	4,321,408
Liabilities
Accounts payable, accrued expenses and other liabilities	$	102,734	$	—	$	(108)	$	102,626
Accrued compensation		125,032		—		—		125,032
Due to affiliates		13,016		—		(115)		12,901
Performance fee compensation payable		401,715		—		—		401,715
Debt obligations		389,120		—		—		389,120
Equity compensation put option liability		20,000		—		—		20,000
Deferred tax liability, net		21,288		—		—		21,288
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities		—		18,956		(5)		18,951
Due to affiliates		—		5,617		(5,617)		—
Payable for securities purchased		—		51,778		—		51,778
CLO loan obligations		—		2,202,628		(28,276)		2,174,352
Fund borrowings		—		11,734		—		11,734
Total liabilities		1,072,905		2,290,713		(34,121)		3,329,497
Commitments and contingencies
Redeemable interest in Ares Operating Group entities		23,505		—		—		23,505
Non-controlling interest in Consolidated Funds:
Non-controlling interest in Consolidated Funds		—		466,339		(146,101)		320,238
Equity appropriated for Consolidated Funds		—		3,367		—		3,367
Non-controlling interest in Consolidated Funds		—		469,706		(146,101)		323,605
Non-controlling interest in Ares Operating Group entities		397,883		—		—		397,883
Controlling interest in Ares Management, L.P.:
Partners' Capital ( 80,679,600 units issued and outstanding)		251,537		—		—		251,537
Accumulated other comprehensive loss		(4,619)		—		—		(4,619)
Total controlling interest in Ares Management, L.P		246,918		—		—		246,918
Total equity		644,801		469,706		(146,101)		968,406
Total liabilities, redeemable interests, non-controlling interests and equity	$	1,741,211	$	2,760,419	$	(180,222)	$	4,321,408

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


	For the Three Months Ended June 30, 2016
	Consolidated		Consolidated
	Company Entities		Funds		Eliminations		Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $28,999)	$	162,612	$	—	$	(4,091)	$	158,521
Performance fees		203,902		—		(751)		203,151
Administrative and other fees		7,863		—		—		7,863
Total revenues		374,377		—		(4,842)		369,535
Expenses
Compensation and benefits		112,654		—		—		112,654
Performance fee compensation		151,896		—		—		151,896
General, administrative and other expense		38,686		—		—		38,686
Consolidated Fund expenses		—		5,288		(4,589)		699
Total expenses		303,236		5,288		(4,589)		303,935
Other income (expense)
Net interest and investment expense (net of interest expense of $4,828)		5,845		—		(852)		4,993
Other income, net		5,673		—		—		5,673
Net realized and unrealized loss on investments		(714)		—		(2,437)		(3,151)
Net interest and investment income of Consolidated Funds (net of interest expense of $18,607)		—		8,336		1,354		9,690
Net realized and unrealized loss on investments of Consolidated Funds		—		(1,168)		1,369		201
Total other income		10,804		7,168		(566)		17,406
Income before taxes		81,945		1,880		(819)		83,006
Income tax expense (benefit)		(4,441)		7		—		(4,434)
Net income		86,386		1,873		(819)		87,440
Less: Net income attributable to non-controlling interests in Consolidated Funds		—		1,873		(819)		1,054
Less: Net income attributable to redeemable interests in Ares Operating Group entities		339		—		—		339
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		48,473		—		—		48,473
Net income attributable to Ares Management, L.P.	$	37,574	$	—	$	—	$	37,574

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


	For the Three Months Ended June 30, 2015
	Consolidated		Consolidated
	Company Entities		Funds		Eliminations		Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $29,250)	$	160,487	$	—	$	(3,898)	$	156,589
Performance fees		76,616		—		1,033		77,649
Administrative and other fees		7,033		—		(107)		6,926
Total revenues		244,136		—		(2,972)		241,164
Expenses
Compensation and benefits		99,085		—		—		99,085
Performance fee compensation		56,544		—		—		56,544
General, administrative and other expense		53,331		—		—		53,331
Consolidated Fund expenses		—		7,614		(4,005)		3,609
Total expenses		208,960		7,614		(4,005)		212,569
Other income (expense)
Net interest and investment income (net of interest expense of $3,654)		3,615		—		(969)		2,646
Other income (expense), net		(1,991)		—		298		(1,693)
Net realized and unrealized gain on investments		7,789		—		(2,909)		4,880
Net interest and investment income of Consolidated Funds (net of interest expense of $19,043)		—		11,743		894		12,637
Net realized and unrealized gain (loss) on investments of Consolidated Funds		—		10,924		(438)		10,486
Total other income		9,413		22,667		(3,124)		28,956
Income before taxes		44,589		15,053		(2,091)		57,551
Income tax expense		5,770		333		—		6,103
Net income		38,819		14,720		(2,091)		51,448
Less: Net income attributable to non-controlling interests in Consolidated Funds		—		14,720		(2,091)		12,629
Less: Net income attributable to redeemable interests in Ares Operating Group entities		185		—		—		185
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		26,548		—		—		26,548
Net income attributable to Ares Management, L.P.	$	12,086	$	—	$	—	$	12,086

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


	For the Six Months Ended June 30, 2016
	Consolidated		Consolidated
	Company Entities		Funds		Eliminations		Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $57,624)	$	325,280	$	—	$	(8,326)	$	316,954
Performance fees		172,331		—		873		173,204
Administrative and other fees		15,392		—		—		15,392
Total revenues		513,003		—		(7,453)		505,550
Expenses
Compensation and benefits		223,333		—		—		223,333
Performance fee compensation		130,566		—		—		130,566
General, administrative and other expense		78,648		—		—		78,648
Consolidated Fund expenses		—		11,267		(10,341)		926
Total expenses		432,547		11,267		(10,341)		433,473
Other income (expense)
Net interest and investment income (net of interest expense of $9,683)		3,852		—		(2,218)		1,634
Other income, net		10,914		—		—		10,914
Net realized and unrealized gain (loss) on investments		(8,849)		—		10,840		1,991
Net interest and investment income of Consolidated Funds (net of interest expense of $41,056)		—		13,610		3,412		17,022
Net realized and unrealized loss on investments of Consolidated Funds		—		(29,245)		(361)		(29,606)
Total other income (loss)		5,917		(15,635)		11,673		1,955
Income (loss) before taxes		86,373		(26,902)		14,561		74,032
Income tax expense (benefit)		1,647		(1,416)		—		231
Net income (loss)		84,726		(25,486)		14,561		73,801
Less: Net loss attributable to non-controlling interests in Consolidated Funds		—		(25,486)		14,561		(10,925)
Less: Net income attributable to redeemable interests in Ares Operating Group entities		349		—		—		349
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		49,893		—		—		49,893
Net income attributable to Ares Management, L.P.	$	34,484	$	—	$	—	$	34,484

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Unit Data and as Otherwise Noted)


	For the Six Months Ended June 30, 2015
	Consolidated		Consolidated
	Company Entities		Funds		Eliminations		Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $58,292)	$	322,803	$	—	$	(7,513)	$	315,290
Performance fees		179,714		—		2,860		182,574
Administrative and other fees		14,383		—		(1,178)		13,205
Total revenues		516,900		—		(5,831)		511,069
Expenses
Compensation and benefits		200,936		—		—		200,936
Performance fee compensation		132,936		—		—		132,936
General, administrative and other expense		98,878		—		—		98,878
Consolidated Fund expenses		—		22,973		(8,691)		14,282
Total expenses		432,750		22,973		(8,691)		447,032
Other income (expense)
Net interest and investment income (net of interest expense of $7,338)		5,964		—		(1,905)		4,059
Other income (expense), net		(5,044)		—		1,476		(3,568)
Net realized and unrealized gain on investments		17,085		—		2,634		19,719
Net interest and investment income of Consolidated Funds (net of interest expense of $36,144)		—		17,957		3,585		21,542
Net realized and unrealized gain on investments of Consolidated Funds		—		2,127		(3,915)		(1,788)
Total other income		18,005		20,084		1,875		39,964
Income (loss) before taxes		102,155		(2,889)		4,735		104,001
Income tax expense		9,831		331		—		10,162
Net income (loss)		92,324		(3,220)		4,735		93,839
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds		—		(3,220)		4,735		1,515
Less: Net income attributable to redeemable interests in Ares Operating Group entities		428		—		—		428
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		61,354		—		—		61,354
Net income attributable to Ares Management, L.P.	$	30,542	$	—	$	—	$	30,542

16. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after June 30, 2016 through the date the condensed consolidated financial statements were issued. During this period, the Company had the following material subsequent events that require disclosure:

In August 2016, the Company declared a quarterly distribution of $0.28 per common unit to common unit holders of record at the close of business on August 23, 2016, payable on September 6, 2016.

In August 2016, the Company declared a quarterly distribution of $0.544444 per preferred equity unit to preferred equity unit holders of record at the close of business on September 15, 2016, payable on September 30, 2016.

Table of Contents

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Ares Management, L.P. is a Delaware limited partnership formed on November 15, 2013. Unless the context otherwise requires, references to “we,” “us,” “our,” “the Partnership” and “the Company” are intended to mean the business and operations of Ares Management, L.P. and its consolidated subsidiaries. The following discussion analyzes the financial condition and results of operations of the Partnership. “Consolidated Funds” refers collectively to certain Ares‑affiliated funds, related co‑investment entities and certain CLOs 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.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included within this Quarterly Report on Form 10‑Q and the audited, consolidated financial statements and the related notes included in the 2015 Annual Report on Form 10‑K of Ares Management, L.P.

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.

Our Business

We are a leading global alternative asset manager that operates through distinct but complementary investment groups, which are our reportable segments. In 2016, we revised our reportable segments by combining two of our segments into a single segment to reflect a change in how we manage our operations. The previously disclosed Tradable Credit Group segment and the Direct Lending Group segment have been combined into a single Credit Group segment. This change was made in order to manage our broad array of credit products in a more effective manner and to better position the Credit Group to capitalize on future growth opportunities. We have presented our reportable segments for the three and six months ended June 30, 2015 to conform to the three and six months ended June 30, 2016 presentation.

Our reportable segments are Credit Group, Private Equity Group and Real Estate Group. For a detailed description of our reportable segments, see Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

The focus of our business model is to provide our investment management capabilities through various funds and products that meet the needs of a wide range of institutional and retail investors. Our revenues consist primarily of management fees and performance fees, as well as investment income and administrative expense reimbursements. Management fees are generally based on a defined percentage of average fair value of assets, total commitments, invested capital, net asset value, net investment income or par value of the investment portfolios we manage. Performance fees are based on certain specific hurdle rates as defined in the funds’ applicable investment management or partnership agreements and represent either an incentive fee or carried interest. Other income (expense) represents the investment income, realized gains (losses) and unrealized appreciation (depreciation) resulting from the investments of the Company and the Consolidated Funds, as well as interest expense. Administrative expense reimbursements are administrative services that we provide to certain of our affiliated funds that are reported within administrative and other fees for GAAP reporting but are presented net of respective expenses for segment reporting. In accordance with GAAP, we are required to consolidate those funds in which we hold a significant economic interest and substantive control rights. However, for segment reporting purposes, we present revenues and expenses on a combined segment basis, which shows the results of our reportable segments without giving effect to the consolidation of the funds. Accordingly, our segment revenues consist of management fees, other income, as well as realized and unrealized performance fees, and net investment income. Our segment expenses consist of compensation and benefits, net of administrative fees, general, administrative and other expenses, net of administrative fees, as well as realized and unrealized performance fee compensation.

Table of Contents

Trends Affecting Our Business

We believe that our disciplined investment philosophy across our three distinct but complementary investment groups contributes to the stability of our firm’s performance throughout market cycles. Additionally, as approximately 52% of our assets under management (“AUM”) were in funds with a contractual life of seven years or more as of June 30, 2016, our funds have a stable base of committed capital which enables us to invest in assets with a long term focus over different points in a market cycle and take advantage of market volatility. However, our results of operations, including the fair value of our AUM, are affected by a variety of factors, including conditions in the global financial markets and the economic and political environments, particularly in the United States and Western Europe.

The broad-based rally that began in mid-February continued through the second quarter of 2016 as capital markets generally benefited from ongoing accommodative central bank policies, rising commodity prices and a robust technical environment. Despite weak domestic economic data and market volatility following the vote by referendum in the United Kingdom in late June to exit the European Union (“Brexit”), the leveraged finance market recouped much of the post-Brexit-vote price losses in the final days of the quarter. Throughout the quarter, the low -- and, in some regions, negative -- yield environment prompted investors up the risk spectrum, supporting non-investment grade credit asset prices partly through retail fund inflows. High yield bonds posted strong returns during the second quarter of 2016, with the BofA Merrill Lynch U.S. High Yield Master II Index (“H0A0”) increasing 5.88%, extending the index’s total return since mid-February (when oil prices bottomed) to 15.30%. Leveraged loans fared similarly, with the Credit Suisse Leveraged Loan Index (“CSLLI”) increasing 2.86% during the second quarter of 2016 due to generally favorable technical conditions. For the year-to-date period through June 30, the H0A0 and CSLLI returned 9.32% and 4.23%, respectively, versus returns of 2.49% and 2.87% for the same period last year. After dropping more than 5.0% in the two trading sessions following the announcement of the Brexit vote, the S&P 500 recovered and ended the quarter solidly in positive territory, returning 2.46%. The equity markets have seen more balanced performance, as concern over decelerating economic growth and declining corporate earnings growth partly offset the general move toward risk assets. On a year-to-date basis, equities lagged credit with a return of 3.84% through June 30.

The June 23, 2016 Brexit vote was the focus of the European markets during the second quarter of 2016, particularly as poll results suggested an increasingly tight margin in the days and weeks preceding the vote. The result was generally unexpected, and prompted geo-political uncertainty and foreign currency fluctuations in the UK and Europe, as well as volatility within the global financial markets. As a result, European credit indices posted negative returns in June, but still ended the quarter in positive territory as the accommodative monetary posture by the European Central Bank (“ECB”) continues to act as an overriding support mechanism. The Merrill Lynch European High Yield Index increased 1.73% and the Credit Suisse Western European Leveraged Loan Index was up 1.78% for the quarter, contributing to year-to-date returns of 3.53% and 2.90%, respectively. Looking forward, uncertainty persists as a result of a number of factors: low growth across several larger economies in Europe, the timing and process by which the U.K. will negotiate its exit from the E.U., including the terms of its ongoing trading and political relationship with the E.U., and speculation that other members of the E.U. might opt to assert greater distance from it. In the short term, we expect uncertainty and market volatility in both credit and equities to remain elevated for the second half of 2016 and potentially beyond.

For Ares’ businesses, these markets and economies have created opportunities, particularly for the Credit Group’s direct lending, liquid alternative credit and special situations strategies, which utilize flexible investment mandates to manage portfolios through market cycles. As market conditions shift and default risk and interest rate risk come under greater focus, having the ability to move up and down the capital structure enables the Credit Group to reduce risk and enhance returns as market conditions shift. Similarly, given our broad capabilities in leveraged loans, such flexibility enables our Credit Group to reduce sensitivities to changing interest rates by increasing allocations to floating rate leveraged loans. On a market value basis, approximately 79% of the debt assets within our Credit Group are floating rate instruments, which we believe helps mitigate volatility associated with changes in the treasury curve.

See “Item 1A. Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2015 and Item 1A. herein, for a discussion of the risks to which our businesses are subject.

Table of Contents

Consolidation and Deconsolidation of Ares Funds

Pursuant to GAAP, we consolidate our Consolidated Funds into our financial results as presented in this Quarterly Report on Form 10‑Q. These funds represented approximately 3.6% of our AUM as of June 30, 2016, 2.6% of our management fees and 0.5% of our performance fees for the six months ended June 30, 2016. As of June 30, 2016, we consolidated five CLOs and nine non‑CLOs, and as of June 30, 2015, we consolidated five CLOs and seven non‑CLOs.

We generally deconsolidate CLOs upon liquidation or dissolution at the end of their finite lives. In contrast, the other funds we advise are deconsolidated when we are no longer deemed to have a controlling interest in the entity. During the six months ended June 30, 2016, there were no entities liquidated or dissolved and no non-VIEs experienced a significant change in ownership or control that resulted in deconsolidation during the period.

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 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. The net economic ownership interests of our Consolidated Funds, to which we have no economic rights, are reflected as non‑controlling interests in the Consolidated Funds, and prior to December 31, 2015 as equity appropriated for our Consolidated Funds in our condensed consolidated financial statements.

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

Managing Business Performance

Non‑GAAP Financial Measures

We use the following non-GAAP measures to assess and track our performance:

Economic Net Income (“ENI”)

Fee Related Earnings (“FRE”)

Performance Related Earnings (“PRE”)

Distributable Earnings (“DE”)

The specific components and calculations of these non-GAAP measures are discussed in greater detail in Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q. These non‑GAAP financial measures supplement and should be considered in addition to and not in lieu of the results of operations discussed further under “—Overview of Consolidated Results of Operations”, which are prepared in accordance with GAAP. For a reconciliation of these measures to the most comparable measure in accordance with GAAP, see “—Results of Operations by Segment—Reconciliation of Certain Non‑GAAP Measures to Consolidated GAAP Financial Measures.”

Table of Contents

Operating Metrics

We monitor certain operating metrics that are common to the alternative asset management industry, which are discussed below.

Assets Under Management

Assets under management refers to the assets we manage. We view AUM as a metric to measure our investment and fundraising performance as it reflects assets generally at fair value plus available uncalled capital. For our funds other than CLOs, our AUM equals the sum of the following:

net asset value (“NAV”) of such funds;

the drawn and undrawn debt (at the fund‑level including amounts subject to restrictions); and

uncalled committed capital (including commitments to funds that have yet to commence their investment periods).

NAV refers to the fair value of all the assets of a fund less the fair value of all liabilities of the fund.

For our funds that are CLOs, our AUM is equal to subordinated notes (equity) plus all drawn and undrawn debt tranches.

The tables below provide the period‑to‑period rollforward of our total AUM by segment for the three months ended June 30, 2016 and 2015 (in millions):


	Credit Group	Private Equity Group	Real Estate Group	Total AUM
Balance at 3/31/2016	$ 60,048	$ 23,276	$ 10,183	$ 93,507
Net New Par/ Equity Commitments	2,639	35	400	3,074
Net New Debt Commitments	1,242	-	100	1,342
Distributions	(2,078)	(806)	(562)	(3,446)
Change in Fund Value	251	532	3	786
Balance at 6/30/2016	$ 62,102	$ 23,037	$ 10,124	$ 95,263
Average AUM	$ 61,076	$ 23,157	$ 10,155	$ 94,388


	Credit Group	Private Equity Group	Real Estate Group	Total AUM
Balance at 3/31/2015	$ 62,070	$ 14,823	$ 10,033	$ 86,926
Net New Par/ Equity Commitments	1,500	20	159	1,679
Net New Debt Commitments	1,025	-	(50)	975
Distributions	(2,375)	(512)	(443)	(3,330)
Change in Fund Value	644	377	251	1,272
Balance at 6/30/2015	$ 62,864	$ 14,708	$ 9,950	$ 87,522
Average AUM	$ 62,469	$ 14,766	$ 9,992	$ 87,227

The tables below provide the period‑to‑period rollforward of our total AUM by segment for the six months ended June 30, 2016 and 2015 (in millions):


	Credit Group	Private Equity Group	Real Estate Group	Total AUM
Balance at 12/31/2015	$ 62,249	$ 21,115	$ 10,268	$ 93,632
Net New Par/ Equity Commitments	3,125	2,154	514	5,793
Net New Debt Commitments	1,542	-	100	1,642
Distributions	(5,681)	(823)	(868)	(7,372)
Change in Fund Value	867	591	110	1,568
Balance at 6/30/2016	$ 62,102	$ 23,037	$ 10,124	$ 95,263
Average AUM	$ 62,177	$ 22,077	$ 10,197	$ 94,451

Table of Contents


	Credit Group	Private Equity Group	Real Estate Group	Total AUM
Balance at 12/31/2014	$ 61,051	$ 10,135	$ 10,575	$ 81,761
Acquisitions	-	4,581	-	4,581
Net New Par/ Equity Commitments	3,310	20	90	3,420
Net New Debt Commitments	2,250	-	(50)	2,200
Distributions	(3,577)	(885)	(892)	(5,354)
Change in Fund Value	(170)	857	227	914
Balance at 6/30/2015	$ 62,864	$ 14,708	$ 9,950	$ 87,522
Average AUM	$ 61,960	$ 12,422	$ 10,264	$ 84,646

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

As of June 30, 2016 and 2015, our uninvested AUM, which we refer to as dry powder, was $24.3 billion and $18.3 billion, respectively, primarily attributable to our funds in the Credit Group and the Private Equity Group.

Fee Paying And Fee Earning Assets Under Management

In the current period we began tracking and presenting FPAUM, which is a different metric from FEAUM. The primary difference is that FPAUM reflects only the AUM that directly pays fees. Except for the Credit Group, FEAUM and FPAUM are generally the same number. Specifically, within U.S. Direct Lending, fee earning AUM includes the AUM of the Senior Secured Loan Program (the “SSLP”), a program co‑managed by a subsidiary of Ares through which ARCC has co‑invested with affiliates of General Electric Company (“GE”), and from Ivy Hill Asset Management, L.P., a wholly owned portfolio company of ARCC and a registered investment adviser, on which we indirectly generate fees, in each case calculated in accordance with the approach described below. In August 2015, GE completed the sale of certain of its assets, excluding its interest in the SSLP, to Canada Pension Plan Investment Board (“CPPIB”). Prior to closing the sale to CPPIB, GE had announced its intention to provide ARCC and CPPIB the opportunity to work together on the SSLP on a go-forward basis. GE has also stated that if a mutual agreement between ARCC and CPPIB is not reached, it intends to retain its interest in the SSLP and the SSLP would be wound down in an orderly manner. ARCC has been in dialogue with GE and CPPIB to determine if there is an opportunity to work together; however, to date there has been no agreement in respect of the SSLP as a result of these discussions, and there can be no assurance that such discussions will continue or any such agreement will be reached. In addition to discussions with CPPIB and GE, ARCC is also exploring other options with respect to the SSLP’s portfolio, although there can be no assurance that ARCC will pursue any of them.

In December 2015, ARCC established a co-investment program with Varagon Capital Partners (“Varagon”) whereby Varagon agreed to make available an aggregate of $2.9 billion of capital to make certain first lien senior secured loans, including certain stretch senior and unitranche loans, to U.S. middle-market companies. The co-investment program is called the Senior Direct Lending Program (the “SDLP”) and began funding loans in the third quarter of 2016.

The following components generally comprise our FPAUM (for funds with respect to which we earn management fees directly) and FEAUM (for funds with respect to which we earn management fees both directly and indirectly):

The amount of limited partner capital commitments for certain closed‑end funds within the reinvestment period in the Credit Group, funds in the Private Equity Group and certain private funds in the Real Estate Group;

The amount of limited partner invested capital for the aforementioned closed‑end funds beyond the reinvestment period as well as the structured assets funds in the Credit Group, certain managed accounts within their reinvestment period, the mezzanine fund in the Credit Group, European commingled funds in the Credit Group and co‑ invest vehicles in the Real Estate Group;

The gross amount of aggregate collateral balance, for CLOs, at par, adjusted for defaulted or discounted collateral; and

Table of Contents

The portfolio value, gross asset value or NAV, adjusted in certain instances for cash or certain accrued expenses, for the remaining funds in the Credit Group, ARCC, certain managed accounts in the Credit Group and certain debt funds in the Real Estate Group.

The tables below provide the period‑to‑period rollforwards of our total FPAUM and FEAUM by segment for the three months ended June 30, 2016 and 2015 (in millions):


	Credit Group	Private Equity Group	Real Estate Group	Total
Fee paying AUM Balance at 3/31/2016	$ 40,498	$ 11,115	$ 6,675	$ 58,288
Commitments	1,060	-	59	1,119
Subscriptions/deployment/increase in leverage	994	23	233	1,250
Distributions	(1,356)	(46)	(228)	(1,630)
Change in Fund Value	234	(58)	(81)	95
Change in Fee Basis	-	(25)	(14)	(39)
Fee paying AUM Balance at 6/30/2016	$ 41,430	$ 11,009	$ 6,644	$ 59,083
Average fee paying AUM	$ 40,964	$ 11,063	$ 6,660	$ 58,687
Indirect Fee Earning AUM:
Balance at 3/31/2016	$ 8,284	$ -	$ -	$ 8,284
Subscriptions/deployment/increase in leverage	14	-	-	14
Distributions	(549)	-	-	(549)
Change in Fund Value	(7)	-	-	(7)
Fee earning AUM Balance at 6/30/2016	$ 49,172	$ 11,009	$ 6,644	$ 66,825
Average fee earning AUM	$ 48,978	$ 11,063	$ 6,660	$ 66,701


	Credit Group	Private Equity Group	Real Estate Group	Total
Fee paying AUM Balance at 3/31/2015	$ 38,460	$ 11,107	$ 5,980	$ 55,547
Commitments	413	-	23	436
Subscriptions/deployment/increase in leverage	1,339	6	264	1,609
Distributions	(1,233)	(161)	(262)	(1,656)
Change in Fund Value	200	-	16	216
Change in Fee Basis	(219)	(105)	(277)	(601)
Fee paying AUM Balance at 6/30/2015	$ 38,960	$ 10,847	$ 5,744	$ 55,551
Average fee paying AUM	$ 38,710	$ 10,978	$ 5,863	$ 55,551
Indirect Fee Earning AUM:
Balance at 3/31/2015	$ 10,117	$ -	$ -	$ 10,117
Subscriptions/deployment/increase in leverage	445	-	-	445
Distributions	(115)	-	-	(115)
Change in Fund Value	22	-	-	22
Change in Fee Basis	(12)	-	-	(12)
Fee earning AUM Balance at 6/30/2015	$ 49,417	$ 10,847	$ 5,744	$ 66,008
Average fee earning AUM	$ 48,999	$ 10,978	$ 5,863	$ 65,840

Table of Contents

The tables below provide the period‑to‑period rollforwards of our total FPAUM and FEAUM by segment for the six months ended June 30, 2016 and 2015 (in millions):


	Credit Group	Private Equity Group	Real Estate Group	Total
Fee paying AUM Balance at 12/31/2015	$ 40,976	$ 11,411	$ 6,757	$ 59,144
Commitments	1,271	-	173	1,444
Subscriptions/deployment/increase in leverage	1,826	26	266	2,118
Distributions	(3,096)	(46)	(388)	(3,530)
Change in Fund Value	513	(80)	(41)	392
Change in Fee Basis	(60)	(302)	(123)	(485)
Fee paying AUM Balance at 6/30/2016	$ 41,430	$ 11,009	$ 6,644	$ 59,083
Average fee paying AUM	$ 41,203	$ 11,211	$ 6,701	$ 59,115
Indirect Fee Earning AUM:
Balance at 12/31/2015	$ 9,129	$ -	$ -	$ 9,129
Subscriptions/deployment/increase in leverage	115	-	-	115
Distributions	(1,502)	-	-	(1,502)
Change in Fund Value	3	-	-	3
Change in Fee Basis	(3)	-	-	(3)
Fee earning AUM Balance at 6/30/2016	$ 49,172	$ 11,009	$ 6,644	$ 66,825
Average fee earning AUM	$ 49,640	$ 11,211	$ 6,701	$ 67,552


	Credit Group	Private Equity Group	Real Estate Group	Total
Fee paying AUM Balance at 12/31/2014	$ 37,804	$ 7,172	$ 6,118	$ 51,094
Acquisitions	-	4,046	-	4,046
Commitments	1,219	-	188	1,407
Subscriptions/deployment/increase in leverage	2,534	75	339	2,948
Distributions	(2,588)	(339)	(412)	(3,339)
Change in Fund Value	248	(2)	(50)	196
Change in Fee Basis	(257)	(105)	(439)	(801)
Fee paying AUM Balance at 6/30/2015	$ 38,960	$ 10,847	$ 5,744	$ 55,551
Average fee paying AUM	$ 38,382	$ 9,010	$ 5,932	$ 53,324
Indirect Fee Earning AUM:
Balance at 12/31/2014	$ 10,264	$ -	$ -	$ 10,264
Commitments	202	-	-	202
Subscriptions/deployment/increase in leverage	453	-	-	453
Distributions	(502)	-	-	(502)
Change in Fund Value	52	-	-	52
Change in Fee Basis	(12)	-	-	(12)
Fee earning AUM Balance at 6/30/2015	$ 49,417	$ 10,847	$ 5,744	$ 66,008
Average fee earning AUM	$ 48,744	$ 9,010	$ 5,932	$ 63,686

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

Table of Contents

The table below breaks out FPAUM and FEAUM of the Consolidated Segments by its respective components as of June 30, 2016 and 2015:


	As of June 30,
	2016		2015
	(Dollars in millions)
Fee paying AUM based on capital commitments	$	9,592	$	8,664
Fee paying AUM based on invested capital		13,859		11,880
Fee paying AUM based on market value/other		22,889		22,601
Fee paying AUM based on collateral balances, at par		12,743		12,406
Total fee paying AUM		59,083		55,551
Indirect fee earning AUM		7,742		10,457
Total fee earning AUM	$	66,825	$	66,008

The reconciliation of our total AUM to our total FEAUM and FPAUM as of June 30, 2016 and 2015 is presented below:


	As of June 30,
	2016		2015
	(Dollars in millions)
AUM	$	95,263	$	87,522
Non fee paying debt		(4,288)		(6,326)
General partner and affiliates		(1,482)		(1,236)
Undeployed		(9,555)		(10,101)
Market value/other		(3,783)		(2,845)
Fees not activated		(8,110)		—
Fees deactivated		(1,220)		(1,006)
Fee earning AUM		66,825		66,008
Indirect fee earning AUM		(7,742)		(10,457)
Fee paying AUM	$	59,083	$	55,551

Fund Performance Metrics

Fund performance information for our investment funds that contributed at least 1% of our total management fees for the six months ended June 30, 2016, which we refer to as our “significant funds,” is included throughout this discussion and analysis to facilitate an understanding of our results of operations for the periods presented. In addition to management fees, each of our significant funds may generate incentive fees upon the achievement of performance hurdles. The fund performance information reflected in this discussion and analysis is not indicative of our overall performance and is also not indicative of the future performance of any particular fund. 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 our funds or our other existing and future funds will achieve similar returns.

Table of Contents

Results of Operations

Consolidated Results of Operations

The following table and discussion sets forth information regarding our consolidated results of operations for the three and six months ended June 30, 2016 and 2015 presented in accordance with GAAP. 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 and termination of funds. We consolidate funds where we are deemed to hold a controlling financial interest. The consolidation of these funds had the impact of increasing interest and other income of Consolidated Funds, interest and other expenses of Consolidated Funds, net investment gains (losses) of Consolidated Funds and non-controlling interests in Consolidated Funds for the three and six months ended June 30, 2016 and 2015. The consolidation of these funds had no effect on net income attributable to us for the periods presented.


	Three Months Ended						Six Months Ended
	June 30,				Favorable (Unfavorable)		June 30,				Favorable (Unfavorable)
	2016		2015		$ Change	% Change	2016		2015		$ Change	% Change
(Dollars in thousands)

Revenues
Management fees (includes ARCC Part I Fees of $28,999, $57,624 and $29,250, $58,292 for the three and six months ended June 30, 2016 and 2015, respectively)	$	158,521	$	156,589	$ 1,932	1.2%	$	316,954	$	315,290	$ 1,664	0.5%
Performance fees		203,151		77,649	125,502	161.6%		173,204		182,574	(9,370)	(5.1%)
Administrative and other fees		7,863		6,926	937	13.5%		15,392		13,205	2,187	16.6%
Total revenues		369,535		241,164	128,371	53.2%		505,550		511,069	(5,519)	(1.1%)
Expenses
Compensation and benefits		112,654		99,085	(13,569)	(13.7%)		223,333		200,936	(22,397)	(11.1%)
Performance fee compensation		151,896		56,544	(95,352)	(168.6%)		130,566		132,936	2,370	1.8%
General, administrative and other expenses		38,686		53,331	14,645	27.5%		78,648		98,878	20,230	20.5%
Consolidated Funds’ expenses		699		3,609	2,910	80.6%		926		14,282	13,356	93.5%
Total expenses		303,935		212,569	(91,366)	(43.0%)		433,473		447,032	13,559	3.0%
Other income (expense)
Net interest and investment income (net of interest expense of $4,828, $9,683 and $3,654, $7,338 for the three and six months ended June 30, 2016 and 2015, respectively)		4,993		2,646	2,347	88.7%		1,634		4,059	(2,425)	(59.7%)
Other income (expense), net		5,673		(1,693)	7,366	NM		10,914		(3,568)	14,482	NM
Net realized and unrealized gain (loss) on investments		(3,151)		4,880	(8,031)	NM		1,991		19,719	(17,728)	(89.9%)
Net interest and investment income of the Consolidated Funds (net of interest expense of $18,607, $41,056 and $19,043, $36,144 for the three and six months ended June 30, 2016 and 2015, respectively)		9,690		12,637	(2,947)	(23.3%)		17,022		21,542	(4,520)	(21.0%)
Net realized and unrealized gain (loss) on investments of Consolidated Funds		201		10,486	(10,285)	(98.1%)		(29,606)		(1,788)	(27,818)	NM
Total other income		17,406		28,956	(11,550)	(39.9%)		1,955		39,964	(38,009)	(95.1%)
Income before taxes		83,006		57,551	25,455	44.2%		74,032		104,001	(29,969)	(28.8%)
Income tax expense (benefit)		(4,434)		6,103	10,537	NM		231		10,162	9,931	97.7%
Net income		87,440		51,448	35,992	70.0%		73,801		93,839	(20,038)	(21.4%)
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds		1,054		12,629	(11,575)	(91.7%)		(10,925)		1,515	(12,440)	NM
Less: Net income attributable to redeemable interests in Ares Operating Group entities		339		185	154	83.2%		349		428	(79)	(18.5%)
Less: Net income attributable to non-controlling interests in Ares Operating Group entities		48,473		26,548	21,925	82.6%		49,893		61,354	(11,461)	(18.7%)
Net income attributable to Ares Management, L.P.	$	37,574	$	12,086	25,488	210.9%	$	34,484	$	30,542	3,942	12.9%

NM – Not meaningful

Table of Contents

Three and Six Months Ended June 30, 2016 Compared to Three and Six Months Ended June 30, 2015

Revenues

Management Fees. Management fees increased by $1.9 million, or 1.2%, to $158.5 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $1.7 million, or 0.5%, to $317.0 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. For the three months and six months ended June 30, 2016, the launch of four new CLOs and 28 new funds subsequent to June 30, 2015 primarily contributed to the increase in management fees.

Partially offsetting the fee increase for the six months ended June 30, 2016 was our agreement to waive management fees on Ares Corporate Opportunities Fund II (“ACOF II”), effective January 1, 2016, in connection with an extension of the term for one year. In addition, certain Real Estate funds are no longer generating management fees subsequent to March 31, 2015. Further, other funds across our three segments, including our CLOs, had distributions and run-off, that partially reduced fees earned for the comparable six month period.

Performance Fees. Performance fees increased by $125.5 million to $203.2 million for the three months ended June 30, 2016 compared to the prior year period. The increase in performance fees was attributable to increases in performance fees from the Private Equity Group, the Credit Group and the Real Estate Group of $106.7 million, $17.7 million and $1.1 million, respectively, during the three months ended June 30, 2016 as compared to the same period in 2015. The increase is primarily due to the appreciation of certain portfolio holdings within certain funds within each segment.

Performance fees decreased by $9.4 million to $173.2 million for the six months ended June 30, 2016 compared to the prior year period. The decrease in performance fees was attributable to a decrease in performance fees from the Credit Group of $23.4 million. The decrease in performance fees from our Credit Group was primarily attributable to the reversal of previously recognized unrealized increases in performance fees in certain funds due to modest declines in the valuations of certain portfolio holdings. This decrease was partially offset by increases in performance fees from the Private Equity Group and the Real Estate Group of $8.5 million and $5.5 million, respectively, during the six months ended June 30, 2016 when compared to the same period in 2015. The increases in performance fees for our Private Equity Group and Real Estate Group were primarily attributable to appreciation of certain underlying assets across a number of funds.

Administrative and other Fees. Administrative fees and other income increased by $0.9 million, or 13.5%, to $7.9 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $2.2 million, or 16.6%, to $15.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increases in both periods were primarily due to an increase in administrative service fees associated with certain funds within the Credit Group, in line with the growth of the funds and for the comparative six month period, the recognition of agency fees and an increase in deal fees. These increases were partially offset by lower property management fees during the three and six months ended June 30, 2016 compared to the same periods in 2015.

Expenses

Compensation and Benefits. Compensation and benefits expenses increased by $13.6 million, or 13.7%, to $112.7 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $22.4 million, or 11.1%, to $223.3 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase was primarily due to an increase in incentive based compensation correlated to operating results, and salary and benefit expenses attributed to merit based increases and headcount increases. The increase for the six month period is also related to the increases in headcount related to the May 2015 acquisition of First Capital (“FCC”).

Performance Fee Compensation. Performance fee compensation expenses increased by $95.4 million to $151.9 million for the three months ended June 30, 2016 from $56.5 million for the three months ended June 30, 2015 and decreased by $2.4 million to $130.6 million for the six months ended June 30, 2015. The changes in performance fee compensation expense directly correlate with changes in our performance fees, before giving effect to the performance

Table of Contents

fees from our Consolidated Funds that are eliminated upon consolidation.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $14.6 million, or 27.5%, to $38.7 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $20.2 million, or 20.5%, to $78.6 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The decreases were driven primarily by acquisition related expenses of $3.4 million and $5.4 million in the three and six months ended June 30, 2015, respectively, that did not recur in the current periods. In addition, for the three and six months ended June 30, 2016, travel expenses decreased by $1.6 million and $1.4 million and intangible amortization decreased $9.5 million and $13.2 million, respectively as certain intangible assets became fully amortized when compared to prior year periods. The decreases in expenses were partially offset by increases in certain costs to support our platform expansion.

Expenses of our Consolidated Funds. Expenses of Consolidated Funds decreased by $2.9 million, or 80.6%, to $0.7 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $13.4 million, or 93.5%, to $0.9 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The reduction of expenses for the three month period was mainly due to decrease in professional fee expenses within the Private Equity Group. In addition to a reduction in professional fee expenses, the change for the comparative six month periods was primarily due to $8.8 million of costs incurred to launch two funds that were consolidated during the first quarter of 2015 that are no longer consolidated in 2016.

Other Income (Expense)

When evaluating the changes in other income (expense), we separately analyze the other income generated by the Company from the investment returns generated by our Consolidated Funds.

Net Interest and Investment Income. Net interest and investment income of the Company increased by $2.3 million to $5.0 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase was driven by a partial sale and recapitalization of a portfolio company in the Private Equity Group resulting in an increase of $7.1 million in dividends for the three months ended June 30, 2016 compared to June 30, 2015. This increase was partially offset by a $4.0 million dividend distributed in 2015 from investment within the Credit Group that did not recur in the current period and by a $1.2 million increase in interest expense due to a higher average outstanding balance of the Credit Facility when compared to the three months ended June 30, 2015.

Net interest and investment income of the Company decreased by $2.4 million to $1.6 million for the six months ended June 30, 2016 compared to the prior year period. The decrease was due primarily to a $2.3 million increase in interest expense due to a higher average outstanding balance of the Credit Facility when compared to the six months ended June 30, 2015.

Other Income (Expense), Net. Net other income (expense) of the Company increased by $7.4 million from an expense of $1.7 million for the three months ended June 30, 2015 compared to income of $5.7 million for the three months ended June 30, 2016 and increased by $14.5 million from an expense of $3.6 million for the six months ended June 30, 2015 compared to income of $10.9 million for the six months ended June 30, 2016. The increases were primarily due to transaction gains from the revaluation of certain assets and liabilities denominated in foreign currencies.

Net Realized and Unrealized Gain (Loss) on Investments. Net gain (loss) on investments of the Company decreased by $8.0 million from a gain of $4.9 million for the three months ended June 30, 2015 to a $3.2 million loss for the three months ended June 30, 2016 and decreased by $17.7 million to $2.0 million for the six months ended June 30, 2016. The decreases for both periods were primarily driven by a $14.1 million decrease of an equity method investment of the Company due to the underlying performance of the asset. The loss was partially offset by a $7.8 million gain from the Company’s hedging instruments for the quarter ended June 301, 2016.

Net Interest and Investment Income of the Consolidated Funds. Net interest and investment income of the Consolidated Funds decreased by $2.9 million to $9.7 million for the three months ended June 30, 2016 as compared to same period in 2015 and by $4.5 million to $17.0 million for the six months ended June 30, 2016 as compared to same

Table of Contents

period in 2015. The decreases were due mainly to CLOs that did not begin incurring interest expense until after the first quarter of 2015. Additionally, investment income decreased due to the liquidation of Ares Capital Europe I (“ACE I”)

in 2016.

Net Realized and Unrealized Gain (Loss) on Investments of the Consolidated Funds. Net gain on investments of the Consolidated Funds decreased by $10.3 million to $0.2 million for the three months ended June 30, 2016 compared to the prior year quarter. The decrease was due to increases in net investment losses in the E.U. direct lending funds of $20.9 million driven by depreciation of certain portfolio holdings. This decrease was partially offset by increases in net investment gain from CLOs and Credit Group funds of $8.3 million and $2.9 million, respectively, primarily resulting from net appreciation of the underlying assets.

Net loss on investments of the Consolidated Funds increased by $27.8 million to $29.6 million for the six months ended June 30, 2016, from $1.8 million for the six months ended June 30, 2015. The increase in net investment losses was due to decreases of unrealized gains of $27.4 million within certain funds in the Private Equity Group, mostly driven by reduction of the unrealized gains of certain portfolio holdings within the Ares Corporate Opportunities Fund Asia, L.P. (“ACOF Asia”) portfolio and CLOs of $9.2 million. These losses were partially offset by increases in net investment gain within the Credit Group funds and E.U. direct lending funds of $5.4 million and $3.4 million, respectively, primarily resulting from net appreciation of the underlying assets.

Income Tax Expense/Benefits. Not all Company and Consolidated Fund entities are subject to income taxes. As a result, income taxes may not move in tandem with income before taxes. Specifically, the Company’s investment income (loss) and generally performance fess are not subject to income tax.

Income tax expense decreased by $10.5 million to a benefit of $4.4 million for the three months ended June 30, 2016 from an expense of $6.1 million for the three months ended June 30, 2015. Income tax expense decreased by $9.9 million to $0.2 million for the six months ended June 30, 2016 from $10.2 million for the six months ended June 30, 2015. The decrease was primarily attributable to the recognition of a deferred tax benefit resulting from an agreement between Ares Management, L.P. and a subsidiary whereby the subsidiary will remit cash for units awarded under its equity incentive plan, ultimately providing for a difference between taxable income and GAAP income that gives rise to a deferred tax asset.

Non-Controlling and Redeemable Interest. Net income attributable to non-controlling and redeemable interests in Ares Operating Group entities represents results attributable to the owners of AOG Units that are not held by Ares Management, L.P. and is allocated based on the weighted average daily ownership of the AOG unitholders.

Net income attributable to non-controlling and redeemable interests in Ares Operating Group entities increased $22.1 million, from $26.7 million for the three months ended June 30, 2015 to $48.8 million for the three months June 30, 2016. Net income attributable to non-controlling and redeemable interest in Ares Operating Group entities decreased $11.5 million, from $61.8 million for the six months ended June 30, 2015 to $50.2 million for the six months ended June 30, 2016. The fluctuation of net income attributable to non-controlling and redeemable interests in Ares Operation Group entities is consistent with the change in net income of the Company for those periods. The weighted average daily ownership for non-controlling and redeemable AOG unit holders was 62.12% and 62.15% for both three months and the six months ended June 30, 2016 and 2015, respectively.

Segment Analysis

For segment reporting purposes, revenues and expenses are presented on a basis that excludes the results of our Consolidated Funds. As a result, segment revenues from management fees, performance fees and investment income are typically greater than those presented on a consolidated basis in accordance with GAAP because revenues recognized from Consolidated Funds are eliminated in consolidation. Furthermore, expenses and the effects of other income (expense) are typically lower than related amounts presented on a consolidated basis in accordance with GAAP due to the elimination of the results of Consolidated Funds’ related expenses upon consolidation.

Table of Contents

Discussed below are our results of operations for each of our three reportable segments. In addition to the three segments, we separately discuss the OMG. This information is used by management to make operating decisions, assess performance and allocate resources.

ENI and Other Measures

The following table sets forth FRE, PRE, ENI and DE on a segment basis and Stand Alone basis for the three and six months ended June 30, 2016 and 2015. FRE, PRE, ENI and DE are non‑GAAP financial measures management uses when making resource deployment decisions and in assessing performance of our segments. Please see “—Reconciliation of Certain Non‑GAAP Measures to Consolidated GAAP Financial Measures” under “Operations Management Group”.


	Three Months Ended						Six Months Ended
	June 30,				Favorable (Unfavorable)		June 30,				Favorable (Unfavorable)
	2016		2015		$ Change	% Change	2016		2015		$ Change	% Change
	(Dollars in thousands)
Fee related earnings:
Credit Group	$	59,232	$	58,418	$ 814	1.4%	$	119,817	$	117,174	$ 2,643	2.3%
Private Equity Group		19,830		21,983	(2,153)	(9.8%)		41,581		43,146	(1,565)	(3.6%)
Real Estate Group		4,101		2,964	1,137	38.4%		7,088		8,522	(1,434)	(16.8%)
Segment fee related earnings		83,163		83,365	(202)	(0.2%)		168,486		168,842	(356)	(0.2%)
Operations Management Group		(43,598)		(36,878)	(6,720)	(18.2%)		(89,873)		(74,733)	(15,140)	(20.3%)
Stand Alone Fee related earnings	$	39,565	$	46,487	(6,922)	(14.9%)	$	78,613	$	94,109	(15,496)	(16.5%)
Performance related earnings:
Credit Group	$	29,921	$	9,007	20,914	NM	$	22,680	$	20,536	2,144	10.4%
Private Equity Group		43,900		16,706	27,194	162.8%		31,345		39,676	(8,331)	(21.0%)
Real Estate Group		1,628		3,773	(2,145)	(56.9%)		6,973		4,582	2,391	52.2%
Segment performance related earnings		75,449		29,486	45,963	155.9%		60,998		64,794	(3,796)	(5.9%)
Operations Management Group		(12,663)		—	(12,663)	NM		(13,112)		—	(13,112)	NM
Stand Alone Performance related earnings	$	62,786	$	29,486	33,300	112.9%	$	47,886	$	64,794	(16,908)	(26.1%)
Economic net income:
Credit Group	$	89,153	$	67,425	21,728	32.2%	$	142,497	$	137,710	4,787	3.5%
Private Equity Group		63,730		38,689	25,041	64.7%		72,926		82,822	(9,896)	(11.9%)
Real Estate Group		5,729		6,737	(1,008)	(15.0%)		14,061		13,104	957	7.3%
Segment economic net income		158,612		112,851	45,761	40.5%		229,484		233,636	(4,152)	(1.8%)
Operations Management Group		(56,261)		(36,878)	(19,383)	(52.6%)		(102,985)		(74,733)	(28,252)	(37.8%)
Stand Alone Economic net income	$	102,351	$	75,973	26,378	34.7%	$	126,499	$	158,903	(32,404)	(20.4%)
Distributable earnings:
Credit Group	$	76,074	$	81,605	(5,531)	(6.8%)	$	144,157	$	157,312	(13,155)	(8.4%)
Private Equity Group		41,130		28,242	12,888	45.6%		60,735		55,328	5,407	9.8%
Real Estate Group		8,374		2,090	6,284	NM		11,717		5,472	6,245	114.1%
Segment distributable earnings		125,578		111,937	13,641	12.2%		216,609		218,112	(1,503)	(0.7%)
Operations Management Group		(48,758)		(38,981)	(9,777)	(25.1%)		(98,508)		(77,861)	(20,647)	(26.5%)
Stand Alone Distributable earnings	$	76,820	$	72,956	3,864	5.3%	$	118,101	$	140,251	(22,150)	(15.8%)

NM – Not meaningful

Table of Contents

Results of Operations by Segment

Credit Group

The following table sets forth certain statement of operations and other data of our Credit Group segment for the periods presented.


	Three Months Ended						Six Months Ended
	June 30,				Favorable (Unfavorable)		June 30,				Favorable (Unfavorable)
	2016		2015		$ Change	% Change	2016		2015		$ Change	% Change
	(Dollars in thousands)
Management fees (includes ARCC Part I Fees of $28,999, $57,624 and $29,250, $58,292 for the three and six months ended June 30, 2016 and 2015, respectively)	$	110,770	$	108,180	$ 2,590	2.4%	$	220,211	$	216,528	$ 3,683	1.7%
Other fees		550		99	451	NM		659		197	462	234.5%
Compensation and benefits		(45,479)		(43,036)	(2,443)	(5.7%)		(89,393)		(85,601)	(3,792)	(4.4%)
General, administrative and other expenses		(6,609)		(6,825)	216	3.2%		(11,660)		(13,950)	2,290	16.4%
Fee related earnings		59,232		58,418	814	1.4%		119,817		117,174	2,643	2.3%
Performance fees-realized		16,024		40,081	(24,057)	(60.0%)		22,202		75,295	(53,093)	(70.5%)
Performance fees-unrealized		16,603		(26,175)	42,778	NM		(12,724)		(45,376)	32,652	72.0%
Performance fee compensation-realized		(754)		(22,617)	21,863	96.7%		(2,737)		(43,621)	40,884	93.7%
Performance fee compensation-unrealized		(14,755)		16,151	(30,906)	NM		1,850		30,682	(28,832)	(94.0%)
Net performance fees		17,118		7,440	9,678	130.1%		8,591		16,980	(8,389)	(49.4%)
Investment income-realized		123		5,903	(5,780)	(97.9%)		285		14,521	(14,236)	(98.0%)
Investment income (loss)-unrealized		7,032		(6,533)	13,565	NM		3,025		(9,902)	12,927	130.5%
Interest and other investment income		8,098		3,933	4,165	105.9%		15,677		2,407	13,270	NM
Interest expense		(2,450)		(1,736)	(714)	(41.1%)		(4,898)		(3,470)	(1,428)	(41.2%)
Net investment income		12,803		1,567	11,236	NM		14,089		3,556	10,533	NM
Performance related earnings		29,921		9,007	20,914	232.2%		22,680		20,536	2,144	10.4%
Economic net income	$	89,153	$	67,425	21,728	32.2%	$	142,497	$	137,710	4,787	3.5%
Distributable earnings	$	76,074	$	81,605	(5,531)	(6.8%)	$	144,157	$	157,312	(13,155)	(8.4%)

NM – Not meaningful

Accrued performance fees for the Credit Group are comprised of the following:


	As of June 30,
	2016		2015
	(Dollars in thousands)
CLOs	$	16,944	$	44,098
CSF		—		31,924
ARCC		—		8,642
ACE II		29,249		17,952
Other credit funds		36,932		28,776
Total Credit Group	$	83,125	$	131,392

Table of Contents

Net performance fees for the Credit Group are comprised of the following:


	Three Months Ended June 30, 2016						Three Months Ended June 30, 2015
Q2 2014	Performance Fees		Performance Fees		Net		Performance Fees		Performance Fees		Net
	- Realized		- Unrealized		Performance Fees		- Realized		- Unrealized		Performance Fees
	(Dollars in thousands)
CLOs	$	14,755	$	(8,489)	$	6,266	$	2,707	$	(148)	$	2,559
CSF		—		13,736		13,736		30,000		(32,312)		(2,312)
ARCC		—		—		—		—		6,389		6,389
ACE II		—		1,704		1,704		1,916		6,963		8,879
Other credit funds		1,269		9,652		10,921		5,458		(7,067)		(1,609)
Total Credit Group	$	16,024	$	16,603	$	32,627	$	40,081	$	(26,175)	$	13,906


	Six Months Ended June 30, 2016						Six Months Ended June 30, 2015
Q2 2014	Performance Fees		Performance Fees		Net		Performance Fees		Performance Fees		Net
	- Realized		- Unrealized		Performance Fees		- Realized		- Unrealized		Performance Fees
	(Dollars in thousands)
CLOs	$	17,651	$	(9,868)	$	7,783	$	5,260	$	2,623	$	7,883
CSF		—		(15,790)		(15,790)		60,000		(62,416)		(2,416)
ARCC		—		—		—		(417)		8,642		8,225
ACE II		—		4,394		4,394		1,916		12,719		14,635
Other credit funds		4,551		8,540		13,091		8,536		(6,944)		1,592
Total Credit Group	$	22,202	$	(12,724)	$	9,478	$	75,295	$	(45,376)	$	29,919

The following tables present the components of the change in performance fees – unrealized for the Credit Group:


	Three Months Ended June 30, 2016				Three Months Ended June 30, 2015
Q2 2015	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized
	(Dollars in thousands)
CLOs	$ (14,755)	$ 6,289	$ (23)	$ (8,489)	$ (2,707)	$ 3,082	$ (523)	$ (148)
CSF	-	13,736	-	13,736	(30,000)	-	(2,312)	(32,312)
ARCC	-	-	-	-	-	6,389	-	6,389
ACE II	-	1,704	-	1,704	(1,916)	8,879	-	6,963
Other credit funds	(1,269)	11,140	(219)	9,652	(5,458)	8,351	(9,960)	(7,067)
Total Credit Group	$ (16,024)	$ 32,869	$ (242)	$ 16,603	$ (40,081)	$ 26,701	$ (12,795)	$ (26,175)


	Six Months Ended June 30, 2016				Six Months Ended June 30, 2015
Q2 2015	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized	Performance Fees - Realized	Increases	Decreases	Performance Fees -Unrealized
	(Dollars in thousands)
CLOs	$ (17,651)	$ 8,039	$ (256)	$ (9,868)	$ (5,260)	$ 8,003	$ (120)	$ 2,623
CSF	-	-	(15,790)	(15,790)	(60,000)	-	(2,416)	(62,416)
ARCC	-	-	-	-	417	8,225	-	8,642
ACE II	-	4,394	-	4,394	(1,916)	14,635	-	12,719
Other credit funds	(4,551)	15,983	(2,892)	8,540	(8,536)	10,486	(8,894)	(6,944)
Total Credit Group	$ (22,202)	$ 28,416	$ (18,938)	$ (12,724)	$ (75,295)	$ 41,349	$ (11,430)	$ (45,376)

Table of Contents

Credit Group—Three and Six Months Ended June 30, 2016 Compared to the Three and Six Months Ended June 30, 2015

Management Fees. Total management fees increased by $2.6 million, or 2.4%, to $110.8 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and increased by $3.7 million, or 1.7%, to $220.2 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increases in management fees were primarily driven by four new CLOs and fifteen new funds launched subsequent to the second quarter of 2015. Compared to the prior periods, the new CLOs and funds generated combined management fees of $6.6 million and $11.3 million for the three and six months ended June 30, 2016, respectively. There was also an increase in ARCC fee-paying assets, which generated additional fees of $1.1 million and $1.6 million during the three and six months ended June 30, 2016, respectively. The increase was partially offset by (i) funds that had distributions subsequent to June 30, 2015, reducing management fees by $4.1 million and $6.9 million for the three and six months ended June 30, 2016, respectively, and (ii) fund liquidations subsequent to June 30, 2015 that reduced management fees by $1.0 million and $2.3 million for the three and six months ended June 30, 2016, respectively.

The effective management fee rate for our funds in the Credit Group decreased to 1.03% and 1.00% for the three and six months ended June 30, 2016, respectively, from 1.12% and 1.03% for the respective prior periods. ARCC Part I Fees contributed 0.27% and 0.26% towards the total effective fee rate of the Credit Group for the three and six months ended June 30, 2016, respectively, and contributed 0.30% and 0.28% towards the total effective fee rate of the Credit Group for the respective prior periods. Several new separately managed accounts and CLOs, which generally generate lower fees, launched subsequent to June 30, 2015 and contributed to the decline of the effective management fee rate.

Net Performance Fees. Net performance fees include realized and unrealized performance fees, net of realized and unrealized performance fee compensation. The impact of reversals of previously recognized performance fee revenue and the corresponding performance fee compensation expense is reflected in unrealized performance fees and unrealized performance fee compensation.

Net performance fees increased by $9.7 million, or 130.1%, to $17.1 million for the three months ended June 30, 2016 compared to the prior year period. This increase in performance fees is primarily due to increases in the valuations of certain portfolio holdings when compared to the comparative period in the prior year.

Net performance fees decreased by $8.4 million, or 49.4%, to $8.6 million for the six months ended June 30, 2016 compared to the prior year period. As presented in the table above, the decrease in net performance fees is attributable to certain funds’ gross returns exceeding their hurdle rates by narrower margins, and to a lesser extent, a reversal of unrealized performance fees in other funds due to modest declines in the valuations of portfolio holdings.

Compensation and Benefits. Compensation and benefits expenses increased by $2.4 million, or 5.7%, to $45.5 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $3.8 million, or 4.4%, to $89.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increases for both periods are primarily due to an increase in incentive based compensation. Additional headcount related to the May 2015 FCC acquisition also contributed to the increases. Compensation and benefits represented 41.1% of management fees for the three months ended June 30, 2016 compared to 39.8% for the three months ended June 30, 2015, and 40.6% of management fees for the six months ended June 30, 2016 compared to 39.5% for the six months ended June 30, 2015.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $0.2 million, or 3.2%, to $6.6 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $2.3 million, or 16.4%, to $11.7 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The decreases in the current year periods were primarily due to reduced office related expenses, and for the comparative six month periods, non-recurring expense credits of $0.8 million that were recorded in the six months ended June 30, 2016, also contributed to the decrease.

Net Investment Income (Loss). Net investment income increased by $11.2 million to $12.8 million for the three

Table of Contents

months ended June 30, 2016 compared to the prior year period. The increase was primarily driven by improvements in the credit markets that resulted in unrealized market appreciation of $10.1 million for the syndicated loan, credit opportunities, special situation, and U.S. direct lending funds. This increase was partially offset by decreasing loan valuations within our E.U. direct lending funds of $1.1 million. Additionally, interest expense increased by $0.7 million due to a greater average outstanding balance under the Credit Facility for the three months ended June 30, 2016 compared to the prior year period.

Net investment income increased by $10.5 million to $14.1 million for the six months ended June 30, 2016 compared to the prior year period. The increase for the six month period was primarily driven by transaction gains from the revaluation of certain assets and liabilities denominated in foreign currencies of $10.9 million, which included in interest and other investment income, and by unrealized market appreciation in the syndicated loan, special situations, credit opportunities, U.S. direct lending funds and E.U. direct lending funds that accounted for gains of $11.7 million. Additionally, interest expense increased by $1.4 million due to greater average outstanding balance on the Credit Facility for the six months ended June 30, 2016 compared to the prior year period.

Non-GAAP Performance Measures. The increase of $9.7 million and $11.2 million in net performance fees and net investment income, respectively, increased our PRE and ENI for the three months ended June 30, 2016 compared to the same period in the prior year. Included in net performance fees and net investment income were decreases of $2.2 million in net realized performance fees and $4.1 million of net realized investment and other income, which lead to the reduction of DE. Increases in management fees of $2.6 million, partially offset by increases in compensation and benefits expenses of $2.4 million, resulted in an overall increase to FRE positively impacting ENI and DE.

The increase of $10.5 million in net investment income increased our PRE and ENI for the six months ended June 30, 2016 compared to the same period in the prior year. The increase in PRE and ENI were partially offset by the decrease of $8.4 million of net performance fees. Included in the decrease in net performance fee was a $12.2 million decrease of net realized performance fee, which contributed to the decrease of DE. The $13.2 million decrease in DE was also due to a decrease in net realized investment and other income of $4.2 million. Increases in management fees of $3.7 million and decreases in general, administrative and other expenses of $2.3 million, partially offset by increases in compensation and benefits expenses of $3.8 million, resulted in an overall increase to FRE, positively impacting ENI and DE when comparing the six month periods.

Credit Group—Assets Under Management

The tables below provide the period‑to‑period rollforward of AUM for the Credit Group for the three months ended June 30, 2016 and 2015 (in millions):


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Balance at 3/31/2016	$ 17,030	$ 3,442	$ 3,067	$ 3,275	$ 1,785	$ 22,252	$ 9,197	$ 60,048
Net New Par/ Equity Commitments	186	869	302	578	-	(1)	705	2,639
Net New Debt Commitments	510	-	-	-	-	400	332	1,242
Distributions	(774)	(85)	(95)	(45)	(53)	(908)	(118)	(2,078)
Change in Fund Value	(24)	105	55	145	45	195	(270)	251
Balance at 6/30/2016	$ 16,928	$ 4,331	$ 3,329	$ 3,953	$ 1,777	$ 21,938	$ 9,846	$ 62,102
Average AUM	$ 16,979	$ 3,887	$ 3,198	$ 3,614	$ 1,781	$ 22,095	$ 9,522	$ 61,076


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Balance at 03/31/2015	$ 19,903	$ 3,291	$ 5,198	$ 2,861	$ 2,124	$ 24,427	$ 4,266	$ 62,070
Net New Par/ Equity Commitments	106	162	-	366	175	313	378	1,500
Net New Debt Commitments	-	-	250	-	-	775	-	1,025
Distributions	(664)	(39)	(1,125)	(153)	(11)	(361)	(22)	(2,375)
Change in Fund Value	246	(6)	(32)	55	(42)	192	231	644
Balance at 6/30/2015	$ 19,591	$ 3,408	$ 4,291	$ 3,129	$ 2,246	$ 25,346	$ 4,853	$ 62,864
Average AUM	$ 19,747	$ 3,350	$ 4,745	$ 2,995	$ 2,185	$ 24,887	$ 4,560	$ 62,469

Table of Contents

The tables below provide the period‑to‑period rollforward of AUM for the Credit Group for the six months ended June 30, 2016 and 2015 (in millions):


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Balance at 12/31/2015	$ 17,618	$ 3,303	$ 3,714	$ 3,102	$ 1,863	$ 23,594	$ 9,055	$ 62,249
Net New Par/ Equity Commitments	245	961	253	800	-	(2)	868	3,125
Net New Debt Commitments	510	-	-	-	-	700	332	1,542
Distributions(1)	(1,583)	(143)	(700)	(49)	(76)	(2,656)	(474)	(5,681)
Change in Fund Value	138	210	62	100	(10)	302	65	867
Balance at 6/30/2016	$ 16,928	$ 4,331	$ 3,329	$ 3,953	$ 1,777	$ 21,938	$ 9,846	$ 62,102
Average AUM	$ 17,273	$ 3,817	$ 3,522	$ 3,528	$ 1,820	$ 22,766	$ 9,451	$ 62,177

(1)

Distribution of $5.7 billion includes $1.0 billion reduction in leverage related to the paydown associated with SSLP within the U.S. direct lending strategy.


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Balance at 12/31/2014	$ 20,176	$ 3,075	$ 5,479	$ 1,718	$ 1,952	$ 23,953	$ 4,698	$ 61,051
Net New Par/ Equity Commitments	232	323	-	1,566	410	401	378	3,310
Net New Debt Commitments	613	-	250	-	-	1,387	-	2,250
Distributions	(1,045)	(79)	(1,477)	(172)	(37)	(712)	(55)	(3,577)
Change in Fund Value	(385)	89	39	17	(79)	317	(168)	(170)
Balance at 6/30/2015	$ 19,591	$ 3,408	$ 4,291	$ 3,129	$ 2,246	$ 25,346	$ 4,853	$ 62,864
Average AUM	$ 19,884	$ 3,242	$ 4,885	$ 2,424	$ 2,099	$ 24,650	$ 4,776	$ 61,960

Credit Group—Fee Paying AUM and Fee Earning AUM

The tables below provides the period‑to‑period rollforward of fee paying AUM and fee earning AUM for the Credit Group for the three months ended June 30, 2016 and 2015 (in millions):


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Fee paying AUM Balance at 3/31/2016	$ 16,508	$ 3,441	$ 2,416	$ 2,555	$ 893	$ 10,348	$ 4,337	$ 40,498
Commitments	184	869	-	7	-	-	-	1,060
Subscriptions/deployment/increase in leverage	3	-	88	158	7	315	423	994
Distributions	(726)	(85)	(92)	(54)	(56)	(339)	(4)	(1,356)
Change in Fund Value	(35)	105	52	113	-	121	(122)	234
Fee paying AUM Balance at 6/30/2016	$ 15,934	$ 4,330	$ 2,464	$ 2,779	$ 844	$ 10,445	$ 4,634	$ 41,430
Average fee paying AUM	$ 16,221	$ 3,886	$ 2,440	$ 2,667	$ 869	$ 10,397	$ 4,486	$ 40,964
Indirect Fee Earning AUM:
Balance at 3/31/2016	$ -	$ -	$ -	$ -	$ -	$ 8,284	$ -	$ 8,284
Subscriptions/deployment/increase in leverage	-	-	-	-	-	14	-	14
Distributions	-	-	-	-	-	(549)	-	(549)
Change in Fund Value	-	-	-	-	-	(7)	-	(7)
Fee earning AUM Balance at 6/30/2016	$ 15,934	$ 4,330	$ 2,464	$ 2,779	$ 844	$ 18,187	$ 4,634	$ 49,172
Average Fee earning AUM	$ 16,221	$ 3,886	$ 2,440	$ 2,667	$ 869	$ 18,409	$ 4,486	$ 48,978


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Fee paying AUM Balance at 3/31/2015	$ 16,301	$ 3,166	$ 3,828	$ 2,006	$ 696	$ 9,288	$ 3,175	$ 38,460
Commitments	105	162	-	11	-	135	-	413
Subscriptions/deployment/increase in leverage	35	-	164	536	218	233	153	1,339
Distributions	(463)	(39)	(388)	(175)	(3)	(119)	(46)	(1,233)
Change in Fund Value	119	(7)	(35)	71	(14)	(7)	73	200
Change in Fee Basis	71	126	(396)	114	50	(261)	77	(219)
Fee paying AUM Balance at 6/30/2015	$ 16,168	$ 3,408	$ 3,173	$ 2,563	$ 947	$ 9,269	$ 3,432	$ 38,960
Average fee paying AUM	$ 16,235	$ 3,287	$ 3,501	$ 2,285	$ 822	$ 9,279	$ 3,304	$ 38,710
Indirect Fee Earning AUM:
Balance at 3/31/2015	$ -	$ -	$ -	$ -	$ -	$ 10,117	$ -	$ 10,117
Subscriptions/deployment/increase in leverage	-	-	-	-	-	445	-	445
Distributions	-	-	-	-	-	(115)	-	(115)
Change in Fund Value	-	-	-	-	-	22	-	22
Change in Fee Basis	-	-	-	-	-	(12)	-	(12)
Fee earning AUM Balance at 6/30/2015	$ 16,168	$ 3,408	$ 3,173	$ 2,563	$ 947	$ 19,726	$ 3,432	$ 49,417

Table of Contents

Average Fee earning AUM

16,235

3,287

3,501

2,285

822

19,565

3,304

48,999

The tables below provides the period‑to‑period rollforward of fee paying AUM and fee earning AUM for the Credit Group for the six months ended June 30, 2016 and 2015 (in millions):


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Fee paying AUM Balance at 12/31/2015	$ 17,180	$ 3,303	$ 2,607	$ 2,559	$ 1,051	$ 10,187	$ 4,089	$ 40,976
Commitments	242	961	61	7	-	-	-	1,271
Subscriptions/deployment/increase in leverage	3	-	88	193	(4)	557	989	1,826
Distributions	(1,541)	(142)	(292)	(64)	(115)	(610)	(332)	(3,096)
Change in Fund Value	50	208	60	84	(88)	311	(112)	513
Change in Fee Basis	-	-	(60)	-	-	-	-	(60)
Fee paying AUM Balance at 6/30/2016	$ 15,934	$ 4,330	$ 2,464	$ 2,779	$ 844	$ 10,445	$ 4,634	$ 41,430
Average fee paying AUM	$ 16,557	$ 3,817	$ 2,536	$ 2,669	$ 948	$ 10,316	$ 4,362	$ 41,203
Indirect Fee Earning AUM:
Balance at 12/31/2015	$ -	$ -	$ -	$ -	$ -	$ 9,129	$ -	$ 9,129
Subscriptions/deployment/increase in leverage	-	-	-	-	-	115	-	115
Distributions	-	-	-	-	-	(1,502)	-	(1,502)
Change in Fund Value	-	-	-	-	-	3	-	3
Change in Fee Basis	-	-	-	-	-	(3)	-	(3)
Fee earning AUM Balance at 6/30/2016	$ 15,934	$ 4,330	$ 2,464	$ 2,779	$ 844	$ 18,187	$ 4,634	$ 49,172
Average Fee earning AUM	$ 16,557	$ 3,817	$ 2,536	$ 2,669	$ 948	$ 18,751	$ 4,362	$ 49,640


	Syndicated Loans	High Yield	Credit Opportunities	Structured Credit	Special Situations	U.S. Direct Lending	E.U. Direct Lending	Total Credit Group
Fee paying AUM Balance at 12/31/2014	$ 16,236	$ 3,075	$ 3,943	$ 1,602	$ 531	$ 9,400	$ 3,017	$ 37,804
Commitments	705	162	-	11	-	341	-	1,219
Subscriptions/deployment/increase in leverage	111	97	164	993	401	267	501	2,534
Distributions	(781)	(79)	(466)	(189)	(3)	(954)	(116)	(2,588)
Change in Fund Value	(173)	27	(72)	32	(32)	476	(10)	248
Change in Fee Basis	70	126	(396)	114	50	(261)	40	(257)
Fee paying AUM Balance at 6/30/2015	$ 16,168	$ 3,408	$ 3,173	$ 2,563	$ 947	$ 9,269	$ 3,432	$ 38,960
Average fee paying AUM	$ 16,202	$ 3,242	$ 3,558	$ 2,083	$ 739	$ 9,335	$ 3,225	$ 38,382
Indirect Fee Earning AUM:
Balance at 12/31/2014	$ -	$ -	$ -	$ -	$ -	$ 10,264	$ -	$ 10,264
Commitments	-	-	-	-	-	202	-	202
Subscriptions/deployment/increase in leverage	-	-	-	-	-	453	-	453
Distributions	-	-	-	-	-	(502)	-	(502)
Change in Fund Value	-	-	-	-	-	52	-	52
Change in Fee Basis	-	-	-	-	-	(12)	-	(12)
Fee earning AUM Balance at 6/30/2015	$ 16,168	$ 3,408	$ 3,173	$ 2,563	$ 947	$ 19,726	$ 3,432	$ 49,417
Average Fee earning AUM	$ 16,202	$ 3,242	$ 3,558	$ 2,083	$ 739	$ 19,695	$ 3,225	$ 48,744

The table below breaks out fee earning AUM for the Credit Group by its respective components for each period:


	As of June 30,
	2016		2015
	(Dollars in millions)
Fee paying AUM based on capital commitments	$	182	$	109
Fee paying AUM based on invested capital		6,016		4,236
Fee paying AUM based on market value/other		22,489		22,209
Fee paying AUM based on collateral balances, at par		12,743		12,406
Total fee paying AUM		41,430		38,960
Indirect fee earning AUM		7,742		10,457
Total fee earning AUM	$	49,172	$	49,417

Credit Group fee paying AUM and fee earning AUM may vary from AUM for variety of reasons. The reconciliation of AUM to fee earning AUM and fee paying AUM for the Credit Group is presented below for each period.

Table of Contents


	As of June 30,
	2016		2015
	(Dollars in millions)
AUM	$	62,102	$	62,864
Non fee paying debt		(3,099)		(4,962)
General partner and affiliates		(316)		(268)
Undeployed		(8,116)		(8,120)
Market value/other		(835)		(47)
Fees not activated		(510)		—
Fees deactivated		(54)		(50)
Fee earning AUM		49,172		49,417
Indirect fee earning AUM		(7,742)		(10,457)
Fee paying AUM	$	41,430	$	38,960

Credit Group—Fund Performance Metrics as of June 30, 2016

The Credit Group managed approximately 133 funds as of June 30, 2016 across liquid and illiquid credit spectrum. ARCC contributed approximately 57% of the Credit Group’s total management fees for the six months ended June 30, 2016, whereas 7 funds contributed over 1% of the Credit Group’s total management fees for the six months ended June 30, 2016. The Credit Group manages three of our significant funds: Ares Credit Strategies Fund I (“CSF”), a managed account with a flexible and opportunistic mandate to invest in corporate credit funds; ARCC, a publicly-traded business development company that principally originates and invests in first lien senior secured loans, second lien secured loans and mezzanine debt in the United States; and Ares Capital Europe II (“ACE II”), a 2013 vintage commingled fund focused on direct lending to European middle market companies. In addition, the following table includes performance information for the fund with the greatest amount of management fees for the six months ended June 30, 2016 for each of the syndicated loans, high yield, credit opportunities and structured credit strategies within the Credit Group, which would not otherwise be presented as significant funds.


		As of June 30, 2016
				Net Returns (%)
	Year of	AUM		Since	Past	Past
Fund	Inception	(in millions)(1)		Inception	5 Years	3 Years	Investment Strategy
ARCC(2)	2004	$	9,996	12.0	11.8	10.7	U.S. direct lending
Sub-advised Client A(3)(4)	2007	$	225	7.3	5.7	3.9	High yield
CSF(3)(5)	2008	$	528	10.0	5.0	3.3	Special situations
Sub-advised Client B(3)(4)	2009	$	665	5.9	3.8	2.8	Syndicated loans
ARDC(6)	2012	$	580	2.6	N/A	2.0	Credit opportunities
ACE II(3)(5)(7)	2013	$	1,634	7.9	N/A	7.9	E.U. direct lending
Sub-advised Client C(8)	2015	$	990	N/A	N/A	N/A	Structured credit

(1)

AUM equals the sum of the NAV for such fund, the drawn and undrawn debt (at the fund-level including amounts subject to restrictions) and uncalled committed capital. The AUM for CSF, a fund of funds, includes AUM that has been committed to other Ares funds.

(2)

Net returns are annualized net returns and 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 quarterly report.

(3)

Net returns are net of management fees and performance fees as applicable. CSF and ACE II net returns are also after giving effect to other expenses. Returns are expressed in U.S. dollars.

(4)

Net returns for the past three year, five year, and since inception periods are annualized net returns calculated by linking monthly net returns. Monthly net returns are calculated by linking daily returns. Prior to January 1, 2015 monthly net returns were calculated using the modified Dietz method, which is an estimate of the time-weighted return and weights portfolio cash flows according to the time they were invested in the portfolio.

(5)

The net return is an annualized net internal rate of return of cash flows to and from the fee-paying partners and the fee-paying partners’ ending capital for the period. The past five and three years’ net returns are calculated using the beginning partners’ capital for the fee-paying partners for such period. Cash flows for net return calculations are based on the actual dates of the cash flows.

Table of Contents

(6)

Net returns are annualized net returns and are calculated using the fund's NAV and assume dividends are reinvested at the NAV. Additional information related to ARDC can be found in its financial statements filed with the SEC, which are not part of this quarterly report.

(7)

ACE II is comprised of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The since inception net IRR presented in the chart is for the U.S. dollar denominated feeder fund. All other values for ACE II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. The since inception and 3-year net IRR for the Euro denominated feeder fund are 10.8% and 10.8%, respectively, and are calculated using the same methodology described in footnotes 3 and 5 above. The variance between the since inception net IRRs for the U.S. dollar denominated and Euro denominated feeder funds is driven by the U.S. GAAP mark-to-market reporting of the foreign currency hedging program in the U.S. denominated feeder fund. The feeder fund is expected to hold the foreign currency hedges until maturity, and therefore is expected to ultimately recognize a gain while mitigating the currency risk associated with the initial principal investments.

(8)

Information not yet meaningful due to limited operating history.

The following table presents certain additional performance data for the group’s significant fund that is structured as a closed‑end, private commingled fund:

As of June 30, 2016 (Dollars in millions)

Cumulative

Original Capital

Invested

Realized

Unrealized

Total

Gross

Net

Fund

Commitments

Capital

Proceeds(1)

Value(2)

Value

MoIC(3)(5)

MoIC(4)(5)

ACE II

1,216

867

113

1,038

1,151

1.4x

(1)

Realized proceeds represent the sum of all cash distributions to all partners.

(2)

Unrealized value represents the fund's NAV.

(3)

The Gross multiple of invested capital (“MoIC”) is before giving effect to management fees, performance fees and other expenses. The multiple is calculated at the fund-level and is based on the interests of all partners.

(4)

The Net MoIC is after giving effect to management fees, performance fees and other expenses. The multiple is calculated at the fund-level and is based on the interests of the fee-paying limited partners and excludes those interests attributable to the non-fee paying limited partners and the general partner.

(5)

ACE II is comprised of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The Gross and Net MoIC presented in the chart are for the U.S. dollar denominated feeder fund. The Gross and Net MoIC for the Euro denominated feeder fund are 1.3x and 1.3x, 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 II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. The variance between the Gross and Net MoICs for the U.S. dollar denominated and Euro denominated feeder funds is driven by the U.S. GAAP mark-to-market reporting of the foreign currency hedging program in the U.S. denominated feeder fund. The feeder fund will be holding the foreign currency hedges until maturity, and therefore is expected to ultimately recognize a gain while mitigating the currency risk associated with the initial principal investments.

Table of Contents

Private Equity Group

The following table sets forth certain statement of operations data and certain other data of our Private Equity Group segment for the periods presented.


	Three Months Ended						Six Months Ended
	June 30,				Favorable (Unfavorable)		June 30,				Favorable (Unfavorable)
	2016		2015		$ Change	% Change	2016		2015		$ Change	% Change
	(Dollars in thousands)
Management fees	$	35,612	$	36,373	$ (761)	(2.1%)	$	72,094	$	72,962	$ (868)	(1.2%)
Other fees		334		36	298	NM		674		49	625	NM
Compensation and benefits		(13,191)		(11,226)	(1,965)	(17.5%)		(25,358)		(23,547)	(1,811)	(7.7%)
General, administrative and other expenses		(2,925)		(3,200)	275	8.6%		(5,829)		(6,318)	489	7.7%
Fee related earnings		19,830		21,983	(2,153)	(9.8%)		41,581		43,146	(1,565)	(3.6%)
Performance fees-realized		62,779		18,878	43,901	232.6%		62,779		19,303	43,476	225.2%
Performance fees-unrealized		105,450		41,863	63,587	151.9%		93,307		129,194	(35,887)	(27.8%)
Performance fee compensation-realized		(50,224)		(15,102)	(35,122)	(232.6%)		(50,224)		(15,442)	(34,782)	(225.2%)
Performance fee compensation-unrealized		(84,337)		(33,795)	(50,542)	(149.6%)		(75,396)		(103,776)	28,380	27.3%
Net performance fees		33,668		11,844	21,824	184.3%		30,466		29,279	1,187	4.1%
Investment income (loss)-realized		3,003		3,105	(102)	(3.3%)		2,891		7,277	(4,386)	(60.3%)
Investment income (loss)-unrealized		420		2,085	(1,665)	(79.9%)		(7,325)		643	(7,968)	NM
Interest and other investment income		8,206		1,330	6,876	NM		8,115		5,815	2,300	39.6%
Interest expense		(1,397)		(1,658)	261	15.7%		(2,802)		(3,338)	536	16.1%
Net investment income		10,232		4,862	5,370	110.4%		879		10,397	(9,518)	(91.5%)
Performance related earnings		43,900		16,706	27,194	162.8%		31,345		39,676	(8,331)	(21.0%)
Economic net income	$	63,730	$	38,689	25,041	64.7%	$	72,926	$	82,822	(9,896)	(11.9%)
Distributable earnings	$	41,130	$	28,242	12,888	45.6%	$	60,735	$	55,328	5,407	9.8%

NM – Not meaningful

Accrued performance fees for the Private Equity Group are comprised of the following:


	As of June 30,
Q2 2014	2016		2015
	(Dollars in thousands)
ACOF II	$	32,135	$	46,168
ACOF III		345,729		320,598
ACOF IV		136,581		85,591
Other funds		10,708		9,202
Total Private Equity Group	$	525,153	$	461,559

Net performance fees for the Private Group are comprised of the following:


	Three Months Ended June 30, 2016						Three Months Ended June 30, 2015
Q2 2015	Performance Fees		Performance Fees		Net		Performance Fees		Performance Fees		Net
Q2 2014	- Realized		- Unrealized		Performance Fees		- Realized		- Unrealized		Performance Fees
	(Dollars in thousands)
ACOF II	$	694	$	5,646	$	6,340	$	6,530	$	2,553	$	9,083
ACOF III		62,085		(42,636)		19,449		1,803		28,770		30,573
ACOF IV		—		142,553		142,553		10,545		10,643		21,188
Other funds		—		(113)		(113)		—		(103)		(103)
Total Private Equity Group	$	62,779	$	105,450	$	168,229	$	18,878	$	41,863	$	60,741

Table of Contents


	Six Months Ended June 30, 2016						Six Months Ended June 30, 2015
Q2 2015	Performance Fees		Performance Fees		Net		Performance Fees		Performance Fees		Net
Q2 2014	- Realized		- Unrealized		Performance Fees		- Realized		- Unrealized		Performance Fees
	(Dollars in thousands)
ACOF II	$	694	$	3,987	$	4,681	$	6,530	$	15,855	$	22,385
ACOF III		62,085		7,345		69,430		2,228		72,633		74,861
ACOF IV		—		83,945		83,945		10,545		42,468		53,013
Other funds		—		(1,970)		(1,970)		—		(1,762)		(1,762)
Total Private Equity Group	$	62,779	$	93,307	$	156,086	$	19,303	$	129,194	$	148,497

The following tables present the components of the change in performance fees – unrealized for the Private Equity Group:


	Three Months Ended June 30, 2016				Three Months Ended June 31, 2015
	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized
	(Dollars in thousands)
ACOF II	$ (694)	$ 6,340	$ -	$ 5,646	$ (6,530)	$ 9,083	$ -	$ 2,553
ACOF III	(62,085)	19,449	-	(42,636)	(1,803)	30,573	-	28,770
ACOF IV	-	142,553	-	142,553	(10,545)	21,188	-	10,643
Other funds	-	-	(113)	(113)	-	712	(815)	(103)
Total Private Equity Group	$ (62,779)	$ 168,342	$ (113)	$ 105,450	$ (18,878)	$ 61,556	$ (815)	$ 41,863


	Six Months Ended June 30, 2016				Six Months Ended June 30, 2015
	Performance Fees - Realized	Increases	Decreases	Performance Fees -Unrealized	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized
	(Dollars in thousands)
ACOF II	$ (694)	$ 4,681	$ -	$ 3,987	$ (6,530)	$ 22,385	$ -	$ 15,855
ACOF III	(62,085)	69,430	-	7,345	(2,228)	74,861	-	72,633
ACOF IV	-	83,945	-	83,945	(10,545)	53,013	-	42,468
Other funds	-	891	(2,861)	(1,970)	-	175	(1,937)	(1,762)
Total Private Equity Group	$ (62,779)	$ 158,947	$ (2,861)	$ 93,307	$ (19,303)	$ 150,434	$ (1,937)	$ 129,194

Private Equity Group—Three and Six Months Ended June 30, 2016 Compared to the Three and Six Months Ended June 30, 2015

Management Fees. Total management fees decreased by $0.8 million, or 2.1%, to $35.6 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and decreased by $0.9 million, or 1.2%, to $72.1 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The decrease was primarily attributable to the absence of management fees from ACOF II, which had earned $1.1 million and $2.3 million of fees in the three and six months ended June 30, 2015, respectively. In connection with an extension of ACOF II’s term for one year, we agreed to waive management fees starting in the first quarter of 2016. Substantially all of the decrease was offset by $1.1 million and $2.2 million of fees earned in the three and six months ended June 30, 2016 from a new power and energy infrastructure fund that began paying management fees in the fourth quarter of 2015. The effective management fee rate decreased from 1.33% for the three months ended June 30, 2015 to 1.30% for the three months ended June 30, 2016.The effective management fee rate decreased from 1.32% for the six months ended June 30, 2015 to 1.30% for the six months ended June 30, 2016.

Net performance fees increased by $21.8 million to $33.7 million for the three months ended June 30, 2016 from $11.8 million for the three months ended June 30, 2015. This increase was primarily driven by the appreciation in fair value of certain portfolio assets within Ares Corporate Opportunities Fund IV (“ACOF IV”) when compared to the three months ended June 30, 2015.

Table of Contents

Net performance fees increased by $1.2 million to $30.5 million for the six months ended June 30, 2016 from $29.3 million for the six months ended June 30, 2015. This increase was primarily driven by the appreciation in fair value of certain portfolio assets across certain Private Equity funds when compared to the six months ended June 30, 2015.

Compensation and Benefits. Compensation and benefits expenses increased by $2.0 million, or 17.5%, to $13.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and increased by $1.8 million, or 7.7%, to $25.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase was primarily due to an increase in incentive based compensation. Compensation and benefits represented 37.0% and 35.2% of recurring management fees for the three and six months ended June 30, 2016, respectively, compared to 30.9% and 32.3% for the three months and six months ended June 30, 2015, respectively.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $0.3 million, or 8.6%, to $2.9 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $0.5 million, or 7.7%, to $5.8 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily due to lower professional services expenses.

Net Investment Income (Loss). Net investment income increased by $5.4 million to $10.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase was primarily driven by an increase of $7.1 million of dividend income from Ares Corporate Opportunities Fund III (“ACOF III”).

Net investment income was $0.9 million for the six months ended June 30, 2016 primarily as a result of $11.2 million of dividends and realized gains from ACOF III and $5.4 million of unrealized gains on ACOF IV being offset by $13.4 million of losses in ACOF Asia and $2.8 million of interest expense. In comparison, during the six month period ended June 30, 2015 ACOF III contributed net investment income of $11.7 million, while the remainder of our Private Equity investment portfolio was slightly up due to $1.6 million of unrealized gains from ACOF II, offset by $3.3 million of interest expenses as a result of slightly more leverage in the six month period ended June 30, 2015.

Non-GAAP Performance Measures. The increases of $21.8 million and $5.4 million in net performance fees and net investment income, respectively, increased our PRE and ENI for the three months ended June 30, 2016 compared to the same period in the prior year. Included in net performance fees and net investment income were increases of $8.8 million and $7.2 million in net realized performance fee and net realized investment and other income, respectively, which increased DE. The decrease in FRE, impacted by a decrease in management fees and an increase in compensation and benefits, partially offset the increase of DE and ENI.

The decreases of $9.5 million in net investment income reduced our PRE and ENI for the six months ended June 30, 2016 compared to the same period in the prior year. The decrease in PRE and ENI were partially offset by the increase of $1.2 million of net performance fees. Included in the increase in net performance fees was an $8.7 million increase of net realized performance fees, which contributed to the increase in DE. The increase in DE was partially offset by reductions in FRE and net realized investment and other income. The decrease of FRE was due to decreases in management fees and increases in compensation and benefits.

Table of Contents

Private Equity Group—Assets Under Management

The tables below provide the period‑to‑period rollforward of AUM for the Private Equity Group for the three months ended June 30, 2016 and 2015 (in millions):


	Private Equity - ACOF	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 3/31/2016	$ 18,001	$ 152	$ 5,123	$ 23,276
Net New Equity Commitments	35	-	-	35
Distributions	(646)	-	(160)	(806)
Change in Fund Value	538	(2)	(4)	532
Balance at 6/30/2016	$ 17,928	$ 150	$ 4,959	$ 23,037
Average AUM	$ 17,965	$ 151	$ 5,041	$ 23,157


	Private Equity - ACOF	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 3/31/2015	$ 10,134	$ 250	$ 4,439	$ 14,823
Net New Equity Commitments	-	-	20	20
Distributions	(418)	(1)	(93)	(512)
Change in Fund Value	312	(1)	66	377
Balance at 6/30/2015	$ 10,028	$ 248	$ 4,432	$ 14,708
Average AUM	$ 10,081	$ 249	$ 4,436	$ 14,766

The tables below provide the period‑to‑period rollforward of AUM for the Private Equity Group for the six months ended June 30, 2016 and 2015 (in millions):


	Private Equity - ACOF(1)	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 12/31/2015	$ 15,725	$ 183	$ 5,207	$ 21,115
Net New Equity Commitments	2,154	-	-	2,154
Distributions	(647)	-	(176)	(823)
Change in Fund Value	696	(33)	(72)	591
Balance at 6/30/2016	$ 17,928	$ 150	$ 4,959	$ 23,037
Average AUM	$ 16,827	$ 167	$ 5,083	$ 22,077

(1)

Net new equity commitments represents commitments to Ares Corporate Opportunities Fund V, L.P. (“ACOF V”).


	Private Equity - ACOF	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 12/31/2014	$ 9,860	$ 275	$ -	$ 10,135
Acquisitions	-	-	4,581	4,581
Net New Equity Commitments	-	-	20	20
Distributions	(612)	(20)	(253)	(885)
Change in Fund Value	780	(7)	84	857
Balance at 6/30/2015	$ 10,028	$ 248	$ 4,432	$ 14,708
Average AUM	$ 9,944	$ 262	$ 2,216	$ 12,422

Table of Contents

Private Equity Group—Fee Paying AUM

Fee paying and fee earning AUM are the same number for the Private Equity Group, as there are no fees earned indirectly within Private Equity. The tables below provide the period‑to‑period rollforward of fee paying AUM, which is substantially the same as fee earning AUM for the Private Equity Group for the three months ended June 30, 2016 and 2015 (in millions):


	Private Equity - ACOF	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 03/31/2016	$ 6,631	$ 55	$ 4,429	$ 11,115
Subscriptions/deployment/increase in leverage	17	-	6	23
Distributions	-	-	(46)	(46)
Change in Fund Value	-	-	(58)	(58)
Change in Fee Basis	-	(25)	-	(25)
FPAUM Balance at 6/30/2016	$ 6,648	$ 30	$ 4,331	$ 11,009
Average FPAUM	$ 6,640	$ 43	$ 4,380	$ 11,063


	Private Equity - ACOF	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 3/31/2015	$ 7,115	$ 55	$ 3,937	$ 11,107
Subscriptions/deployment/increase in leverage	-	-	6	6
Distributions	(144)	-	(17)	(161)
Change in Fee Basis	(105)	-	-	(105)
FPAUM Balance at 6/30/2015	$ 6,866	$ 55	$ 3,926	$ 10,847
Average FPAUM	$ 6,991	$ 55	$ 3,932	$ 10,978

The tables below provide the period‑to‑period rollforward of fee paying AUM for the Private Equity Group for the six months ended June 30, 2016 and 2015 (in millions):


	Private Equity - ACOF	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 12/31/2015	$ 6,902	$ 55	$ 4,454	$ 11,411
Subscriptions/deployment/increase in leverage	16	-	10	26
Distributions	-	-	(46)	(46)
Change in Fund Value	-	-	(80)	(80)
Change in Fee Basis	(270)	(25)	(7)	(302)
FPAUM Balance at 6/30/2016	$ 6,648	$ 30	$ 4,331	$ 11,009
Average FPAUM	$ 6,775	$ 43	$ 4,393	$ 11,211


	Private Equity - ACOF	Private Equity - Asia	Private Equity - EIF	Total Private Equity Group
Balance at 12/31/2014	$ 7,117	$ 55	$ -	$ 7,172
Acquisitions	-	-	4,046	4,046
Subscriptions/deployment/increase in leverage	3	-	72	75
Distributions	(149)	-	(190)	(339)
Change in Fund Value	-	-	(2)	(2)
Change in Fee Basis	(105)	-	-	(105)
FPAUM Balance at 6/30/2015	$ 6,866	$ 55	$ 3,926	$ 10,847
Average FPAUM	$ 6,992	$ 55	$ 1,963	$ 9,010

The components of fee paying AUM for the Private Equity Group are presented below for each period.


	As of June 30,
	2016		2015
	(Dollars in millions)
Fee paying AUM based on capital commitments	$	6,507	$	6,277
Fee paying AUM based on invested capital		4,502		4,570
Total fee paying AUM	$	11,009	$	10,847

Private Equity Group fee paying AUM may vary from AUM for variety of reasons. The reconciliation of AUM to fee paying AUM for the Private Equity Group is presented below for each period.

Table of Contents


	As of June 30,
	2016		2015
	(Dollars in millions)
AUM	$	23,037	$	14,708
General partner and affiliates		(886)		(725)
Undeployed/undrawn commitments		(454)		(923)
Market value/other		(2,322)		(2,107)
Fees not activated		(7,600)		—
Fees deactivated		(766)		(106)
Fee paying AUM	$	11,009	$	10,847

Private Equity Group—Fund Performance Metrics as of June 30, 2016

The Private Equity Group managed 17 commingled funds and related co-investment vehicles as of June 30, 2016. ACOF III, ACOF IV, U.S. Power Fund III (“USPF III”) and U.S. Power Fund IV (“USPF IV”), each considered a significant fund, combined for approximately 89% of the Private Equity Group’s management fees for the six months ended June 30, 2016. Our flexible capital Private Equity funds focus on majority or shared‑control investments, principally in under‑capitalized companies in the U.S. and Europe. ACOF III is in harvest mode, meaning it is generally not seeking to deploy capital into new investment opportunities, while ACOF IV is in deployment mode. Each of our U.S. power and energy infrastructure funds focuses on generating long‑term, stable cash‑flowing investments in the power generation, transmission and midstream energy sector. USPF III and USPF IV, acquired in connection with the acquisition of EIF in January 2015, are in harvest mode and deployment mode, respectively. In addition, performance information for ACOF Asia has been included to provide information about the China growth capital sub‑strategy within the Private Equity Group.


		As of June 30, 2016
				Net Returns (%)(2)
	Year of	AUM		Since	Past	Past
Fund	Inception	(in millions)(1)		Inception	5 Years	3 Years	Investment Strategy
USPF III(3)	2007	$	1,377	5.7	9.4	12.4	U.S. Power and Energy Infrastructure
ACOF III(4)	2008	$	3,940	21.7	16.7	23.7	North American/European Flexible Capital
USPF IV(3)	2010	$	1,894	10.8	N/A	16.9	U.S. Power and Energy Infrastructure
ACOF Asia(4)	2011	$	150	3.2	(1.1)	4.2	China Growth Capital
ACOF IV(4)	2012	$	5,353	9.6	N/A	10.9	North American/European Flexible Capital

(1)

AUM equals the sum of the NAV for such fund, the drawn and undrawn debt (at the fund‑level including amounts subject to restrictions) and uncalled committed capital.

(2)

Net returns are net of management fees, performance fees and other expenses.

(3)

The net return is an annualized net internal rate of return of cash flows to and from the fee-paying partners and the fee-paying partners' ending capital for the period. The past five and three years’ net returns are calculated using beginning partners’ capital for the fee-paying partners for such period. Cash flows for net return calculations are based on the actual dates of the cash flows.

(4)

The net return is an annualized net internal rate of return of cash flows on investments and the investments’ ending valuations for the period. The past five and three years’ net returns are calculated using beginning investment valuations for such period. For ACOF III and ACOF IV, cash flows and beginning and ending valuations include those attributable to the interests of the fee-paying limited partners and exclude those attributable to the non-fee paying limited partners and the general partner. For ACOF Asia, cash flows and beginning and ending valuations include those attributable to the interests of all partners, including the general partner and Schedule I limited partners, which both pay reduced performance fees and do not pay management fees, since the commitments of these partners account for approximately 75% of total fund commitments. Cash flows for all net return calculations are assumed to occur at month-end.

Table of Contents

For the group’s significant funds and other funds that in each case are structured as closed‑end, private commingled funds, the following table presents certain additional performance data.


	As of June 30, 2016 (Dollars in millions)
	Original Capital		Cumulative		Realized		Unrealized		Total		Gross	Net
Fund	Commitments		Invested Capital		Proceeds(1)		Value(2)		Value		MoIC(3)	MoIC(4)
USPF III	$	1,350	$	1,763	$	1,203	$	1,291	$	2,494	1.4x	1.4x
ACOF III	$	3,510	$	3,867	$	4,764	$	3,572	$	8,336	2.2x	1.9x
USPF IV	$	1,688	$	1,559	$	616	$	1,515	$	2,131	1.4x	1.3x
ACOF Asia	$	220	$	183	$	79	$	144	$	223	1.2x	1.1x
ACOF IV	$	4,700	$	3,176	$	245	$	4,011	$	4,256	1.3x	1.2x

(1)

Realized proceeds represents the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments.

(2)

Unrealized value represents the fair value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations shown.

(3)

The Gross MoIC is before giving effect to management fees, performance fees and other expenses. The multiple is calculated at the investment level and is based on the interests of all partners.

(4)

For ACOF III and ACOF IV, the multiple is calculated at the investment-level and is based on the interests of the fee-paying limited partners and excludes those interests attributable to the non-fee paying limited partners and the general partner. For ACOF Asia, the multiple is calculated at the investment-level and is based on the interests of all partners, including the general partner and Schedule I limited partners, which both pay reduced performance fees and do not pay management fees, since the commitments of these partners account for approximately 75% of total fund commitments. For USPF III and USPF IV, the multiple is calculated at the fund-level and is based on the interests of the fee-paying limited partners.

Table of Contents

Real Estate Group

The following table sets forth certain statement of operations data and certain other data of our Real Estate Group segment for the periods presented.


	Three Months Ended						Six Months Ended
	June 30,				Favorable (Unfavorable)		June 30,				Favorable (Unfavorable)
	2016		2015		$ Change	% Change	2016		2015		$ Change	% Change
	(Dollars in thousands)
Management fees	$	16,230	$	15,934	$ 296	1.9%	$	32,975	$	33,313	$ (338)	(1.0%)
Other fees		435		731	(296)	(40.5%)		693		1,585	(892)	(56.3%)
Compensation and benefits		(10,165)		(9,992)	(173)	(1.7%)		(20,879)		(20,123)	(756)	(3.8%)
General, administrative and other expenses		(2,399)		(3,709)	1,310	35.3%		(5,701)		(6,253)	552	8.8%
Fee related earnings		4,101		2,964	1,137	38.4%		7,088		8,522	(1,434)	(16.8%)
Performance fee-realized		2,801		102	2,699	NM		2,972		102	2,870	NM
Performance fee-unrealized		1,261		3,886	(2,625)	(67.6%)		5,383		4,206	1,177	28.0%
Performance fee compensation-realized		(53)		—	(53)	NM		(53)		—	(53)	NM
Performance fee compensation-unrealized		(1,773)		(1,181)	(592)	(50.1%)		(4,006)		(779)	(3,227)	NM
Net performance fees		2,236		2,807	(571)	(20.3%)		4,296		3,529	767	21.7%
Investment income (loss)-realized		695		255	440	172.5%		563		387	176	45.5%
Investment income (loss)-unrealized		(1,067)		953	(2,020)	NM		1,732		1,149	583	50.7%
Interest and other investment income		36		18	18	100.0%		928		47	881	NM
Interest expense		(272)		(260)	(12)	(4.6%)		(546)		(530)	(16)	(3.0%)
Net investment income (loss)		(608)		966	(1,574)	NM		2,677		1,053	1,624	154.2%
Performance related earnings		1,628		3,773	(2,145)	(56.9%)		6,973		4,582	2,391	52.2%
Economic net income	$	5,729	$	6,737	(1,008)	(15.0%)	$	14,061	$	13,104	957	7.3%
Distributable earnings	$	8,374	$	2,090	6,284	NM	$	11,717	$	5,472	6,245	114.1%

NM – Not meaningful

Accrued performance fees for the Real Estate Group are comprised of the following:


	As of June 30,
	2016		2015
	(Dollars in thousands)
EPEP	$	15,028	$	5,025
US VIII		5,468		1,003
Other real estate funds		3,607		—
Subtotal		24,103		6,028
Other fee generating funds (1)		21,709		29,317
Total Real Estate Group	$	45,812	$	35,345

Net performance fees for the Real Estate Group are comprised of the following:


	Three Months Ended June 30, 2016						Three Months Ended June 30, 2015
2014	Performance Fees		Performance Fees		Net		Performance Fees		Performance Fees		Net
	- Realized		- Unrealized		Performance Fees		- Realized		- Unrealized		Performance Fees
	(Dollars in thousands)
EPEP	$	—	$	2,954	$	2,954	$	—	$	1,610	$	1,610
US VIII		—		994		994		—		360		360
Other real estate funds		89		(992)		(903)		—		—		—
Subtotal		89		2,956		3,045		—		1,970		1,970
Other fee generating funds (1)		2,712		(1,695)		1,017		102		1,916		2,018
Total Real Estate Group	$	2,801	$	1,261	$	4,062	$	102	$	3,886	$	3,988

(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.

Table of Contents


	Six Months Ended June 30, 2016						Six Months Ended June 30, 2015
Q2 2014	Performance Fees		Performance Fees		Net		Performance Fees		Performance Fees		Net
	- Realized		- Unrealized		Performance Fees		- Realized		- Unrealized		Performance Fees
	(Dollars in thousands)
EPEP	$	—	$	4,608	$	4,608	$	—	$	995	$	995
US VIII		—		2,375		2,375		—		303		303
Other real estate funds		89		(306)		(217)		—		—		—
Subtotal		89		6,677		6,766		—		1,298		1,298
Other fee generating funds (1)		2,883		(1,294)		1,589		102		2,908		3,010
Total Real Estate Group	$	2,972	$	5,383	$	8,355	$	102	$	4,206	$	4,308

(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 tables present the components of the change in performance fees – unrealized for the Real Estate Group:


	Three Months Ended June 30, 2016				Three Months Ended June 30, 2015
	Performance Fees - Realized	Increases	Decreases	Performance Fees -Unrealized	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized
	(Dollars in thousands)
EPEP	$ -	$ 3,167	$ (213)	$ 2,954	$ -	$ 1,610	$ -	$ 1,610
US VIII	-	994	-	994	-	360	-	360
Other real estate funds	(89)	1,020	(1,923)	(992)	-	-	-	-
Subtotal	(89)	5,181	(2,136)	2,956	-	1,970	-	1,970
Other fee generating funds (1)	(2,712)	1,562	(545)	(1,695)	(102)	2,021	(3)	1,916
Total Real Estate Group	$ (2,801)	$ 6,743	$ (2,681)	$ 1,261	$ (102)	$ 3,991	$ (3)	$ 3,886

(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.


	Six Months Ended June 30, 2016				Six Months Ended June 30, 2015
	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized	Performance Fees - Realized	Increases	Decreases	Performance Fees - Unrealized
	(Dollars in thousands)
EPEP	$ -	$ 4,681	$ (73)	$ 4,608	$ -	$ 995	$ -	$ 995
US VIII	-	2,375	-	2,375	-	303	-	303
Other real estate funds	(89)	1,635	(1,852)	(306)	-	-	-	-
Subtotal	(89)	8,691	(1,925)	6,677	-	1,298	-	1,298
Other fee generating funds (1)	(2,883)	2,819	(1,230)	(1,294)	(102)	3,309	(299)	2,908
Total Real Estate Group	$ (2,972)	$ 11,510	$ (3,155)	$ 5,383	$ (102)	$ 4,607	$ (299)	$ 4,206

(2)

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

Real Estate Group—Three and Six Months Ended June 30, 2016 Compared to the Three and Six Months Ended June 30, 2015

Management Fees. Total management fees increased by $0.3 million, or 1.9%, to $16.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase was driven primarily by the launch of two new funds subsequent to June 30, 2015 that generated additional fees of $1.9 million. The increase in management fees was partially offset by funds that ended their investment period subsequent to June 30, 2015, including Ares European Real Estate Fund III (“EU III”), which generated $1.3 million of lower management fees during the current year period.

Total management fees decreased by $0.3 million, or 1.0%, to $33.0 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The decrease was driven by (i) funds that passed their investment

Table of Contents

period subsequent to June 30, 2015, including Ares European Real Estate Fund II (“EU II”) and EU III, which generated lower management fees of $0.4 million and $2.3 million, respectively, during the current year periods. The decrease in management fees was partially offset by new funds that launched subsequent to June 30, 2015.

The effective management fee rate decreased by 0.15% to 0.94% and 0.97% for the three and six months ended June 30, 2016, respectively, from 1.09% and 1.12% for the respective prior year periods. The decrease in the effective management fee rate for the Real Estate Group is the result of certain new funds with lower fee rates than historical average rates.

Net performance fees decreased by $0.6 million to $2.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. While our Real Estate Group funds continued to generate performance fees overall, a decrease in the unrealized gain associated with a limited number of properties within Ares Sponsor Holdings LLC portfolio resulted in the recognition of less performance fees for the three months ended June 30, 2016 compared to the same period in the prior year.

Net performance fees increased by $0.8 million to $4.3 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. This increase was primarily driven by appreciation in the fair values of underlying assets within certain Real Estate Group equity funds when compared to the six months ended June 30, 2015.

Compensation and Benefits. Compensation and benefits expenses increased by $0.2 million, or 1.7%, to $10.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and by $0.8 million, or 3.8%, to $20.9 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase is primarily due to an increase in incentive based compensation. Compensation and benefits represented 62.6% of management fees for the three months ended June 30, 2016 compared to 62.7% for the three months ended June 30, 2015 and represented 63.3% of management fees for the six months ended June 30, 2016 compared to 60.4% for the six months ended June 30, 2015.

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $1.3 million, or 35.3%, to $2.4 million for the three months ended June 30, 2016 compared to the prior year period and by $0.6 million, or 8.8%, to $5.7 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. Lower occupancy expenses in the three and six month current year periods reduced general, administrative and other expenses by $0.6 million and $1.0 million, respectively. These expenses were partially offset by $0.2 million and $0.3 million of administrative fees which are presented as a reduction to general, administrative and other expenses for the three and six months, respectively.

Net Investment Income (Loss). Net investment income (loss) decreased by $1.6 million from net investment income of $1.0 million for the three months ended June 30, 2015 to a net investment loss of $0.6 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The decrease in net investment income (loss) was primarily due to $1.3 million in net losses from decreasing valuations in the underlying portfolio of AREA Sponsor Holdings LLC resulting from depreciating fair values of a limited number of properties.

Net investment income increased by $1.6 million to $2.7 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase in net investment income was primarily due to a $0.8 million increase in investment income related to Real Estate Group equity funds that experienced increases in the valuations of the underlying assets for the six months period ended June 30, 2016 and to $0.6 million in interest and other investment income attributed to transaction gains from the revaluation of certain assets and liabilities denominated in foreign currencies.

Non-GAAP Performance Measures. The decreases of $1.6 million and $0.6 million in net investment income

Table of Contents

(loss) and net performance fees, respectively, reduced our PRE and ENI for the three months ended June 30, 2016 compared to the same period in the prior year. Included in net performance fees was a $2.6 million increase in net realized performance fee, which contributed to the increase of DE. FRE also had a positive impact of $1.1 million on DE and ENI, which was mainly due to the decrease in general, administrative and other expenses.

The $1.6 million increase in net investment income was the primary driver of the increase in PRE and ENI for the six months ended June 30, 2016 compared to the same period in the prior year. Net performance fees, which increased by $0.8 million, also had a positive impact on PRE and ENI. Included in net performance fees and net investment income, were increases of $2.8 million in net realized performance fees and $1.3 million in net realized investment and other income, respectively, which increased DE. The reduction in FRE, which partially offset the increases to ENI and DE, was negatively impacted by decreases in management fees and administrative fees and other income and an increase in compensation and benefits.

Real Estate Group—Assets Under Management

The tables below provide the period‑to‑period rollforward of AUM for the Real Estate Group for the three months ended June 30, 2016 and 2015 (in millions):


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 3/31/2016	$ 4,538	$ 3,124	$ 2,521	$ 10,183
Net New Equity Commitments	300	100	-	400
Net New Debt Commitments	-	-	100	100
Distributions	(361)	(54)	(147)	(562)
Change in Fund Value	68	(75)	10	3
Balance at 6/30/2016	$ 4,545	$ 3,095	$ 2,484	$ 10,124
Average AUM	$ 4,542	$ 3,110	$ 2,503	$ 10,155


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 3/31/2015	$ 4,511	$ 2,849	$ 2,673	$ 10,033
Net New Equity Commitments	-	159	-	159
Net New Debt Commitments	-	-	(50)	(50)
Distributions	(197)	(226)	(20)	(443)
Change in Fund Value	94	145	12	251
Balance at 6/30/2015	$ 4,408	$ 2,927	$ 2,615	$ 9,950
Average AUM	$ 4,460	$ 2,888	$ 2,644	$ 9,992

The tables below provide the period‑to‑period rollforward of AUM for the Real Estate Group for the six months ended June 30, 2016 and 2015 (in millions):


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 12/31/2015	$ 4,616	$ 3,059	$ 2,593	$ 10,268
Net New Equity Commitments	300	214	-	514
Net New Debt Commitments	-	-	100	100
Distributions	(509)	(134)	(225)	(868)
Change in Fund Value	138	(44)	16	110
Balance at 6/30/2016	$ 4,545	$ 3,095	$ 2,484	$ 10,124
Average AUM	$ 4,581	$ 3,077	$ 2,539	$ 10,197


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 12/31/2014	$ 4,595	$ 2,962	$ 3,018	$ 10,575
Net New Equity Commitments	1	248	(159)	90
Net New Debt Commitments	-	-	(50)	(50)
Distributions	(369)	(307)	(216)	(892)
Change in Fund Value	181	24	22	227
Balance at 6/30/2015	$ 4,408	$ 2,927	$ 2,615	$ 9,950
Average AUM	$ 4,502	$ 2,945	$ 2,817	$ 10,264

Table of Contents

Real Estate Group—Fee Paying AUM

Fee paying AUM and fee earning AUM are the same number for the Real Estate Group, as there are no fees earned indirectly the within Real Estate Group. The tables below provide the period‑to‑period rollforward of fee paying AUM, previously referred to as fee earning AUM, for the Real Estate Group for the three months ended June 30, 2016 and 2015 (in millions):


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 3/31/2016	$ 3,072	$ 2,593	$ 1,010	$ 6,675
Commitments	59	-	-	59
Subscriptions/deployment/increase in leverage	77	28	128	233
Distributions	(210)	(11)	(7)	(228)
Change in Fund Value	1	(93)	11	(81)
Change in Fee Basis	-	(14)	-	(14)
FPAUM Balance at 6/30/2016	$ 2,999	$ 2,503	$ 1,142	$ 6,644
Average FPAUM	$ 3,036	$ 2,548	$ 1,076	$ 6,660


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 3/31/2015	$ 3,043	$ 2,452	$ 485	$ 5,980
Commitments	-	23	-	23
Subscriptions/deployment/increase in leverage	66	-	198	264
Distributions	(126)	(129)	(7)	(262)
Change in Fund Value	-	11	5	16
Change in Fee Basis	(266)	(32)	21	(277)
FPAUM Balance at 6/30/2015	$ 2,717	$ 2,325	$ 702	$ 5,744
Average FPAUM	$ 2,880	$ 2,389	$ 594	$ 5,863

The tables below provide the period‑to‑period rollforward of fee paying AUM for the Real Estate Group for the six months ended June 30, 2016 and 2015 (in millions):


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 12/31/2015	$ 3,204	$ 2,555	$ 998	$ 6,757
Commitments	59	114	-	173
Subscriptions/deployment/increase in leverage	77	48	141	266
Distributions	(345)	(28)	(15)	(388)
Change in Fund Value	4	(63)	18	(41)
Change in Fee Basis	-	(123)	-	(123)
FPAUM Balance at 6/30/2016	$ 2,999	$ 2,503	$ 1,142	$ 6,644
Average FPAUM	$ 3,102	$ 2,529	$ 1,070	$ 6,701


	Real Estate Equity - U.S.	Real Estate Equity - EU	Real Estate Debt	Total Real Estate Group
Balance at 12/31/2014	$ 3,028	$ 2,698	$ 392	$ 6,118
Commitments	11	94	83	188
Subscriptions/deployment/increase in leverage	132	-	207	339
Distributions	(209)	(190)	(13)	(412)
Change in Fund Value	-	(62)	12	(50)
Change in Fee Basis	(245)	(215)	21	(439)
FPAUM Balance at 6/30/2015	$ 2,717	$ 2,325	$ 702	$ 5,744
Average FPAUM	$ 2,873	$ 2,512	$ 547	$ 5,932

Table of Contents

Components of fee paying AUM for the Real Estate Group are presented below for each period.


	As of June 30,
	2016		2015
	(Dollars in millions)
Fee paying AUM based on capital commitments	$	2,903	$	2,278
Fee paying AUM based on invested capital		3,341		3,074
Fee paying AUM based on market value/other(1)		400		392
Total fee paying AUM/fee earning AUM	$	6,644	$	5,744

(1)

Market value/other includes ACRE fee paying AUM, which is based on ACRE’s stockholders’ equity.

Real Estate Group fee paying AUM may vary from AUM for a variety of reasons including. The reconciliation of fee paying AUM for the Real Estate Group is presented below for each period.


	As of June 30,
	2016		2015
	(Dollars in millions)
AUM	$	10,124	$	9,950
General partner and affiliates		(280)		(243)
Non-fee paying debt		(1,189)		(1,364)
Undeployed/undrawn commitments		(985)		(1,058)
Market value/other		(626)		(691)
Fees deactivated		(400)		(850)
Fee paying AUM	$	6,644	$	5,744

Real Estate Group—Fund Performance Metrics as of June 30, 2016

The Real Estate Group managed approximately 48 funds in real estate debt and real estate equity as of June 30, 2016. Two funds in our Real Estate Group, Ares European Real Estate Fund IV (“EU IV”) and Ares US Real Estate Fund VIII (“US VIII”), contributed 10% or more of the Real Estate Group’s management fees for the six months ended June 30, 2016, whereas 15 funds contributed over 1%. The Real Estate Group managed two significant funds: EU IV, which is a commingled fund focused on real estate assets located in Europe, with a focus on the United Kingdom, France and Germany, and US VIII, which is a commingled fund focused on the United States. Additionally, ACRE, a publicly traded, specialty finance company and real estate investment trust whose common stock is listed on the New York Stock Exchange has been included to provide information about the debt sub‑strategy within the Real Estate Group.

As of June 30, 2016

Net Returns(2) / Return on Equity (%)

Year of

AUM

Since

Past

Fund

Inception

(in millions)(1)

Inception

5 Years

3 Years

Investment Strategy

ACRE(4)

2012

1,737

5.8

N/A

6.8

Real Estate Debt

EU IV(3) (5)

2013

1,235

(0.1)

N/A

EU Real Estate Equity

US VIII (3)

2013

815

11.1

N/A

U.S. Real Estate Equity

(1)

AUM equals the sum of the NAV for such fund, the drawn and undrawn debt (at the fund‑level including amounts subject to restrictions) and uncalled committed capital.

(2)

Returns are net of management fees, performance fees and other expenses.

(3)

The net return is an annualized net internal rate of return of cash flows to and from the fee-paying partners. The past five and three years’ net returns are calculated using beginning partners’ capital for the fee-paying partners for such period. Cash flows for net return calculations are based on the actual dates of the cash flows.

(4)

The return shown is the average return on equity over the applicable period. Additional information related to ACRE can be found in its financial statements filed with the SEC, which are not part of this quarterly report.

(5)

E.U. IV is made up of two parallel funds, one denominated in Euros and one denominated in U.S. dollars. The net IRRs presented in the chart are for the U.S. dollar denominated fund. All other values for E.U. IV are for the combined fund and are

Table of Contents

converted to U.S. dollars at the prevailing quarter-end exchange rate. Since inception net IRR for the Euro denominated fund is (0.6%), and is calculated using the same methodology described in footnote 3 above.

For the group’s significant funds and other funds that in each case are structured as closed‑end private commingled funds, the following table presents certain additional performance data.


	As of June 30, 2016 (Dollars in millions)
	Original		Cumulative
	Capital		Invested		Realized		Unrealized		Total		Gross	Net
Fund	Commitments		Capital		Proceeds(1)		Value(2)		Value		MoIC(3)	MoIC(4)
EU IV (5)	$	1,302	$	673	$	9	$	734	$	743	1.1x	1.0x
US VIII	$	823	$	377	$	36	$	401	$	437	1.2x	1.1x

(1)

Realized proceeds include distributions of operating income, sales and financing proceeds received.

(2)

Unrealized value represents the fair value of remaining real estate investments (excluding balance sheet items). There can be no assurance that unrealized investments will be realized at the valuations shown.

(3)

The Gross MoIC is before giving effect to management fees, performance fees and other expenses. For EU IV, the multiple is calculated at the investment-level and is based on the interests of the fee-paying partners. For EU VIII, the multiple is calculated at the investment-level and is based on the interests of all partners.

(4)

The Net MoIC is after giving effect to management fees, performance fees and other expenses. The multiple is calculated at the fund-level and is based on the interests of the fee-paying partners.

(5)

EU IV is made up of two parallel funds, one denominated in Euros and one denominated in U.S. dollars. The gross and net MoIC presented in the chart are for the U.S. dollar denominated fund. The gross and net MoIC for the Euro fund are 1.1x and 1.0x, 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 E.U. IV are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

Table of Contents

Operations Management Group

The following table sets forth certain statement of operations data and certain other data of the OMG on a standalone basis for the periods presented.


	Three Months Ended						Six Months Ended
	June 30,				Favorable (Unfavorable)		June 30,				Favorable (Unfavorable)
	2016		2015		$ Change	% Change	2016		2015		$ Change	% Change
	(Dollars in thousands)
Compensation and benefits	$	(28,218)	$	(21,811)	$ (6,407)	(29.4%)	$	(57,208)	$	(45,445)	$ (11,763)	(25.9%)
General, administrative and other expenses		(15,380)		(15,067)	(313)	(2.1%)		(32,665)		(29,288)	(3,377)	(11.5%)
Fee related earnings		(43,598)		(36,878)	(6,720)	(18.2%)		(89,873)		(74,733)	(15,140)	(20.3%)
Investment income (loss)-realized		(31)		—	(31)	NM		(88)		—	(88)	N/M
Investment income (loss)-unrealized		(11,904)		—	(11,904)	NM		(11,519)		—	(11,519)	N/M
Interest and other investment income (expense)		(19)		—	(19)	NM		(68)		—	(68)	N/M
Interest expense		(709)		—	(709)	NM		(1,437)		—	(1,437)	N/M
Net investment income (loss)		(12,663)		—	(12,663)	NM		(13,112)		—	(13,112)	N/M
Performance related earnings		(12,663)		—	(12,663)	NM		(13,112)		—	(13,112)	N/M
Economic net income	$	(56,261)	$	(36,878)	(19,383)	(52.6%)	$	(102,985)	$	(74,733)	(28,252)	(37.8%)
Distributable earnings	$	(48,758)	$	(38,981)	(9,777)	(25.1%)	$	(98,508)	$	(77,861)	(20,647)	(26.5%)

NM – Not meaningful

Operations Management Group—Three and Six Months Ended June 30, 2016 Compared to the Three and Six Months Ended June 30, 2015

Compensation and Benefits. Compensation and benefits expenses increased by $6.4 million, or 29.4%, to $28.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and increased by $11.8 million, or 25.9%, to $57.2 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The increase is primarily due to an increase in incentive based compensation, as well as an increase in salary expense due to additional headcount related to platform expansion resulting from the second quarter 2015 FCC acquisition, and is partially offset by increases of $0.4 million and $1.3 million of administrative fees, which are presented as a reduction to compensation and benefits expense, for the three and six months ended June 30, 2016, respectively.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $0.3 million, or 2.1%, to $15.4 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. In 2016, we realigned certain general and administrative expenses with our operating activities, which resulted in a decrease of $1.0 million in general and administrative expenses attributable to our operating segments and increased general and administrative expenses attributable to OMG.

General, administrative and other expenses increased by $3.4 million, or 11.5%, to $32.7 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. In addition to the 2016 realignment of certain general and administrative expenses with our operating activities, professional fees, occupancy, information technology and travel costs have increased by $2.6 million to support our global platform expansion and as a result of 2015 acquisitions. These expenses were further increased by a reduction in offsetting administrative fees of $0.8 million that are presented on a net basis within general, administrative and other expenses.

Net Investment Loss. Net investment losses were $12.7 million and $13.1 million for the three and six months ended June 30, 2016, respectively. Prior to the fourth quarter of 2015, there was no investment activity within OMG. For the three and six months ended June 30, 2016, the losses were due to unrealized depreciation on the OMG investments of $11.9 million and $11.5 million, respectively, primarily attributable to unrealized losses of $14.1 million from an equity method investment. Additionally, for the three and six months ended June 30, 2016 interest expense of $0.7 million and $1.4 million, respectively, was allocated to OMG contributing to the net investment loss.

Non-GAAP Performance Measures. For the three months ending June 30, 2016, FRE decreased by $6.7 million, or 18.2%, over the prior year, primarily due to increases in compensation and benefits of $6.4 million, which also

Table of Contents

negatively impacted OMG’s DE and ENI period over period. PRE was negative $12.7 million for the three months ended June 30, 2016, attributable to unrealized losses on certain investments not directly aligned with one of our three operating segments.

For the six months ending June 30, 2016, FRE decreased by $15.1 million, or 20.3%, over the prior year, primarily due to increases in compensation and benefits and general, administrative and other expenses of $11.8 million and $3.4 million, respectively. These changes also drove the decrease in OMG’s DE and ENI period over period. PRE was negative $13.1 million for the six months ended June 30, 2016, attributable to unrealized losses on certain investments not directly aligned with one of our three operating segments.

Reconciliation of Certain Non‑GAAP Measures to Consolidated GAAP Financial Measures

Income before provision for income taxes is the GAAP financial measure most comparable to ENI, FRE, PRE and DE. For a detailed reconciliation of certain non‑GAAP measures to Consolidated GAAP financial measure, see Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Liquidity and Capital Resources

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, net realized performance fees, which are unpredictable as to amount and timing and fund distributions related to our investments in products that we manage, which are also unpredictable as to amount and timing, and (4) net borrowing provided by the Credit Facility. As of June 30, 2016, our cash and cash equivalents were $264.6 million, including investments in money market funds, and we had no borrowings outstanding under the $1.03 billion Credit Facility. The ability to make drawings under the Credit Facility is subject to a leverage covenant. 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 for the foreseeable future.

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 a portion of our investment commitments more than just funds we advise, (3) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management businesses, (4) pay operating expenses, including cash compensation to our employees and payments under the tax receivable agreement (“TRA”), (5) fund capital expenditures, (6) repay borrowings under the Credit Facility, Senior Notes, Term Loan and related interest costs, (7) pay income taxes and (8) make distributions to our unit holders in accordance with our distribution policy. In the normal course of business, we have made distributions to our existing owners, including distributions sourced from investment income and performance fees. If cash flow from operations were insufficient to fund distributions over a sustained period of time, we expect that we would suspend paying such distributions.

Net realized performance fees also provide a source of liquidity. Performance fees are realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the preferred return or hurdle rate. Performance fees are typically realized at the end of each fund’s measurement period when investment performance exceeds a stated benchmark or hurdle rate.

Table of Contents

Our accrued performance fees by segment as of June 30, 2016, gross and net of accrued contingent repayment obligations, are set forth below:


							Accrued
	Accrued				Consolidated Accrued		Contingent		Net Accrued
	Performance Fees		Eliminations (1)		Performance Fees		Obligation		Performance Fees

Segment
Credit Group	$	83,125	$	(6,317)	$	76,808	$	(5,716)	$	71,092
Private Equity Group		525,153		—		525,153		—		525,153
Real Estate Group		24,103		—		24,103		—		24,103
Total	$	632,381	$	(6,317)	$	626,064	$	(5,716)	$	620,348

(1)

Amounts represent accrued performance fees earned from Consolidated Funds that are eliminated in consolidation.

Our condensed consolidated financial statements reflect the cash flows of our operating businesses as well as the results 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 when required to be consolidated into our condensed consolidated financial statements, (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 treated as investment companies for financial accounting purposes under GAAP; therefore, the character and classification of all Consolidated Fund transactions are presented as cash flows from operations.

Cash Flows

The significant captions and amounts from our condensed consolidated financial statements, which include the effects of our Consolidated Funds and CLOs, in accordance with GAAP, are summarized below. Negative amounts represent a net outflow, or use of cash.


	Six Months Ended June 30,
	2016		2015
	(Dollars in millions)
Statements of cash flows data
Net cash provided by (used in) operating activities	$	69	$	(533)
Net cash used in investing activities		(5)		(71)
Net cash provided by financing activities		86		556
Effect of foreign exchange rate change		(7)		1
Net change in cash and cash equivalents	$	143	$	(47)

Operating Activities

Net cash provided by (used in) operating activities is primarily driven by our earnings in the respective periods after adjusting for non‑cash compensation and performance fees. Cash used to purchase investments, as well as the proceeds from the sale of such investments, is also reflected in the operating activities of the Company and our Consolidated Funds.

Our net cash flows provided by operating activities was $69.0 million for the six months ended June 30, 2016, compared to $532.9 million of net cash used in operating activities for the same prior period. The change was primarily due to net purchases of investments by our Consolidated Funds which decreased from $1.1 million for the six months ended June 30, 2015 to $595.8 million for the six months ended June 30, 2016. 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. The movements within our Consolidated Funds do not adversely impact our liquidity or earnings trends. We believe that our ability to generate cash from operations, as well

Table of Contents

as the capacity under the Credit Facility, provides us with the necessary liquidity to manage short-term fluctuations in working capital and to meet our short-term commitments.

Investing Activities

Our investing activities generally reflect cash used for acquisitions and fixed assets. Net cash used in investing activities was $5.3 million and $71.2 million for the six months ended June 30, 2016 and 2015, respectively. The decrease in investing activities was primarily driven by the $64.4 million of cash used to complete acquisitions during the six months ended June 30, 2015. Purchases of fixed assets also decreased by $1.5 million for the six months ended June 30, 2016 compared to the prior year period.

Financing Activities

Net cash flow provided by financing activities was $86.0 million and $556.3 million for the six months ended June 30, 2016 and 2015, respectively. Proceeds from the issuance of our June 2016 preferred unit offering, net of issuance costs, resulted in cash inflow of $299.0 million. Net repayments on our debt obligations were $110.0 million during the six months ended June 30, 2016 compared to net borrowings of $50.0 million for the same prior period in 2015. The net repayment on our debt obligations for the six months ended June 30, 2016 was primarily due to the inflow of cash from the preferred equity offering, which was used to temporarily repay the outstanding balance on the Credit Facility pending consummation of the ARCC and American Capital, Ltd. Merger Agreement (“ARCC-ACAS Transaction”). Distributions to our senior professionals, common unitholders and other owners of Ares Operating Group decreased by $36.9 million to $82.5 million for the six months ended June 30, 2016. For a summary of the ARCC-ACAS Transaction, see Note 9, “Commitments and Contingencies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Our Consolidated Funds made net repayments of $44.9 million on their debt obligations for the six months ended June 30, 2016, as compared to net borrowings of $566.8 million on their debt obligations for the six months ended June 30, 2015. The increased borrowings in 2015 was related to the launch of a new CLO. Contributions from non‑controlling interests in our Consolidated Funds decreased by $58.9 million to $48.1 million due to new commitments to a consolidated fund within our Credit Group that closed in the six months ended June 30, 2015. Distributions decreased $25.1 million to $23.2 million for the six months ended June 30, 2016.

Capital Resources

Our debt obligations include (a) the Credit Facility, (b) Senior Notes issued by a subsidiary of Ares Holdings, (c) Term Loan, (d) loan obligations of the consolidated CLOs and (e) credit facilities of the Consolidated Funds.

The following table summarizes the Company’s debt obligations:


				As of June 30, 2016				As of December 31, 2015
		Original Borrowing		Carrying			Carrying
	Maturity	Amount		Value		Interest Rate	Value		Interest Rate
Credit Facility(1)	4/30/2019		—	$	—	—	$	110,000	2.11%
Senior Notes (2)	10/8/2024	$	250,000		244,377	4.21%		244,077	4.21%
Term Loan(3)	7/29/2026	$	35,250		35,053	2.49%		35,043	2.18%
Total debt obligations				$	279,430		$	389,120

Table of Contents

(1)

The Ares Operating Group entities are borrowers under the Credit Facility, which provides a $1.03 billion revolving line of credit with the ability to upsize to $1.28 billion (subject to obtaining commitments for any such additional borrowing capacity). It has a variable interest rate based on either LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change with our underlying credit agency rating. Currently, base rate loans bear interest calculated based on a base rate plus 0.75% and LIBOR rate loans bear interest calculated based on LIBOR plus 1.75%. The unused commitment fee is 0.25% per annum. There is a base rate floor and LIBOR floor of zero.

(2)

The Senior Notes were issued in October 2014 by Ares Finance Co. LLC (“AFC”), a subsidiary of Ares Holdings, at 98.268% of the face amount with interest paid semi-annually. AFC may redeem the Senior Notes prior to maturity, subject to the terms of the indenture.

(3)

A subsidiary of the Company is the borrower. The Term Loan is backed by collateral in the form of CLO senior tranches owned by the Company. To the extent the assets are not sufficient to cover the Term Loan, there is no further recourse to the Company to fund or repay the remaining balance. Interest is paid quarterly, and the Company also pays a fee of 0.025% of a maximum investment amount.

As of June 30, 2016, we were in compliance with all covenants under the Credit Facility, Senior Notes and Term Loan obligations.

We intend to use a portion of our available liquidity to make cash distributions to our preferred and common unit holders on a quarterly basis in accordance with the terms of and our distribution policies. Our ability to make cash distributions to our preferred and common unit holders 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 United Kingdom subsidiaries and for our subsidiary that operates as a broker‑dealer. These net capital requirements 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 June 30, 2016, we were required to maintain approximately $20.2 million in liquid 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 Ares Management, L.P. common units on a one‑for‑one basis. Subsequent exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Ares Management, L.P. that otherwise would not have been available. These increases in tax basis may increase (for tax purposes) depreciation and amortization and therefore reduce the amount of tax that Ares Management, L.P.’s wholly owned subsidiaries that are taxable as corporations for U.S. federal income purposes, which we refer to as the “corporate taxpayers,” would otherwise be required to pay in the future. The corporate taxpayers entered into the TRA with the TRA recipients that will provide for the payment by the corporate taxpayers to the TRA recipients of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax or franchise tax that the corporate taxpayers actually realize as a result of these increases in tax basis and of certain other tax benefits related to entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. This payment obligation is an obligation of the corporate taxpayers and not of Ares Management, L.P. Future payments under the tax receivable agreement in respect of subsequent exchanges are expected to be substantial. As of June 30, 2016, there have been a limited number of exchanges of AOG Units for Ares Management, L.P. common units.

Preferred Equity Offering

In June 2016, we issued preferred equity consisting of 12,400,000 units designated as Series A Preferred Equity (the “Preferred Equity”), for a total offering price of $310.0 million. When, as and if declared by the Company’s board of directors, distributions on the Preferred Equity will be payable quarterly starting in September 2016 at a rate per annum equal to 7.00%. The Preferred Equity may be redeemable at our option, in whole or in part, at any time on or after June 30, 2021, at a price of $25.00 per unit. The proceeds, net of expenses of $11.0 million, totaling $299.0 million were temporarily used to repay the outstanding balance on our Credit Facility pending consummation of the ARCC-ACAS

Table of Contents

Transaction. If the ARCC-ACAS Transaction is not consummated, we intend to use the net proceeds for general corporate purposes, including for acquisitions and investments and for temporary repayments of borrowings under the Credit Facility.

Exercise of Indicus Fixed Put Option

Upon acquisition of Indicus Advisors, LLP (“Indicus”) in November 2011, certain former owners of Indicus (“Former Owners”) were provided a put option on their equity interest at a strike price of $40 million to be exercised during 2016 (“Fixed Price Put Option”), among other consideration. We have been notified of the Former Owners’ intention to exercise their Fixed Price Put Option. We are obligated to make payment of $40 million to settle this option in November 2016, subject to continuing negotiations.

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. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe our critical accounting estimates could potentially produce materially different results if we were to change underlying assumptions, estimates or judgments. For a summary of our significant accounting policies see Note 2, “Summary of Significant Accounting Policies,” to our 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.

Fair Value Measurement

The table below summarizes the valuation of investments and other financial instruments included within our AUM, by segment and fair value hierarchy levels, as of June 30, 2016:


			Private		Real
	Credit		Equity		Estate		Total
	(Dollars in millions)
Level I	$	333	$	1,098	$	—	$	1,431
Level II		9,352		408		50		9,810
Level III		19,951		10,836		5,392		36,179
Total fair value		29,636		12,342		5,442		47,420
Other net asset value and available capital(1)		32,466		10,695		4,682		47,843
Total AUM	$	62,102	$	23,037	$	10,124	$	95,263

(1)

Includes fund net non‑investment assets, AUM for funds that are not reported at fair value and available capital (uncalled equity capital and undrawn debt).

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.

Table of Contents

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 condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Commitments and Contingencies

Capital Commitments

As of June 30, 2016 and December 31, 2015, we had aggregate unfunded commitments of $619.9 million and $436.4 million, respectively, including commitments to both non-consolidated funds and Consolidated Funds.

As of June 30, 2016, we had $37.6 million in unfunded commitments to invest in certain funds managed by Kayne Anderson Capital Advisors, L.P.

Guarantees

On July 30, 2014, AM LLC agreed to provide credit support to a new $75.0 million credit facility (the “Guaranteed Facility”) entered into by a wholly owned subsidiary of ACRE with a national banking association. AM LLC is the parent entity to ACRE’s external manager. In connection with the facility, AM LLC agreed to purchase all loans and other obligations, outstanding under the Guaranteed Facility at a price equal to 100% of the outstanding balance (i) upon an acceleration or certain events of default by ACRE under the Guaranteed Facility or (ii) among other things, in the event that AM LLC’s corporate credit rating is downgraded to below investment grade. ACRE pays AM LLC a credit support fee of 1.50% per annum times the average amount of the loans outstanding under the Guaranteed Facility, payable monthly, and reimburses AM LLC for its out‑of‑pocket costs and expenses in connection with the Guaranteed Facility. As of June 30, 2016, we recorded the fair value of this guarantee of $1.7 million within accounts payable, accrued expenses and other liabilities. There were no outstanding balance under the Guaranteed Facility as of June 30, 2016. The total outstanding balance under the Guaranteed Facility was $66.2 million as of December 31, 2015. Our maximum exposure to loss shall not exceed $75.0 million plus accrued interest. This guarantee expires on September 30, 2016. We have determined that the likelihood of default is remote. See Note 9, “Commitments and Contingencies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Indemnifications

Consistent with standard business practices in the normal course of business, we enter into contracts that contain indemnities for our affiliates, persons acting on our behalf or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the maximum exposure under these arrangements, if any, cannot be determined and has not been recorded in our condensed consolidated financial statements. As of June 30, 2016, we have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.

Contingent Obligations

The partnership documents governing our funds generally include a provision that, if triggered, may give rise to a contingent obligation that may require the general partner to return amounts to the fund for distribution to investors. Therefore, performance fees, generally, are subject to reversal in the event that the funds incur future losses. These losses are limited to the extent of the cumulative performance fees recognized in income to date. Based primarily on our investment performance and the fact that our performance fees are generally determined on a liquidation basis, if the funds were liquidated at their then current fair values as of December 31, 2015, there would be no contingent obligation. Accordingly, the Company did not record a contingent liability as of that date. Based on fair values as of June 30, 2016, the Company recorded a liability associated with the contingent obligation of $5.7 million. Of this amount, $3.4 million is recoverable from the Company’s senior professionals and other professionals who previously received performance fees, and as such, a receivable has been recorded. There can be no assurance that we will not incur further contingent obligations

Table of Contents

in the future. If all of the existing investments were deemed worthless, the amount of cumulative revenues that has been recognized would be reversed. We believe that the possibility of all of the existing investments becoming worthless is remote. At June 30, 2016 and December 31, 2015, had we assumed all existing investments were worthless, the amount of performance fees, net of tax, subject to potential repayment, would have been approximately $356.5 million and $322.2 million, respectively, of which approximately $275.3 million and $247.9 million, respectively, is reimbursable to the Company by certain professionals.

Performance fees are also affected by changes in the fair values of the underlying investments in the funds that we advise. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and industry trading multiples.

Our senior professionals and other professionals who have received performance fees distributions are responsible for funding their proportionate share of any contingent obligations. However, the governing agreements of certain of our funds provide that if a current or former professional from such funds does not fund his or her respective share, then we may have to fund additional amounts beyond what we received in performance fees, although we will generally retain the right to pursue any remedies that we have under such governing agreements against those performance fees recipients who fail to fund their obligations.

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

Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions which are not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.

Our credit orientation has been a central tenet of our business across our debt and equity investment strategies. Our investment professionals benefit from our independent research and relationship networks in over 50 industries, and insights from our portfolio of active investments. We believe the combination of high‑quality proprietary information flow and a consistent, rigorous approach to managing investments across our strategies has been, and we believe will continue to be, a major driver of our strong risk‑adjusted returns and the stability and predictability of our income.

There have been no material changes in our market risks for the six months ended June 30, 2016. For additional information on our market risks, refer to our Annual Report on Form 10‑K for the year ended December 31, 2015, which is accessible on the SEC’s website at sec.gov.

Item 4. Controls And Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our co‑principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2016. Based upon that evaluation and subject to the foregoing, our principal executive officers and principal financial officer concluded that, as of June 30, 2016, the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended June 30, 2016 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business, some of which may be material. As of June 30, 2016 and December 31, 2015, we were not subject to any material pending legal proceedings. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us.

Item 1A. Risk Factors

The recent vote in the United Kingdom to exit from the European Union could adversely affect our business and our operations.

The recent vote by the electorate in a referendum in the United Kingdom (U.K.) to exit from the European Union (E.U.) (referred to as “Brexit”) could disrupt our business and operations, including the liquidity and value of our investments. Since its announcement, Brexit has caused significant geo-political uncertainty and market volatility in the U.K. and elsewhere. Although the referendum is non-binding, the U.K.’s leadership has indicated that it expects Brexit to be passed into law and to commence negotiations with the E.U. to determine the future terms, including with respect to trade, of the U.K.’s ongoing relationship with the E.U. These negotiations are expected to take a number of years, which could prolong the related uncertainty and volatility, which among other things, could affect the pace of capital deployment and investment realizations.

Depending on the outcome of these negotiations, the U.K. could lose access to the single E.U. market and to the global trade deals negotiated by the E.U. on behalf of its members, which could have a material adverse effect on our operations and the operations of our portfolio companies. For example, a decline in trade could affect the attractiveness of the U.K. as a global investment center and, as a result, could make doing business in Europe more difficult. In addition, our current and prospective funds could lose their Alternative Investment Fund Managers Directive marketing passport, which provides them the license to market funds across borders within the single E.U. market without obtaining local regulatory approval. The movement of capital and the mobility of personnel may also be restricted. These and other by-products of Brexit, such as the tightening of credit in the U.K. commercial real estate market, may also increase the costs of having operations, conducting business and making investments in the U.K. and Europe. As a result, the performance of our funds which are focused on investing in the U.K. and to a lesser extent across Europe, such as certain funds in our Credit and Real Estate Groups may be disproportionately affected compared to those funds that invest more broadly across global geographies or are focused on different regions.

The Brexit vote has also caused exchange rate fluctuations that have resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business, including the British pound and the Euro. Where un-hedged, the strengthening of the U.S. dollar relative to other currencies may, among other things, adversely affect the results of operations of our funds and investments that are denominated in non-U.S. dollar currencies and also adversely affect businesses that rely on the strength of foreign currencies against the U.S. dollar, and thereby have a negative impact on our investments in those businesses. Movements in the rate of exchange between the U.S. dollar and non U.S. dollar currencies affect the management fees earned by funds with fee earning AUM denominated in non U.S. dollar currencies as well as by funds with fee earning AUM denominated in U.S. dollars that hold investments denominated in non U.S. dollar currencies. Additionally, movements in exchange rates affect operating expenses for our foreign offices that are denominated in non-U.S. currencies, cash balances we hold in non-U.S. currencies and investments we hold in non-U.S. currencies.

Further, the U.K.’s determination as to which, if any, E.U. laws to repeal, retain, replace or replicate upon its exit from the E.U. could exacerbate the uncertainty and result in divergent national laws and regulations. Changes to the regulatory regimes in the U.K. or the E.U. and its member states could materially affect our business prospects and opportunities and increase our costs. In addition, Brexit could potentially disrupt the tax jurisdictions in which we operate and affect the tax benefits or liabilities in these or other jurisdictions in a manner that is adverse to us and/or our funds. Any of the foregoing could materially and adversely affect our business, results of operations and financial condition.

For a discussion of our other potential risks and uncertainties, see the information under “Item 1A. Risk Factors”

Table of Contents

in our Annual Report on Form 10‑K for the year ended December 31, 2015, which is accessible on the SEC’s website at www.sec.gov. Except for the above risk factor, there have been no material changes to the risk factors disclosed in the Form 10‑K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

Item 6. Exhibits

The following is a list of all exhibits filed or furnished as part of this report.


Exhibit No.		Description


3.1		Certificate of Limited Partnership of Ares Management, L.P. (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001‑36429), filed with the SEC on February 29, 2016).
3.2		Second Amended and Restated Agreement of Limited Partnership of Ares Management, L.P. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8‑K (File No. 001‑36429) filed with the SEC on June 9, 2016).
10.1		Amendment No. 6, dated as of May 23, 2016, to the Sixth Amended and Restated Credit Agreement, dated as of April 21, 2014, by and among Ares Holdings LLC, Ares Domestic Holdings L.P., Ares Investments LLC, Ares Real Estate Holdings L.P., the Guarantors party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on May 26, 2016).
10.2		Transaction Support and Fee Waiver Agreement, dated May 23, 2016, between Ares Capital Corporation and Ares Capital Management LLC (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on May 26, 2016).
10.3		Amended and Restated Limited Partnership Agreement of Ares Holdings L.P. dated June 8, 2016 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on June 9, 2016).
10.4		Second Amended and Restated Limited Partnership Agreement of Ares Domestic Holdings L.P. dated June 8, 2016 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on June 9, 2016).
10.5		Second Amended and Restated Limited Partnership Agreement of Ares Offshore Holdings L.P. dated June 8, 2016 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on June 9, 2016).
10.6		Amended and Restated Limited Partnership Agreement of Ares Investments L.P. dated June 8, 2016 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on June 9, 2016).
10.7		Second Amended and Restated Limited Partnership Agreement of Ares Real Estate Holdings L.P. dated June 8, 2016 (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on June 9, 2016).
10.8	*	Amended and Restated Exchange Agreement.
99.1		Second Amended and Restated LLC Agreement of Ares Management GP LLC dated June 8, 2016 (incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on June 9, 2016).
31.1*		Certification of the Chief Executive Officer pursuant to Rule 13a‑14(a).
31.2*		Certification of the Chief Financial Officer pursuant to Rule 13a‑14(a).
32.1*		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

*Filed herewith.

Table of Contents

SIGNATURES


	ARES MANAGEMENT, L.P.


	By:	Ares Management GP LLC, its general partner

Dated: August 9, 2016	By	/s/ Antony P. Ressler
		Name:	Antony P. Ressler
		Title:	Chairman, Co‑Founder & Chief Executive Officer (Principal Executive Officer)

Dated: August 9, 2016	By	/s/ Michael R. McFerran
		Name:	Michael R. McFerran
		Title:	Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer)