Ares Management Corp - Quarter Report: 2019 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, 2019



☐	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 CORPORATION

(Exact name of Registrant as specified in its charter)



Delaware	80-0962035
(State or other jurisdiction of incorporation or organization)	(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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.01 per share	ARES	New York Stock Exchange
7.00% Series A Preferred Stock, par value $0.01 per share	ARES.PRA	New York Stock Exchange

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ¨

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



Large Accelerated Filer	x	Accelerated Filer	☐	Non‑Accelerated Filer	☐	Smaller Reporting Company	☐	Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of July 29, 2019 there were 107,486,372 of the registrant’s shares of Class A common stock outstanding, 1,000 shares of the registrant's Class B common stock outstanding, and 1 share of the registrant's Class C common stock outstanding.

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TABLE OF CONTENTS



			Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Information - Unaudited		7
		Condensed Consolidated Statements of Financial Condition as of June 30, 2019 and December 31, 2018	7
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2019 and June 30, 2018	8
		Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and June 30, 2018	9
		Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2019 and the year ended December 31, 2018	10
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and June 30, 2018	12
		Notes to the Condensed Consolidated Financial Statements	13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		92
Item 4.	Controls and Procedures		92
PART II—OTHER INFORMATION			93
Item 1.	Legal Proceedings		93
Item 1A.	Risk Factors		93
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		94
Item 6.	Exhibits		95
Signatures			96

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Cautionary Note Regarding Forward‑Looking Statements

This report contains forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflect our current views with respect to, among other things, future events, operations 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, other comparable words or other statements that do not relate to historical or factual matters. 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 report and in our Annual report on Form 10-K for the year ended December 31, 2018, 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 report 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 collateralized loan obligations, 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 consolidated financial statements on a gross basis, subject to eliminations from consolidation, including the elimination of the management fees, performance income and other fees that we earn from the entity. However, the presentation of performance related 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 non‑controlling interests in Consolidated Funds in our Condensed Consolidated Statements of Operations.

In this quarterly report on Form 10-Q, 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) “Unconsolidated Reporting 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 shared resource groups to support our reportable segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship, 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 shareholders to analyze our performance. For more information, see “Notes to the Condensed Consolidated Financial Statements - Note 14. Segment Reporting.”

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Glossary

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


•	“ARCC Part I Fees” refers to a quarterly performance income on the investment income of Ares Capital Corporation (NASDAQ: ARCC) (“ARCC”). Such fees from ARCC are classified as management fees as they are paid quarterly, predictable and recurring in nature, are not subject to contingent repayment and are typically cash settled each quarter;


•	“ARCC Part II Fees” refers to fees that are paid in arrears as of the end of each calendar year when the cumulative aggregate realized capital gains exceed the cumulative aggregate realized capital losses and aggregate unrealized capital depreciation, less the aggregate amount of ARCC Part II Fees paid in all prior years since inception;


•	“Ares”, “the Company”, “we”, “us” and “our” refer to (i) Ares Management Corporation and its subsidiaries following the Conversion and (ii) Ares Management, L.P. and its subsidiaries prior to the Conversion;


•	“Ares Operating Group Unit” or an “AOG Unit” refers 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 is equal to initial principal amounts adjusted for paydowns;


•	“available capital” (also referred to as “dry powder”) is comprised of uncalled committed capital and undrawn amounts under credit facilities and may include AUM that may be canceled or not otherwise available to invest;


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


•	“Conversion” refers to our conversion effective November 26, 2018 from a Delaware limited partnership named Ares Management, L.P. into a Delaware corporation named Ares Management Corporation;


•	“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 consolidated financial statements;


•	“Co‑Founders” refers to Michael Arougheti, David Kaplan, John Kissick, Antony Ressler and Bennett Rosenthal;


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


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


•	“GAAP” refers to accounting principles generally accepted in the United States of America;


•	“Holdco Members” refers to Michael Arougheti, David Kaplan, Antony Ressler, Bennett Rosenthal, Ryan Berry, R. Kipp deVeer and Michael McFerran;

•

“Incentive eligible AUM” or “IEAUM” refers to the AUM of our funds from which performance income may be generated, regardless of whether or not they are currently generating performance income. It generally represents the NAV plus uncalled equity or total assets plus uncalled debt, as applicable, of our funds for which we are entitled to receive a performance income, excluding capital committed by us and our professionals (from which we generally do not earn performance income). With respect to ARCC's AUM, only ARCC Part II Fees may be generated from IEAUM;

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•

“Incentive generating AUM” or “IGAUM” refers to the AUM of our funds that are currently generating, on a realized or unrealized basis, performance income. It generally represents the NAV or total assets of our funds, as applicable, for which we are entitled to receive performance income, excluding capital committed by us and our professionals (from which we generally do not earn performance income). With respect to ARCC's AUM, only ARCC Part II Fees may be generated from IGAUM;

•

“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 inflows of capital” refers to net new commitments during the period, including equity and debt commitments and gross inflows into our open-ended managed accounts and sub-advised accounts, as well as equity offerings by our publicly traded vehicles minus redemptions from our open-ended funds, managed accounts and sub-advised accounts;


•	“net performance income” refers to performance income net of performance related compensation, which is the portion of the performance income earned from certain funds that is payable to our 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;

•

“permanent capital” refers to capital of our funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law. Such funds currently consist of ARCC, Ares Commercial Real Estate Corporation (“ACRE”) and Ares Dynamic Credit Allocation Fund, Inc. (“ARDC”). Such funds may be required, or elect, to return all or a portion of capital gains and investment income;


•	“performance income” refers to income we earn based on the performance of a fund, that is 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;

•

“realized income” or “RI”, a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expense, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from 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, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that we believe are not indicative of our operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization.


•	“SEC” refers to the Securities and Exchange Commission;


•	“Senior Notes” or the "AFC Notes" refers to senior notes issued by a wholly owned subsidiary of Ares Holdings;


•	"Series A Preferred Stock" refers to the preferred stock, $0.01 par value per share, of the Company designated as 7.00% Series A Preferred Stock; and


•	“Term Loans” refers to term loans held by wholly owned subsidiaries of Ares Management LLC (“AM LLC”).

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References in this Quarterly Report on Form 10-Q to (1) “common shares” and “preferred shares” refer to shares of our Class A common stock and the Series A Preferred Stock, respectively, previously outstanding prior to our Conversion and (2) “common shareholders” and “preferred shareholders” refer to holders of shares of our Class A common stock and shares of the Series A Preferred Stock, respectively, prior to our Conversion.

Many of the terms used in this report, including AUM, FPAUM, FRE and RI, may not be comparable to similarly titled measures used by other companies. In addition, our definitions of AUM and FPAUM are not based on any definition of AUM or FPAUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM or FPAUM set forth in other agreements to which we are a party or definitions used by the SEC or other regulatory bodies. Further, FRE and RI are not measures of performance calculated in accordance with GAAP. We use FRE and RI as measures of operating performance, not as measures of liquidity. FRE and RI 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 FRE and RI without consideration of related GAAP measures is not adequate due to the adjustments described above. Our management compensates for these limitations by using FRE and RI 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. Amounts and percentages throughout this report may reflect rounding adjustments and consequently totals may not appear to sum.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Ares Management Corporation

Condensed Consolidated Statements of Financial Condition

(Amounts in Thousands, Except Share Data)



	As of June 30,			As of December 31,
	2019			2018
	(unaudited)
Assets
Cash and cash equivalents	$	247,220		$	110,247
Investments (includes accrued carried interest of $1,071,954 and $841,079, at June 30, 2019 and December 31, 2018, respectively)	1,566,042			1,326,137
Due from affiliates	234,081			199,377
Other assets	358,091			377,651
Right-of-use operating lease assets	152,579			—
Assets of Consolidated Funds:
Cash and cash equivalents	376,328			384,644
Investments, at fair value	7,926,615			7,673,165
Due from affiliates	15,888			17,609
Receivable for securities sold	76,993			42,076
Other assets	25,912			23,786
Total assets	$	10,979,749		$	10,154,692
Liabilities
Accounts payable, accrued expenses and other liabilities	$	76,838		$	83,221
Accrued compensation	114,936			29,389
Due to affiliates	65,527			82,411
Performance related compensation payable	772,592			641,737
Debt obligations	566,277			480,952
Right-of-use operating lease liabilities	179,192			—
Liabilities of Consolidated Funds:
Accounts payable, accrued expenses and other liabilities	75,647			83,876
Payable for securities purchased	369,465			471,390
CLO loan obligations, at fair value	7,030,841			6,678,091
Fund borrowings	126,110			209,284
Total liabilities	9,377,425			8,760,351
Commitments and contingencies
Non-controlling interest in Consolidated Funds	613,943			503,637
Non-controlling interest in Ares Operating Group entities	352,882			302,780
Stockholders' Equity
Series A Preferred Stock, $0.01 par value, 1,000,000,000 shares authorized (12,400,000 shares issued and outstanding at June 30, 2019 and December 31, 2018)	298,761			298,761
Class A common stock, $0.01 par value, 1,500,000,000 shares authorized (107,458,309 shares and 101,594,095 shares issued and outstanding at June 30, 2019 and at December 31, 2018, respectively)	1,075			1,016
Class B common stock, $0.01 par value, 1,000 shares authorized (1,000 shares issued and outstanding at June 30, 2019 and at December 31, 2018)	—			—
Class C common stock, $0.01 par value, 499,999,000 shares authorized (1 share issued and outstanding at June 30, 2019 and at December 31, 2018)	—			—
Additional paid-in-capital	379,789			326,007
Retained earnings	(35,247		)	(29,336		)
Accumulated other comprehensive loss, net of tax	(8,879		)	(8,524		)
Total stockholders' equity	635,499			587,924
Total equity	1,602,324			1,394,341
Total liabilities, non-controlling interests and equity	$	10,979,749		$	10,154,692

See accompanying notes to the condensed consolidated financial statements.

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Ares Management Corporation

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Share Data)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues
Management fees (includes ARCC Part I Fees of $39,157, $77,550 and $29,866, $58,283 for the three and six months ended June 30, 2019 and 2018, respectively)	$	237,846		$	194,032		$	462,505		$	383,547
Carried interest allocation	119,712			(13,444		)	317,005			40,685
Incentive fees	10,220			7,740			27,035			12,811
Principal investment income	5,844			1,871			34,603			6,780
Administrative, transaction and other fees	11,200			13,964			20,871			26,429
Total revenues	384,822			204,163			862,019			470,252
Expenses
Compensation and benefits	162,170			138,992			319,016			273,631
Performance related compensation	92,688			(13,005		)	249,208			12,873
General, administrative and other expenses	65,416			59,918			116,603			104,368
Expenses of Consolidated Funds	15,427			35,112			19,981			36,428
Total expenses	335,701			221,017			704,808			427,300
Other income (expense)
Net realized and unrealized gain on investments	521			3,267			3,997			2,428
Interest and dividend income	1,652			2,356			3,496			5,703
Interest expense	(5,793		)	(6,076		)	(11,382		)	(12,945		)
Other income (expense), net	4,797			(1,987		)	300			(2,298		)
Net realized and unrealized gain (loss) on investments of Consolidated Funds	(116		)	34,487			4,248			21,402
Interest and other income of Consolidated Funds	102,206			92,633			195,390			157,055
Interest expense of Consolidated Funds	(68,005		)	(56,754		)	(132,917		)	(101,179		)
Total other income	35,262			67,926			63,132			70,166
Income before taxes	84,383			51,072			220,343			113,118
Income tax expense	9,505			36,903			23,889			24,528
Net income	74,878			14,169			196,454			88,590
Less: Net income attributable to non-controlling interests in Consolidated Funds	8,346			9,882			25,970			10,249
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	34,393			16,062			93,396			49,168
Net income (loss) attributable to Ares Management Corporation	32,139			(11,775		)	77,088			29,173
Less: Series A Preferred Stock dividends paid	5,425			5,425			10,850			10,850
Net income (loss) attributable to Ares Management Corporation Class A common stockholders	$	26,714		$	(17,200	)	$	66,238		$	18,323
Net income (loss) attributable to Ares Management Corporation per share of Class A common stock:
Basic	$	0.24		$	(0.20	)	$	0.60		$	0.16
Diluted	$	0.23		$	(0.20	)	$	0.58		$	0.16
Weighted-average shares of Class A common stock:⁽¹⁾
Basic	105,188,966			98,037,252			104,054,035			91,861,946
Diluted	116,603,887			98,037,252			113,657,864			91,861,946
Dividend declared and paid per share of Class A common stock⁽¹⁾	$	0.32		$	0.37		$	0.64		$	0.77

(1) Three and six months ended June 30, 2018 represents common units.

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

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Ares Management Corporation

Condensed Consolidated Statements of Comprehensive Income

(Amounts in Thousands)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	74,878		$	14,169		$	196,454		$	88,590
Other comprehensive income:
Foreign currency translation adjustments, net of tax	(1,991		)	(12,377		)	(907		)	(6,892		)
Total comprehensive income	72,887			1,792			195,547			81,698
Less: Comprehensive income attributable to non-controlling interests in Consolidated Funds	9,852			4,193			25,817			7,735
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities	32,535			12,131			92,997			47,340
Comprehensive income (loss) attributable to Ares Management Corporation	$	30,500		$	(14,532	)	$	76,733		$	26,623

See accompanying notes to the condensed consolidated financial statements.

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Ares Management Corporation

Condensed Consolidated Statements of Changes in Equity

(Amounts in Thousands)

(unaudited)



	Series A Preferred Stock			Class A Common Stock			Additional Paid-in-Capital			Retained Earnings			Accumulated Other Comprehensive Income (loss)			Non-Controlling Interest in Ares Operating Group Entities			Non-Controlling Interest in Consolidated Funds			Total Equity
Balance at December 31, 2018	$	298,761		$	1,016		$	326,007		$	(29,336	)	$	(8,524	)	$	302,780		$	503,637		$	1,394,341
Relinquished with deconsolidation of funds	—			—			—			—			—			—			(55		)	(55		)
Changes in ownership interests and related tax benefits	—			15			(6,339		)	—			—			(12,073		)	—			(18,397		)
Contributions	—			—			—			—			—			1,876			54,035			55,911
Dividends/Distributions	(5,425		)	—			—			(35,367		)	—			(40,112		)	(20,736		)	(101,640		)
Net income	5,425			—			—			39,524			—			59,003			17,624			121,576
Currency translation adjustment	—			—			—			—			1,284			1,459			(1,659		)	1,084
Equity compensation	—			—			12,637			—			—			14,367			—			27,004
Balance at March 31, 2019	298,761			1,031			332,305			(25,179		)	(7,240		)	327,300			552,846			1,479,824
Changes in ownership interests and related tax benefits	—			5			(32,128		)	—			—			20,615			—			(11,508		)
Repurchases of Class A common stock	—			(4		)	(10,445		)	—			—			—			—			(10,449		)
Contributions	—			—			—			—			—			—			61,464			61,464
Dividends/Distributions	(5,425		)	—			—			(36,782		)	—			(40,103		)	(10,219		)	(92,529		)
Net income	5,425			—			—			26,714			—			34,393			8,346			74,878
Currency translation adjustment	—			—			—			—			(1,639		)	(1,858		)	1,506			(1,991		)
Equity compensation	—			—			11,306			—			—			12,535			—			23,841
Stock option exercises	—			43			78,751			—			—			—			—			78,794
Balance at June 30, 2019	$	298,761		$	1,075		$	379,789		$	(35,247	)	$	(8,879	)	$	352,882		$	613,943		$	1,602,324

See accompanying notes to the condensed consolidated financial statements.

Ares Management Corporation

Condensed Consolidated Statements of Changes in Equity

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(Amounts in Thousands)

(unaudited)



	Preferred Equity			Series A Preferred Stock			Shareholders' Equity			Class A Common Stock		Additional Paid-in-Capital		Retained Earnings			Accumulated Other Comprehensive Income (loss)			Non-Controlling Interest in Ares Operating Group Entities			Non-Controlling Interest in Consolidated Funds			Total Equity
Balance at December 31, 2017	$	298,761		$	—		$	279,065		$	—	$	—	$	—		$	(4,208	)	$	358,186		$	528,488		$	1,460,292
Cumulative effect of the adoption of ASC 606	—			—			(10,827		)	—		—		—			—			(17,117		)	5,333			(22,611		)
As adjusted balance at January 1, 2018	298,761			—			268,238			—		—		—			(4,208		)	341,069			533,821			1,437,681
Adoption of ASU 2018-02	—			—			1,202			—		—		—			(1,202		)	—			—			—
Changes in ownership interests and related tax benefits	—			—			(8,351		)	—		—		—			—			18,810			—			10,459
Contributions	—			—			105,441			—		—		—			—			—			8,000			113,441
Dividends/Distributions	(5,425		)	—			(33,103		)	—		—		—			—			(58,677		)	(983		)	(98,188		)
Net income	5,425			—			35,523			—		—		—			—			33,106			367			74,421
Currency translation adjustment	—			—			—			—		—		—			1,409			2,103			3,175			6,687
Equity compensation	—			—			8,285			—		—		—			—			12,409			—			20,694
Balance at March 31, 2018	298,761			—			377,235			—		—		—			(4,001		)	348,820			544,380			1,565,195
Changes in ownership interests and related tax benefits	—			—			15,816			—		—		—			—			(4,711		)	—			11,105
Contributions	—			—			842			—		—		—			—			764			62,990			64,596
Dividends/Distributions	(5,425		)	—			(36,640		)	—		—		—			—			(53,174		)	(34,346		)	(129,585		)
Net income	5,425			—			(17,200		)	—		—		—			—			16,062			9,882			14,169
Currency translation adjustment	—			—			—			—		—		—			(2,757		)	(3,931		)	(5,689		)	(12,377		)
Equity compensation	—			—			9,928			—		—		—			—			12,218			—			22,146
Balance at June 30, 2018	298,761			—			349,981			—		—		—			(6,758		)	316,048			577,217			1,535,249
Changes in ownership interests and related tax benefits	—			—			(34,678		)	—		—		—			—			3,499			—			(31,179		)
Contributions	—			—			—			—		—		—			—			917			—			917
Dividends/Distributions	(5,425		)	—			(34,667		)	—		—		—			—			(30,928		)	(11,466		)	(82,486		)
Net income	5,425			—			10,485			—		—		—			—			18,133			13,169			47,212
Currency translation adjustment	—			—			—			—		—		—			(645		)	(774		)	(500		)	(1,919		)
Equity compensation	—			—			10,600			—		—		—			—			12,925			—			23,525
Balance at September 30, 2018	298,761			—			301,721			—		—		—			(7,403		)	319,820			578,420			1,491,319
Consolidation of a new fund	—			—			—			—		—		—			—			—			42,942			42,942
Changes in ownership interests and related tax benefits	—			—			501			—		9,140		—			—			(1,237		)	—			8,404
Contributions	—			—			—			—		—		—			—			1,447			19			1,466
Dividends/Distributions	—			(5,425		)	(91		)	—		—		(30,348		)	—			(35,018		)	(112,915		)	(183,797		)
Net income	—			5,425			5,500			—		—		1,012			—			7,306			(2,906		)	16,337
Currency translation adjustment	—			—			—			—		—		—			(1,121		)	(1,335		)	(1,923		)	(4,379		)
Equity compensation	—			—			7,432			—		2,820		—			—			11,797			—			22,049
Reclassifications resulting from conversion to a corporation	(298,761		)	298,761			(315,063		)	1,016		314,047		—			—			—			—			—
Balance at December 31, 2018	$	—		$	298,761		$	—		$	1,016	$	326,007	$	(29,336	)	$	(8,524	)	$	302,780		$	503,637		$	1,394,341

See accompanying notes to the condensed consolidated financial statements.

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Ares Management Corporation

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(unaudited)



	For the Six Months Ended June 30,
	2019			2018
Cash flows from operating activities:
Net income	$	196,454		$	88,590
Adjustments to reconcile net income to net cash used in operating activities	48,114			225,963
Adjustments to reconcile net income to net cash used in operating activities allocable to non-controlling interests in Consolidated Funds	(1,360,106		)	(1,634,788		)
Cash flows due to changes in operating assets and liabilities	(12,824		)	66,969
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interests in Consolidated Funds	(162,950		)	(34,335		)
Net cash used in operating activities	(1,291,312		)	(1,287,601		)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements, net	(5,653		)	(7,126		)
Net cash used in investing activities	(5,653		)	(7,126		)
Cash flows from financing activities:
Proceeds from issuance of common shares	—			105,333
Proceeds from credit facility	235,000			325,000
Proceeds from term notes	—			44,050
Repayments of credit facility	(150,000		)	(410,000		)
Repayments of term loans	—			(206,089		)
Dividends and distributions	(152,364		)	(181,594		)
Series A Preferred Stock dividends and distributions	(10,850		)	(10,850		)
Repurchases of Class A common stock	(10,449		)	—
Stock option exercises	78,794			950
Taxes paid related to net share settlement of equity awards	(31,424		)	(17,225		)
Other financing activities	(3,258		)	764
Allocable to non-controlling interests in Consolidated Funds:
Contributions from non-controlling interests in Consolidated Funds	115,499			70,990
Distributions to non-controlling interests in Consolidated Funds	(30,955		)	(35,329		)
Borrowings under loan obligations by Consolidated Funds	1,934,087			2,206,816
Repayments under loan obligations by Consolidated Funds	(528,955		)	(599,801		)
Net cash provided by financing activities	1,445,125			1,293,015
Effect of exchange rate changes	(11,187		)	8,231
Net change in cash and cash equivalents	136,973			6,519
Cash and cash equivalents, beginning of period	110,247			118,929
Cash and cash equivalents, end of period	$	247,220		$	125,448

See accompanying notes to the condensed consolidated financial statements.

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements

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

1. ORGANIZATION

Ares Management Corporation ("the Company"), a Delaware corporation, together with its subsidiaries, is a leading global alternative investment manager operating three integrated businesses across Credit, Private Equity and Real Estate. Information about segments should be read together with Note 14, “Segment Reporting.” Subsidiaries of the Company serve as the general partners and/or investment managers to various investment funds and managed accounts within each investment group (the “Ares Funds”). Such subsidiaries provide investment advisory services to the Ares Funds in exchange for management fees. Ares is managed and operated by its Board of Directors and Executive Management Committee. Unless the context requires otherwise, references to “Ares” or the “Company” refer to Ares Management, L.P., together with its subsidiaries prior to November 26, 2018 and thereafter to Ares Management Corporation, together with its subsidiaries.

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

Non-Controlling Interests in Ares Operating Group Entities

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“GAAP”) for interim financial information and instructions to the Quarterly Report on Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent, and that all such adjustments are of a normal recurring nature. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2018 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. All intercompany balances and transactions have been eliminated upon consolidation.

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

Adoption of ASC 842

Effective January 1, 2019, the Company adopted the Financial Accounting Standards Board (“FASB”) Topic 842 (“ASC 842”), Leases. The Company adopted ASC 842 under the modified retrospective approach using the practical expedient provided for within paragraph 842-10-65-1; therefore, the presentation of prior year periods has not been adjusted. No cumulative effect of initially adopting ASC 842 as an adjustment to the opening balance of components of equity as of January 1, 2019 was necessary as the recognition of the right-of-use operating lease assets equaled the corresponding lease liabilities. The amount established in conjunction with the implementation was consistent with the amount previously disclosed.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

The Company has entered into operating and finance leases for corporate offices and certain equipment and makes the determination if an arrangement constitutes a lease at inception. Operating leases are included in right-of-use operating lease assets and right-of-use operating lease liabilities in the Company's Condensed Consolidated Statements of Financial Condition. Finance leases are included in accounts payable, accrued expenses and other liabilities in the Condensed Consolidated Statements of Financial Condition. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Statements of Financial Condition.

Right-of-use leases assets represent the Company's right to use an underlying asset for the lease term and right-of-use lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses the its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when readily determinable. The right-of-use operating lease asset also includes any lease prepayments and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the company will exercise that option. Lease expense is primarily recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. However, for certain equipment leases where the non-lease components are not material, the Company account for the lease and non-lease components as a single lease component.

Recent Accounting Pronouncements

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

In 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. In April and May 2019, ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments and ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, were issued to provide clarification to previously issued credit losses guidance (ASU 2016-13) that has not yet been implemented. These updates are required to be adopted with ASU 2016-13. The Company is currently evaluating the impact of these pronouncements on its condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force). ASU 2018-15 amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This ASU aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a cloud computing arrangement that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a cloud computing arrangement that is considered a service contract. The accounting for the service element of a hosting arrangement that is a service contract is not affected by these amendments. In addition, this ASU states that a cloud computing arrangement that is a service contract does not give rise to a recognizable intangible asset because it is an executory service contract. Consequently, any costs incurred to implement a cloud computing arrangement that is a service contract would not be capitalized as an intangible asset since they do not form part of an intangible asset but instead would be characterized in the financial statements in the same manner as other service costs and assets related to service contracts such as prepaid expense. That is, these costs would be capitalized as part of the service contract and the related amortization would be consistent with the ongoing periodic costs of the underlying cloud computing arrangement. ASU 2018-15 is effective for public entities for annual reporting periods beginning after December 15, 2019 and interim periods within those reporting periods, with early adoption permitted. The guidance may be applied either prospectively or retrospectively. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. ASU 2018-17, amends ASC 810 to address whether indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. This is consistent with how indirect interests held through related parties under common control are considered for determining whether a reporting entity must consolidate a VIE. For example, if a decision maker or service provider owns a 20 percent interest in a related party and that related party owns a 40 percent interest in the legal entity being evaluated, the decision maker’s or service provider’s indirect interest in the VIE held through the related party under common control should be considered the equivalent of an eight percent direct interest for determining whether its fees are variable interests. ASU 2018-17 is effective for public entities for annual reporting periods beginning after December 15, 2019 and interim periods within those reporting periods, with early adoption permitted. The guidance should be applied retrospectively. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

3. GOODWILL AND INTANGIBLE ASSETS

Finite Lived Intangible Assets, Net

The following table summarizes the carrying value, net of accumulated amortization, for the Company's intangible assets, included within other assets in the Condensed Consolidated Statements of Financial Condition:



	Weighted Average Amortization Period as of June 30, 2019	As of June 30,			As of December 31,
	Weighted Average Amortization Period as of June 30, 2019	2019			2018
Management contracts	2.6 years	$	12,498		$	42,335
Client relationships	9.0 years	38,600			38,600
Trade name	3.0 years	3,200			3,200
Intangible assets		54,298			84,135
Less: accumulated amortization		(25,287		)	(52,701		)
Intangible assets, net		$	29,011		$	31,434

Amortization expense associated with intangible assets was $1.2 million and $3.3 million for the three months ended June 30, 2019 and 2018, respectively, and $2.4 million and $6.6 million for the six months ended June 30, 2019 and 2018, respectively, and is presented within general, administrative and other expenses within the Condensed Consolidated Statements of Operations. During the first quarter of 2019, the Company removed $29.8 million of intangible assets that were fully amortized.

Goodwill

The following table summarizes the carrying value of the Company's goodwill assets, included within other assets in the Condensed Consolidated Statements of Financial Condition:



	Credit		Private Equity		Real Estate			Total
Balance as of December 31, 2018	$	32,196	$	58,600	$	52,990		$	143,786
Foreign currency translation	—		—		(7		)	(7		)
Balance as of June 30, 2019	$	32,196	$	58,600	$	52,983		$	143,779

There was no impairment of goodwill recorded during the six months ended June 30, 2019 and 2018. The impact of foreign currency translation is reflected within other comprehensive income.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

4. INVESTMENTS

The Company’s investments are comprised of the following:



					Percentage of total investments as of
	June 30,		December 31,		June 30,		December 31,
	2019		2018		2019		2018
Private Investment Partnership Interests and Other:
Equity method private investment partnership interests - principal (1)	$	364,109	$	357,655	23.3	%	27.0	%
Equity method - carried interest (1)	1,071,954		841,079		68.4	%	63.4	%
Equity method private investment partnership interests and other (held at fair value)	48,785		46,450		3.1	%	3.5	%
Equity method private investment partnership interests and other	15,969		18,845		1.0	%	1.4	%
Total private investment partnership interests and other	1,500,817		1,264,029		95.8	%	95.3	%
Collateralized loan obligations	26,241		20,824		1.7	%	1.6	%
Other fixed income	37,810		40,000		2.4	%	3.0	%
Collateralized loan obligations and other fixed income, at fair value	64,051		60,824		4.1	%	4.6	%
Common stock, at fair value	1,174		1,284		0.1	%	0.1	%
Total investments	$	1,566,042	$	1,326,137


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

Equity Method Investments

The Company’s equity method investments include investments that are not consolidated but over which the Company exerts significant influence. The Company evaluates each of its equity method investments to determine if any were significant as defined by guidance from the SEC. As of and for the three and six months ended June 30, 2019 and 2018, no individual equity method investment held by the Company met the significance criteria.

The Company recognized net gains related to its equity method investments of $5.4 million and $3.8 million for the three months ended June 30, 2019 and 2018, respectively, and $34.5 million and $7.3 million for the six months ended June 30, 2019 and 2018, respectively. The net gains were included within principal investment income, net realized and unrealized gain on investments, and interest and dividend income within the Condensed Consolidated Statements of Operations.

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

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

Investments of the Consolidated Funds

Investments held in the Consolidated Funds are summarized below:



	Fair value at				Fair value as a percentage of total investments as of
	June 30,		December 31,		June 30,		December 31,
	2019		2018		2019		2018
Fixed income investments:
Bonds	$	201,792	$	318,499	2.6	%	4.3	%
Loans	7,229,083		6,886,749		91.2	%	89.8	%
Collateralized loan obligations	35,260		—		0.4	%	—	%
Total fixed income investments	7,466,135		7,205,248		94.2	%	94.1	%
Equity securities	166,623		196,470		2.1	%	2.4	%
Partnership interests	293,857		271,447		3.7	%	3.5	%
Total investments, at fair value	$	7,926,615	$	7,673,165

5. FAIR VALUE

Fair Value Measurements

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

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


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

•

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


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

In some instances, an instrument may fall into more than one level of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair value measurement. The Company’s assessment of the significance of an input requires judgment and considers factors specific to the instrument. The Company accounts for the transfer of assets into or out of each fair value hierarchy level as of the beginning of the reporting period.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

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 the Consolidated Funds as of June 30, 2019:



Financial Instruments of the Company	Level I		Level II			Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Collateralized loan obligations and other fixed income	$	—	$	—		$	64,051	$	—	$	64,051
Common stock and other equity securities	137		1,037			12,397		—		13,571
Partnership interests	—		—			35,192		1,196		36,388
Total investments, at fair value	137		1,037			111,640		1,196		114,010
Derivatives—foreign exchange contracts	—		1,890			—		—		1,890
Total assets, at fair value	$	137	$	2,927		$	111,640	$	1,196	$	115,900
Liabilities, at fair value
Derivatives—foreign exchange contracts	$	—	$	(610	)	$	—	$	—	$	(610	)
Total liabilities, at fair value	$	—	$	(610	)	$	—	$	—	$	(610	)



Financial Instruments of the Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	201,792		$	—		$	201,792
Loans	—		6,954,671			274,412			7,229,083
Collateralized loan obligations	—		35,260			—			35,260
Total fixed income investments	—		7,191,723			274,412			7,466,135
Equity securities	34,891		—			131,732			166,623
Partnership interests	—		—			293,857			293,857
Total investments, at fair value	34,891		7,191,723			700,001			7,926,615
Derivatives:
Foreign exchange contracts	—		342			—			342
Asset swaps - other	—		—			705			705
Total assets, at fair value	$	34,891	$	7,192,065		$	700,706		$	7,927,662
Liabilities, at fair value
Foreign exchange contracts	$	—	$	(345	)	$	—		$	(345	)
Asset swaps - other	—		—			(647		)	(647		)
Loan obligations of CLOs	—		(7,030,841		)	—			(7,030,841		)
Total liabilities, at fair value	$	—	$	(7,031,186	)	$	(647	)	$	(7,031,833	)

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and the Consolidated Funds as of December 31, 2018:



Financial Instruments of the Company	Level I		Level II			Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Collateralized loan obligations and other fixed income	$	—	$	—		$	60,824	$	—	$	60,824
Common stock and other equity securities	280		1,004			10,397		—		11,681
Partnership interests	—		—			35,192		861		36,053
Total investments, at fair value	280		1,004			106,413		861		108,558
Derivatives-foreign exchange contracts	—		1,066			—		—		1,066
Total assets, at fair value	$	280	$	2,070		$	106,413	$	861	$	109,624
Liabilities, at fair value
Derivatives—foreign exchange contracts	$	—	$	(869	)	$	—	$	—	$	(869	)
Total liabilities, at fair value	$	—	$	(869	)	$	—	$	—	$	(869	)



Financial Instruments of the Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	316,850		$	1,649		$	318,499
Loans	—		6,340,440			546,309			6,886,749
Total fixed income investments	—		6,657,290			547,958			7,205,248
Equity securities	45,718		—			150,752			196,470
Partnership interests	—		—			271,447			271,447
Total investments, at fair value	45,718		6,657,290			970,157			7,673,165
Derivatives:
Foreign exchange contracts	—		1,881			—			1,881
Asset swaps - other	—		—			1,328			1,328
Total derivative assets, at fair value	—		1,881			1,328			3,209
Total assets, at fair value	$	45,718	$	6,659,171		$	971,485		$	7,676,374
Liabilities, at fair value
Foreign exchange contracts	$	—	$	(1,864	)	$	—		(1,864		)
Asset swaps - other	—		—			(648		)	(648		)
Loan obligations of CLOs	—		(6,678,091		)	—			(6,678,091		)
Total liabilities, at fair value	$	—	$	(6,679,955	)	$	(648	)	$	(6,680,603	)

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

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, 2019:



	Level III Assets
Level III Assets of the Company	Equity Securities		Fixed Income			Partnership Interests		Total
Balance, beginning of period	$	10,397	$	67,190		$	35,192	$	112,779
Deconsolidation of fund	—		1,883			—		1,883
Purchases(1)	2,000		—			—		2,000
Sales/settlements(2)	—		(6,206		)	—		(6,206		)
Realized and unrealized appreciation, net	—		1,184			—		1,184
Balance, end of period	$	12,397	$	64,051		$	35,192	$	111,640
Increase in net unrealized appreciation included in earnings related to financial assets still held at the reporting date	$	—	$	1,818		$	—	$	1,818



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	159,032		$	564,304		$	283,059		$	(3,031	)	$	1,003,364
Deconsolidation of fund	(10,325		)	(115,711		)	—			—			(126,036		)
Transfer in	—			29,438			—			—			29,438
Transfer out	—			(261,674		)	—			—			(261,674		)
Purchases(1)	110			113,708			4,000			—			117,818
Sales/settlements(2)	(51		)	(56,530		)	(2,000		)	(555		)	(59,136		)
Amortized discounts/premiums	—			(345		)	—			171			(174		)
Realized and unrealized appreciation (depreciation), net	(17,034		)	1,222			8,798			3,473			(3,541		)
Balance, end of period	$	131,732		$	274,412		$	293,857		$	58		$	700,059
Increase (decrease) in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(17,031	)	$	(389	)	$	8,798		$	2,865		$	(5,757	)


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


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

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

The following tables set forth a summary of changes in the fair value of the Level III measurements for the six months ended June 30, 2019:



	Level III Assets
Level III Assets of the Company	Equity Securities		Fixed Income			Partnership Interests		Total
Balance, beginning of period	$	10,397	$	60,824		$	35,192	$	106,413
Deconsolidation of fund	—		10,021			—		10,021
Purchases(1)	2,000		2,146			—		4,146
Sales/settlements(2)	—		(11,169		)	—		(11,169		)
Realized and unrealized appreciation, net	—		2,229			—		2,229
Balance, end of period	$	12,397	$	64,051		$	35,192	$	111,640
Increase in net unrealized appreciation included in earnings related to financial assets still held at the reporting date	$	—	$	2,479		$	—	$	2,479



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	150,752		$	547,958		$	271,447		$	680		$	970,837
Deconsolidation of fund	(10,325		)	(174,593		)	—			—			(184,918		)
Transfer in	—			41,245			—			—			41,245
Transfer out	—			(247,573		)	—			—			(247,573		)
Purchases(1)	10,882			238,870			8,000			—			257,752
Sales/settlements(2)	(5,137		)	(136,329		)	(2,000		)	(581		)	(144,047		)
Amortized discounts/premiums	—			(37		)	—			22			(15		)
Realized and unrealized appreciation (depreciation), net	(14,440		)	4,871			16,410			(63		)	6,778
Balance, end of period	$	131,732		$	274,412		$	293,857		$	58		$	700,059
Increase (decrease) in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(14,442	)	$	1,114		$	16,410		$	(49	)	$	3,033


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


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

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

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, 2018:



	Level III Assets
Level III Assets of the Company	Fixed Income			Partnership Interests		Total
Balance, beginning of period	$	242,984		$	44,769	$	287,753
Sales/settlements(2)	(219,744		)	—		(219,744		)
Realized and unrealized appreciation (depreciation), net	(1,115		)	2,450		1,335
Balance, end of period	$	22,125		$	47,219	$	69,344
Increase (decrease) in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(100	)	$	2,450	$	2,350



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	160,422		$	240,763		$	252,700		$	86		$	653,971
Transfer in	—			94,776			—			—			94,776
Transfer out	—			(68,328		)	—			—			(68,328		)
Purchases(1)	—			273,879			6,000			—			279,879
Sales/settlements(2)	—			(57,206		)	—			(17		)	(57,223		)
Amortized discounts/premiums	—			(9		)	—			(21		)	(30		)
Realized and unrealized appreciation (depreciation), net	24,161			(1,500		)	(7,092		)	182			15,751
Balance, end of period	$	184,583		$	482,375		$	251,608		$	230		$	918,796
Increase (decrease) in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(2,090	)	$	(3,785	)	$	—		$	134		$	(5,741	)


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


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

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

The following tables set forth a summary of changes in the fair value of the Level III measurements for the six months ended June 30, 2018:



	Level III Assets
Level III Assets of the Company	Fixed Income			Partnership Interests		Total
Balance, beginning of period	$	195,158		$	44,769	$	239,927
Deconsolidation of fund	78			—		78
Purchases(1)	48,731			—		48,731
Sales/settlements(2)	(220,571		)	—		(220,571		)
Realized and unrealized appreciation (depreciation), net	(1,271		)	2,450		1,179
Balance, end of period	$	22,125		$	47,219	$	69,344
Increase (decrease) in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(829	)	$	2,450	$	1,621



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests		Derivatives, Net			Total
Balance, beginning of period	$	162,577		$	267,889		$	232,332	$	904		$	663,702
Deconsolidation of fund	—			(233		)	—		—			(233		)
Transfer in	—			95,450			—		—			95,450
Transfer out	—			(73,777		)	—		—			(73,777		)
Purchases(1)	—			313,462			16,000		—			329,462
Sales/settlements(2)	—			(117,503		)	—		(194		)	(117,697		)
Amortized discounts/premiums	—			35			—		(14		)	21
Realized and unrealized appreciation (depreciation), net	22,006			(2,948		)	3,276		(466		)	21,868
Balance, end of period	$	184,583		$	482,375		$	251,608	$	230		$	918,796
Increase (decrease) in net unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(12,211	)	$	(1,671	)	$	3,276	$	(566	)	$	(11,172	)


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


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

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.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

The following table summarizes the quantitative inputs and assumptions used for the Company’s and the Consolidated Funds' Level III measurements as of June 30, 2019:



Level III Measurements of the Company	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Equity securities	$	12,397	Transaction price(1)	N/A	N/A
Partnership interests	35,192		Discounted cash flow	Discount rate	8.0%
Collateralized loan obligations	26,241		Broker quotes and/or 3rd party pricing services	N/A	N/A
Other fixed income	37,810		Other	N/A	N/A
Total	$	111,640



Level III Measurements of the Consolidated Funds	Fair Value			Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	609		Enterprise value market multiple analysis	EBITDA multiple(2)	8.7x - 22.4x	13.2x
	74,241			Other	Net income multiple	36.1x - 40.0x	37.8x
					Illiquidity discount	25.0%	25.0%
	56,882			Transaction price(1)	N/A	N/A	N/A
Partnership interest	293,857			Discounted cash flow	Discount rate	21.4%	21.4%
Fixed income securities
	191,789			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	82,623			Income approach	Yield	5.0% - 13.2%	8.9%
Derivative instruments	705			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	700,706
Liabilities
Derivatives instruments	$	(647	)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(647	)


(1)	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.


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

Table of Contents

Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

The following table summarizes the quantitative inputs and assumptions used for the Company’s and the Consolidated Funds' Level III measurements as of December 31, 2018:



Level III Measurements of the Company	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Equity securities	$	10,397	Transaction price(1)	N/A	N/A
Partnership interests	35,192		Discounted cash flow	Discount rate	8.0%
Collateralized loan obligations	20,824		Broker quotes and/or 3rd party pricing services	N/A	N/A
Other fixed income	40,000		Other	N/A	N/A
Total	$	106,413



Level III Measurements of the Consolidated Funds	Fair Value			Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	23,871		Enterprise value market multiple analysis	EBITDA multiple(2)	7.2x - 22.9x	7.7x
	41,562			Other	Net income multiple	38.8x	38.8x
					Illiquidity discount	25.0%	25.0%
	271,447			Discounted cash flow	Discount rate	20.8%	20.8%
	85,319			Transaction price(1)	N/A	N/A	N/A
Fixed income securities
	441,368			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	106,590			Income approach	Yield	1.0% - 14.8%	9.6%
Derivative instruments	1,328			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	971,485
Liabilities
Derivatives instruments	$	(648	)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(648	)


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


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

The Company has an insurance-related investment in a private fund managed by a third party that is valued using net asset value (“NAV”) per share. The terms and conditions of this fund do not allow for redemptions without certain events or approvals that are outside the Company's control. This investment had a fair value of $1.2 million and $0.8 million as of June 30, 2019 and December 31, 2018, respectively. The Company has no unfunded commitments for this investment.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share 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 are not designated as hedging instruments under the accounting standards for derivatives and hedging. The Company recognizes all of its derivative instruments at fair value as either assets or liabilities in the Condensed Consolidated Statements of Financial Condition within other assets or accounts payable, accrued expenses and other liabilities, respectively. These amounts may be offset to the extent that there is a legal right to offset and if elected by management.

The following tables identify the fair value and notional amounts of derivative contracts by major product type on a gross basis for the Company and the Consolidated Funds as of June 30, 2019 and December 31, 2018:



	As of June 30, 2019								As of December 31, 2018
	Assets				Liabilities				Assets				Liabilities
The Company	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Foreign exchange contracts	$	37,667	$	1,890	$	75,252	$	610	$	33,026	$	1,066	$	27,140	$	869
Total derivatives, at fair value(2)	$	37,667	$	1,890	$	75,252	$	610	$	33,026	$	1,066	$	27,140	$	869



	As of June 30, 2019								As of December 31, 2018
	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	$	342	$	342	$	342	$	345	$	1,881	$	1,881	$	1,881	$	1,864
Asset swap - other	4,830		705		2,292		647		5,226		1,328		2,605		648
Total derivatives, at fair value(3)	$	5,172	$	1,047	$	2,634	$	992	$	7,107	$	3,209	$	4,486	$	2,512


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


(2)	As of June 30, 2019 and December 31, 2018, the Company had the right to, but elected not to, offset $0.6 million and $0.9 million of its derivative liabilities, respectively.


(3)	As of June 30, 2019 and December 31, 2018, the Consolidated Funds offset $10.6 million and $5.7 million of their derivative assets and liabilities, respectively.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

7. DEBT

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



					As of June 30, 2019			As of December 31, 2018
	Debt Origination Date	Maturity	Original Borrowing Amount		Carrying Value		Interest Rate	Carrying Value		Interest Rate
Credit Facility(1)	Revolver	3/21/2024	N/A		$	320,000	3.69%	$	235,000	4.00%
Senior Notes(2)	10/8/2014	10/8/2024	$	250,000	246,277		4.21%	245,952		4.21%
Total debt obligations					$	566,277		$	480,952

(1)

The AOG entities are borrowers under the Credit Facility, which provides a $1.065 billion revolving line of credit. It has a variable interest rate based on LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change with the Company’s underlying credit agency rating. On March 21, 2019, the Company amended the Credit Facility to, among other things, extend the maturity date from February 2022 to March 2024 and to reduce borrowing costs on the drawn and undrawn amounts. As of June 30, 2019, base rate loans bear interest calculated based on the base rate plus 0.25% and the LIBOR rate loans bear interest calculated based on LIBOR plus 1.25%. The unused commitment fee is 0.15% 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, 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.

As of June 30, 2019, the Company and its subsidiaries were in compliance with all covenants under the debt obligations.

The Company typically incurs and pays debt issuance costs when entering into a new debt obligation or when amending an existing debt agreement. Debt issuance costs related to the Company's Senior Notes are recorded as a reduction of the corresponding debt obligation, and debt issuance costs related to the Credit Facility are included in other assets in the Condensed Consolidated Statements of Financial Condition. All debt issuance costs are amortized over the remaining term of the related obligation.

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



	Credit Facility			Senior Notes
Unamortized debt issuance costs as of December 31, 2018	$	4,972		$	1,334
Debt issuance costs incurred	1,521			—
Amortization of debt issuance costs	(677		)	(116		)
Unamortized debt issuance costs as of June 30, 2019	$	5,816		$	1,218

Loan Obligations of the Consolidated CLOs

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

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

As of June 30, 2019 and December 31, 2018, the following loan obligations were outstanding and classified as liabilities of the Consolidated CLOs:



	As of June 30, 2019					As of December 31, 2018
	Loan Obligations		Fair Value of Loan Obligations		Weighted Average Remaining Maturity In Years	Loan Obligations		Fair Value of Loan Obligations		Weighted Average Remaining Maturity In Years
Senior secured notes(1)	$	6,879,407	$	6,789,415	11.14	$	6,642,616	$	6,391,643	10.94
Subordinated notes(2)	383,443		241,426		11.20	455,333		286,448		11.21
Total loan obligations of Consolidated CLOs	$	7,262,850	$	7,030,841		$	7,097,949	$	6,678,091


(1)	Original borrowings under the senior secured notes totaled $6.9 billion, with various maturity dates ranging from July 2028 to April 2032. The weighted average interest rate as of June 30, 2019 was 3.56%.


(2)	Original borrowings under the subordinated notes totaled $383.4 million, with various maturity dates ranging from July 2028 to April 2032. The notes do not have contractual interest rates, instead holders of the notes receive distributions from the excess cash flows generated by each Consolidated CLO.

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

Credit Facilities of the Consolidated Funds

Certain Consolidated Funds maintain credit facilities to fund investments between capital drawdowns. These facilities generally are collateralized by the unfunded capital commitments of the Consolidated Funds’ limited partners, bear an annual commitment fee based on unfunded commitments and contain various affirmative and negative covenants and reporting obligations, including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments and portfolio asset dispositions. The creditors of these facilities have no recourse to the Company and only have recourse to a subsidiary of the Company to the extent the debt is guaranteed by such subsidiary. Credit facilities of the Consolidated Funds are reflected at cost in the Condensed Consolidated Statements of Financial Condition. As of June 30, 2019 and December 31, 2018, the Consolidated Funds were in compliance with all covenants under such credit facilities.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

The Consolidated Funds had the following revolving bank credit facilities and term loan outstanding as of June 30, 2019 and December 31, 2018:



				As of June 30, 2019				As of December 31, 2018
Consolidated Funds' Debt Facilities	Maturity Date	Total Capacity		Outstanding Loan(1)		Effective Rate		Outstanding Loan(1)		Effective Rate
Credit Facilities:
	1/1/2023	$	18,000	$	16,153	4.00%		$	14,953	3.98%
	12/29/2019(2)	28,033		28,033		1.55%	(3)	43,624		1.55%	(3)
	3/7/2020	71,500		71,500		3.47%		71,500		3.47%
	6/30/2021	200,375		—		N/A		38,844		1.00%	(3)
	7/15/2028	75,000		9,000		4.75%		39,000		4.75%
Revolving Term Loan	1/31/2022	1,900		1,424		8.07%		1,363		8.07%
Total borrowings of Consolidated Funds				$	126,110			$	209,284


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


(2)	On June 27, 2019, one of the Consolidated Funds amended the Credit Facility to, among other things, extend the maturity date from June 2019 to December 2019 and to reduce the facility size from €40.0 million to €24.6 million.


(3)	The effective rate is based on the three month EURIBOR or zero, whichever is higher, plus an applicable margin.

8. COMMITMENTS AND CONTINGENCIES

Indemnification Arrangements

Consistent with standard business practices in the normal course of business, the Company enters into contracts that contain indemnities for affiliates of the Company, persons acting on behalf of the Company or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the Company’s maximum exposure under these arrangements cannot be determined and has not been recorded in the Condensed Consolidated Statements of Financial Condition. As of June 30, 2019, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Commitments

As of June 30, 2019 and December 31, 2018, the Company had aggregate unfunded commitments of $304.1 million and $267.6 million, respectively.

ARCC Fee Waiver

In conjunction with ARCC's acquisition of American Capital, Ltd. (“ACAS”), the Company agreed to waive up to $10 million per quarter of ARCC's Part I Fees for ten calendar quarters, which began in the second quarter of 2017. ARCC Part I Fees will only be waived to the extent they are paid. The maximum amount of fees that may be waived in a quarter is $10 million, and if ARCC Part I Fees are less than $10 million in any single quarter, the shortfall will not carry over to subsequent quarters. As of June 30, 2019, there is one remaining quarter as part of the fee waiver agreement, with a maximum of $10 million in potential waivers. ARCC Part I Fees are reported net of the fee waiver.

Performance Income

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, 2019 and December 31, 2018, if the Company assumed all existing investments were worthless, the amount of performance income subject to potential repayment, net of tax, which may differ from the recognition of revenue, would have

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

been approximately $401.0 million and $469.0 million, respectively, of which approximately $297.5 million and $351.9 million, respectively, is reimbursable to the Company by certain professionals who are the recipients of such performance income. Management believes the possibility of all of the investments becoming worthless is remote. As of June 30, 2019 and December 31, 2018, if the funds were liquidated at their fair values, there would be $0.6 million and $0.4 million, respectively, of repayment obligations, so the Company recorded a contingent repayment liability as of each respective period that is presented on a gross basis within accrued carried interest within investments and performance related compensation payable 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.

Leases

The Company leases office space and certain office equipment. The Company's leases have remaining lease terms of one to 11 years. The tables below present certain supplemental quantitative disclosures regarding the Company's leases as of and for the period ending June 30, 2019:



	Classification	As of June 30, 2019
Operating lease assets	Right-of-use operating lease assets	$	152,579
Finance lease assets	Other assets(1)	1,313
Total lease assets		$	153,892

Operating lease liabilities	Right-of-use operating lease liabilities	$	179,192
Finance lease obligations	Accounts payable, accrued expenses and other liabilities	1,009
Total lease liabilities		$	180,201

(1)Finance lease assets are recorded net of accumulated amortization of $0.4 million as of June 30, 2019.



	Classification	Three months ended June 30, 2019		Six months ended June 30, 2019
Operating lease expense	General, administrative and other expenses	$	7,211	$	14,149
Finance lease expense:
Amortization of finance lease assets	General, administrative and other expenses	78		105
Interest on finance lease liabilities	Interest expense	8		21
Total lease expense		$	7,297	$	14,275



Maturity of lease liabilities	Operating Leases		Finance Leases
2019	$	16,006	$	32
2020	29,516		356
2021	28,627		356
2022	30,067		321
2023	26,923		—
After 2023	74,530		—
Total future payments	205,669		1,065
Less: interest	26,477		56
Total lease liabilities	$	179,192	$	1,009

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Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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



Lease term and discount rate	As of June 30, 2019
Weighted-average remaining lease terms (in years):
Operating leases	6.9
Finance leases	2.8
Weighted-average discount rate:
Operating leases	4.00	%
Finance leases	3.43	%



Other information	Six months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	15,313
Operating cash flows from finance leases	52
Financing cash flows from finance leases	264
Leased assets obtained in exchange for new finance lease liabilities	114
Leased assets obtained in exchange for new operating lease liabilities	47,866

9. RELATED PARTY TRANSACTIONS

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

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

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

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 income.

Performance income the Company earns from the funds can be distributed to professionals or their related entities 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.

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Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

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



	As of June 30,		As of December 31,
	2019		2018
Due from affiliates:
Management fees receivable from non-consolidated funds	$	174,668	$	151,455
Payments made on behalf of and amounts due from non-consolidated funds and employees	59,413		47,922
Due from affiliates—Company	$	234,081	$	199,377
Amounts due from portfolio companies and non-consolidated funds	$	15,888	$	17,609
Due from affiliates—Consolidated Funds	$	15,888	$	17,609
Due to affiliates:
Management fee rebate payable to non-consolidated funds	$	2,125	$	2,105
Management fees received in advance	3,724		5,491
Tax receivable agreement liability	24,927		24,927
Undistributed carried interest and incentive fees	25,700		31,162
Payments made by non-consolidated funds on behalf of and payable by the Company	9,051		18,726
Due to affiliates—Company	$	65,527	$	82,411

Due from Ares Funds and Portfolio Companies

In the normal course of business, the Company pays certain expenses on behalf of Consolidated Funds and non-consolidated funds for which it is reimbursed. Amounts advanced on behalf of Consolidated Funds are eliminated in consolidation. Certain expenses initially paid by the Company, primarily professional services, travel and other costs associated with particular portfolio company holdings, are subject to reimbursement by the portfolio companies. The Company reimbursed ARCC approximately $0.6 million for certain recurring rent and utilities incurred by ARCC during the first quarter of 2018. In addition, in the second quarter ended June 30, 2018, the Company reimbursed ARCC approximately $2.2 million, $3.0 million, $3.2 million and $2.9 million of rent and utilities for the years ended 2017, 2016, 2015 and 2014, respectively, for an aggregate reimbursement to ARCC of $11.8 million. Beginning April 1, 2018, the Company directly incurs these expenses.

ARCC Investment Advisory and Management Agreement

In connection with ARCC's board approval of the modification of the asset coverage requirement applicable to senior securities from 200% to 150% effective on June 21, 2019, the investment advisory and management agreement was amended effective June 6, 2019 to reduce the annual base management fee paid to the Company from 1.5% to 1.0% on all assets financed using leverage over 1.0 times debt to equity.

10. INCOME TAXES

Effective March 1, 2018, the Company elected to be treated as a corporation for U.S. federal and state income tax purposes (the “Tax Election”). Upon the effectiveness of this election, all earnings are 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). Prior to March 1, 2018, a substantial portion of the Company's share of carried interest and investment income flowed through to investors without being subject to corporate level income taxes. Consequently, the Company did not reflect a provision for income taxes on such income except those for foreign, state and local income taxes incurred at the entity level. Beginning March 1, 2018, the Company's share of unrealized gains and income items became subject to U.S. corporate tax.

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The Company’s income tax provision includes corporate income taxes and other entity level income taxes, as well as income taxes incurred by certain affiliated funds that are consolidated in these financial statements. For the three and six months ended June 30, 2019, the Company recorded income tax expense of $9.5 million and $23.9 million, respectively. For the three and six months ended June 30, 2018, the Company recorded income tax expense of $36.9 million and $24.5 million, respectively. In connection with its election to be taxed as a corporation effective March 1, 2018, the Company recorded a significant one-time deferred tax liability arising from the embedded net unrealized gains of both carried interest and the investment portfolio that were not previously subject to corporate taxes.

The Company’s effective income tax rate is dependent on many factors, including the estimated nature and amounts of income and expenses allocated to the non-controlling interests without being subject to federal, state and local income taxes at the corporate level. Additionally, the Company’s effective tax rate is influenced by the amount of income tax provision recorded for any affiliated funds and co-investment entities that are consolidated in the Company's condensed consolidated financial statements. For the three and six months ended June 30, 2019, the Company recorded its interim income tax provision utilizing the estimated annual effective tax rate. In 2018, the Company utilized the discrete effective tax rate method to calculate its interim income tax provision since the conversion to a U.S. corporation for tax purposes occurred in an interim period.

The income tax effects of temporary differences give rise to significant portions of deferred tax assets and liabilities, which are presented on a net basis. As of June 30, 2019 and December 31, 2018, the Company recorded a net deferred tax asset of $42.4 million and $42.1 million, respectively, within other assets in the Condensed Consolidated Statements of Financial Condition.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal, state, local and foreign tax authorities. With limited exceptions, the Company is no longer subject to income tax audits by taxing authorities for any years prior to 2015. 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.

11. EARNINGS PER SHARE

Basic earnings per share of Class A common stock is computed by using the two-class method. Diluted earnings per share of Class A common stock is computed using the more dilutive method of either the two-class method or the treasury stock method. For the three and six months ended June 30, 2019, the treasury stock method was the more dilutive method. For the three and six months ended June 30, 2018, the two-class method was the more dilutive method.

The computation of diluted earnings per share for the three and six months ended June 30, 2019 and 2018 excludes the following options, restricted units and AOG Units, as their effect would have been anti-dilutive:



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2019	2018	2019	2018
Options	9,841,385	19,111,390	10,788,784	19,471,589
Restricted units	9,172,641	15,271,381	10,036,334	15,811,964
AOG Units	116,831,583	120,231,237	116,913,353	124,211,007

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

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Net income (loss) attributable to Ares Management Corporation Class A common stockholders	$	26,714		$	(17,200	)	$	66,238		$	18,323
Distributions on participating unvested restricted units	(1,886		)	(1,970		)	(3,693		)	(3,877		)
Net income (loss) available to Class A common stockholders	$	24,828		$	(19,170	)	$	62,545		$	14,446
Basic weighted-average shares of Class A common stock	105,188,966			98,037,252			104,054,035			91,861,946
Basic earnings (loss) per share of Class A common stock	$	0.24		$	(0.20	)	$	0.60		$	0.16
Net income (loss) attributable to Ares Management Corporation Class A common stockholders	$	26,714		$	(17,200	)	$	66,238		$	18,323
Distributions on unvested restricted units	—			(1,970		)	—			(3,877		)
Net income (loss) available to Class A common stockholders	$	26,714		$	(19,170	)	$	66,238		$	14,446
Effect of dilutive shares:
Restricted units	7,212,754			—			6,349,061			—
Options	4,202,167			—			3,254,768			—
Diluted weighted-average shares of Class A common stock	116,603,887			98,037,252			113,657,864			91,861,946
Diluted earnings (loss) per share of Class A common stock	$	0.23		$	(0.20	)	$	0.58		$	0.16
Dividends declared and paid per Class A common stock	$	0.32		$	0.37		$	0.64		$	0.77

12. EQUITY COMPENSATION

Equity Incentive Plan

In 2014, the Company adopted the 2014 Equity Incentive Plan, as amended and restated on March 1, 2018 and as further amended and restated effective November 26, 2018 (the “Equity Incentive Plan”). Based on a formula as defined in the Equity Incentive Plan, the total number of shares available to be issued under the Equity Incentive Plan resets and may increase on January 1 each year. Accordingly, on January 1, 2019, the total number of shares available for issuance under the Equity Incentive Plan reset to 32,792,005 shares, and as of June 30, 2019, 29,536,100 shares remain available for issuance.

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

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



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Restricted units	$	21,783	$	18,516	$	44,796	$	36,547
Restricted units with a market condition	901		—		1,791		—
Options	1,157		3,630		4,258		6,293
Phantom shares	188		361		736		754
Equity-based compensation expense	$	24,029	$	22,507	$	51,581	$	43,594

Restricted Units

Each restricted unit represents an unfunded, unsecured right of the holder to receive a share of the Company's Class A common stock on a specific date. The restricted units generally vest and are settled in shares of Class A common stock either (i) at a rate of one‑third per year, beginning on the third anniversary of the grant date, (ii) in their entirety on the fifth anniversary of the

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grant date, (iii) at a rate of one quarter per year, beginning on either the first or second anniversary of the grant date or the holder's employment commencement date, or (iv) at a rate of one third per year, beginning on the first anniversary of the grant date in each case generally subject to the holder’s continued employment as of the applicable vesting date (subject to accelerated vesting upon certain qualifying terminations of employment). 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 other than the market condition awards described below generally have the right to receive as current compensation an amount in cash equal to (i) the amount of any dividend paid with respect to a share of Class A common stock multiplied by (ii) the number of restricted units held at the time such dividends are declared (“Dividend Equivalent”). During the six months ended June 30, 2019, the Company declared dividends of $0.32 and $0.32 per share to Class A common stockholders at the close of business on March 15, 2019 and June 14, 2019, respectively. For the three and six months ended June 30, 2019, Dividend Equivalents were made to the holders of restricted units in the aggregate amount of $5.2 million and $10.8 million, respectively, which are presented as dividends within the Condensed Consolidated Statements of Changes in Equity. When units are forfeited, the cumulative amount of dividend equivalents previously paid is reclassified to compensation and benefits expense in the Condensed Consolidated Statements of Operations.

The following table presents unvested restricted units' activity during the six months ended June 30, 2019:



	Restricted Units		Weighted Average Grant Date Fair Value Per Unit
Balance - January 1, 2019	16,255,475		$	19.21
Granted	3,881,203		20.01
Vested	(3,534,621	)	17.92
Forfeited	(216,662	)	19.21
Balance - June 30, 2019	16,385,395		$	19.68

The total compensation expense expected to be recognized in all future periods associated with the restricted units is approximately $229.0 million as of June 30, 2019 and is expected to be recognized over the remaining weighted average period of 3.08 years.

Restricted Unit Awards with a Market Condition

The following table presents the unvested market condition awards' activity during the six months ended June 30, 2019:



	Market Condition Awards Units	Weighted Average Grant Date Fair Value Per Unit
Balance - January 1, 2019	1,333,334	$	9.30
Granted	—	—
Vested	—	—
Forfeited	—	—
Balance - June 30, 2019	1,333,334	$	9.30

The total compensation expense expected to be recognized in all future periods associated with the market condition awards is approximately $9.1 million as of June 30, 2019 and is expected to be recognized over the remaining weighted average period of 2.66 years.

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

Options

A summary of options activity during the six months ended June 30, 2019 is presented below:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)	Aggregate Intrinsic Value
Balance - January 1, 2019	18,741,504		$	18.99	4.88	$	—
Exercised	(4,289,316	)	19.00		—	—
Expired	(366,366	)	19.00		—	—
Forfeited	(42,270	)	19.00		—	—
Balance - June 30, 2019	14,043,552		$	18.99	4.75	$	100,858
Exercisable at June 30, 2019	13,933,735		$	18.99	4.74	$	100,015

Net cash proceeds from exercises of stock options were $78.8 million for the six months ended June 30, 2019. The Company realized tax benefits of approximately $3.3 million from those exercises.

Phantom Shares

A summary of unvested phantom shares' activity during the six months ended June 30, 2019 is presented below:



	Phantom Shares		Weighted Average Grant Date Fair Value Per Share
Balance - January 1, 2019	66,287		$	19.00
Vested	(61,502	)	19.00
Forfeited	(4,785	)	19.00
Balance - June 30, 2019	—		$	—

During the six months ended June 30, 2019 the Company paid $1.5 million to settle vested phantom shares.

13. EQUITY

Common Stock

The Company completed its conversion from a Delaware limited partnership to a Delaware corporation (the "Conversion") effective on November 26, 2018. Prior to the Conversion, common shares represented limited partnership interests in the Company. The holders of common shares were entitled to participate pro rata in distributions from the Company and to exercise the rights or privileges that were available to common shareholders under the Company’s limited partnership agreement. The common shareholders had limited voting rights and had no right to remove the Company’s general partner, Ares Management GP LLC, or, except in limited circumstances, to elect the directors of the general partner.

Since the Conversion on November 26, 2018, the Company's common stock consists of Class A, Class B and Class C common stock. As a result of the Conversion on November 26, 2018, (i) each outstanding common share representing limited partner interests in the Company before the Conversion converted into one issued and outstanding, fully paid and nonassessable share of Class A common stock, $0.01 par value per share, of the Company, (ii) the general partner share of the Company before the Conversion converted into 1,000 issued and outstanding, fully paid and nonassessable shares of Class B common stock, $0.01 par value per share, of the Company and (iii) the special voting share of the Company before the Conversion converted into one issued and outstanding, fully paid and nonassessable share, of Class C common stock, $0.01 par value per share, of the Company.

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

The Class B common stock and Class C common stock are non-economic and holders are not entitled to (i) dividends from the Company or (ii) receive any assets of the Company in the event of any dissolution, liquidation or winding up of the Company. Ares Management GP LLC is the sole holder of the Class B common stock and Ares Voting LLC is the sole holder of the Class C common stock.

In February 2019, the Company's board of directors authorized the repurchase of up to $150 million of shares of Class

A common stock. Under this stock repurchase program, shares may be repurchased from time to time in open market purchases,

privately negotiated transactions or otherwise, including in reliance on Rule 10b5-1 of the Securities Act. The program is scheduled to expire in February 2020. Repurchases under the program, if any, will depend on the prevailing market conditions and other factors. During the three and six months ended June 30, 2019, the Company repurchased 0.4 million shares as part of the stock repurchase program at a total cost of $10.4 million. As of June 30, 2019, the amount remaining available for repurchases under the program was $139.6 million.

The following table presents the changes in each class of common stock for the six months ended June 30, 2019:



	Class A Common Stock		Class B Common Stock	Class C Common Stock	Total
Balance - January 1, 2019	101,594,095		1,000	1	101,595,096
Exchanges of AOG Units	97,493		—	—	97,493
Stock option exercises	4,168,449		—	—	4,168,449
Repurchases of stock	(400,000	)	—	—	(400,000	)
Vesting of restricted stock awards	1,998,272		—	—	1,998,272
Balance outstanding - June 30, 2019	107,458,309		1,000	1	107,459,310

The following table presents each partner's AOG Units and corresponding ownership interest in each of the Ares Operating Group entities as of June 30, 2019 and December 31, 2018, as well as its daily average ownership of AOG Units in each of the Ares Operating Group entities for the three and six months ended June 30, 2019 and 2018.



							Daily Average Ownership
	As of June 30, 2019			As of December 31, 2018			For the Three Months Ended June 30,				For the Six Months Ended June 30,
	AOG Units	Direct Ownership Interest		AOG Units	Direct Ownership Interest		2019		2018		2019		2018
Ares Management Corporation	107,458,309	47.94	%	101,594,095	46.47	%	47.38	%	44.92	%	47.09	%	42.51	%
Ares Owners Holding L.P.	116,707,849	52.06	%	117,019,274	53.53	%	52.62	%	53.82	%	52.91	%	54.4	%
Affiliate of Alleghany Corporation	—	—	%	—	—	%	—	%	1.26	%	—	%	3.09	%
Total	224,166,158	100.00	%	218,613,369	100.00	%

Preferred Stock

In connection with the Conversion on November 26, 2018, each 7.00% Series A preferred share of the Company before the Conversion was converted into one share of 7.00% Series A Preferred Stock, $0.01 par value per share of the Company. As of June 30, 2019 and December 31, 2018, the Company had 12,400,000 shares of the Series A Preferred Stock outstanding. When, as and if declared by the Company’s board of directors, dividends on the Series A Preferred Stock are payable quarterly at a rate per annum equal to 7.00%. The Series A Preferred Stock 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 per share of $25.00.

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14. SEGMENT REPORTING

The Company operates through its three distinct operating segments. During the six months ended June 30, 2019, the Company reclassified certain expenses from OMG to its operating segments. The Company has modified historical results to conform with its current presentation.

The Company’s three 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 $105.5 billion of AUM and 170 funds as of June 30, 2019. The Credit Group offers a range of credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, credit opportunities, alternative 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 capitalizes 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 focuses on liquid, traded non-investment grade secured loans to corporate borrowers. 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 alternative credit strategy seeks investment opportunities that fall outside of traditional, well-defined markets such as corporate debt, real estate and private equity. Alternative credit investments include certain structural features designed to protect value and minimize loss such as asset security, seniority, covenants, and cash flow prioritization. These investments include asset-backed securities, specialty assets, real assets, and structured credit. The Company has one of the largest self-originating direct lending platforms in the U.S. and European middle markets, providing one-stop financing solutions for small-to-medium sized companies, which the Company believes are increasingly underserved by traditional lenders. The Company provides investors access to these capabilities through several vehicles, including commingled funds, separately managed accounts and a publicly traded vehicle. The Credit Group conducts its U.S. direct lending activities primarily through ARCC, the largest business development company as of June 30, 2019, 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 $24.7 billion of AUM as of June 30, 2019, broadly categorizing its investment strategies as corporate private equity, infrastructure and power, special opportunities and energy opportunities. As of June 30, 2019 the group managed five corporate private equity commingled funds focused on North America and Europe and three focused on greater China, five commingled funds and six related co-investment vehicles focused on infrastructure and power, three commingled special opportunities funds and the Company's first energy opportunities fund. In its North American and European flexible capital corporate private equity 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 infrastructure and power strategy targets infrastructure-related assets across the power generation, transmission, midstream sectors and renewables seeking attractive risk-adjusted equity returns with current cash flow and capital appreciation. The special opportunities 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 energy opportunities strategy targets investments in the energy industry where its flexible capital can provide attractive risk-adjusted returns while mitigating commodity risk.

Real Estate Group: The Company’s Real Estate Group manages comprehensive equity and debt strategies, with approximately $11.9 billion of AUM across 45 funds as of June 30, 2019. 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 properties 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 properties 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

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Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

investments on properties that 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 OMG that consists of shared resource groups to support the Company’s operating segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, strategy and relationship management, 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.

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

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

Realized income (“RI”), a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of the Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that the Company believes are not indicative of operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded from RI but are amortized to match the period over which management fees are recognized. Management believes RI is a more appropriate metric to evaluate the Company's current business operations.

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

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share 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, 2019:



	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $39,157)	$	172,347		$	52,162		$	21,770		$	246,279		$	—		$	246,279
Other fees	3,939			—			672			4,611			—			4,611
Compensation and benefits	(64,965		)	(21,291		)	(11,928		)	(98,184		)	(33,994		)	(132,178		)
General, administrative and other expenses	(13,381		)	(4,912		)	(3,523		)	(21,816		)	(19,874		)	(41,690		)
Fee related earnings	97,940			25,959			6,991			130,890			(53,868		)	77,022
Performance income—realized	15,959			18,369			1,666			35,994			—			35,994
Performance related compensation—realized	(9,564		)	(14,696		)	(969		)	(25,229		)	—			(25,229		)
Realized net performance income	6,395			3,673			697			10,765			—			10,765
Investment income (loss)—realized	(310		)	1,030			1,546			2,266			—			2,266
Interest and other investment income (expense) —realized	4,631			3,318			2,119			10,068			(17		)	10,051
Interest expense	(1,908		)	(2,436		)	(1,050		)	(5,394		)	(399		)	(5,793		)
Realized net investment income (loss)	2,413			1,912			2,615			6,940			(416		)	6,524
Realized income	$	106,748		$	31,544		$	10,303		$	148,595		$	(54,284	)	$	94,311

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, 2018:



	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $29,866)	$	135,848		$	49,318		$	17,138		$	202,304		$	—		$	202,304
Other fees	6,877			337			7			7,221			—			7,221
Compensation and benefits	(52,271		)	(18,672		)	(8,768		)	(79,711		)	(30,680		)	(110,391		)
General, administrative and other expenses	(11,294		)	(4,175		)	(2,391		)	(17,860		)	(19,236		)	(37,096		)
Fee related earnings	79,160			26,808			5,986			111,954			(49,916		)	62,038
Performance income—realized	41,672			80,415			521			122,608			—			122,608
Performance related compensation—realized	(23,577		)	(64,311		)	7			(87,881		)	—			(87,881		)
Realized net performance income	18,095			16,104			528			34,727			—			34,727
Investment income (loss)—realized	595			9,016			(250		)	9,361			798			10,159
Interest and other investment income—realized	3,035			2,920			667			6,622			584			7,206
Interest expense	(3,596		)	(1,440		)	(452		)	(5,488		)	(588		)	(6,076		)
Realized net investment income (loss)	34			10,496			(35		)	10,495			794			11,289
Realized income	$	97,289		$	53,408		$	6,479		$	157,176		$	(49,122	)	$	108,054

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share 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, 2019:



	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $77,550)	$	335,313		$	103,558		$	40,420		$	479,291		$	—		$	479,291
Other fees	7,005			—			681			7,686			—			7,686
Compensation and benefits	(125,313		)	(42,487		)	(21,212		)	(189,012		)	(66,655		)	(255,667		)
General, administrative and other expenses	(26,886		)	(8,969		)	(6,655		)	(42,510		)	(40,506		)	(83,016		)
Fee related earnings	190,119			52,102			13,234			255,455			(107,161		)	148,294
Performance income—realized	37,884			62,492			4,191			104,567			—			104,567
Performance related compensation—realized	(22,227		)	(49,993		)	(2,226		)	(74,446		)	—			(74,446		)
Realized net performance income	15,657			12,499			1,965			30,121			—			30,121
Investment income—realized	548			11,966			5,026			17,540			—			17,540
Interest and other investment income (expense) —realized	7,536			3,612			3,224			14,372			(2		)	14,370
Interest expense	(3,807		)	(4,611		)	(2,169		)	(10,587		)	(795		)	(11,382		)
Realized net investment income (loss)	4,277			10,967			6,081			21,325			(797		)	20,528
Realized income	$	210,053		$	75,568		$	21,280		$	306,901		$	(107,958	)	$	198,943

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, 2018:



	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $58,283)	$	267,614		$	99,205		$	32,311		$	399,130		$	—		$	399,130
Other fees	12,607			677			10			13,294			—			13,294
Compensation and benefits	(102,965		)	(37,871		)	(16,407		)	(157,243		)	(60,872		)	(218,115		)
General, administrative and other expenses	(21,148		)	(8,216		)	(4,823		)	(34,187		)	(37,627		)	(71,814		)
Fee related earnings	156,108			53,795			11,091			220,994			(98,499		)	122,495
Performance income—realized	46,743			84,813			14,159			145,715			—			145,715
Performance related compensation—realized	(26,665		)	(67,871		)	(8,214		)	(102,750		)	—			(102,750		)
Realized net performance income	20,078			16,942			5,945			42,965			—			42,965
Investment income—realized	1,366			9,687			3,100			14,153			1,636			15,789
Interest and other investment income—realized	6,224			2,979			884			10,087			1,736			11,823
Interest expense	(8,269		)	(2,668		)	(872		)	(11,809		)	(1,136		)	(12,945		)
Realized net investment income (loss)	(679		)	9,998			3,112			12,431			2,236			14,667
Realized income	$	175,507		$	80,735		$	20,148		$	276,390		$	(96,263	)	$	180,127

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Segment revenues
Management fees (includes ARCC Part I Fees of $39,157, $77,550 and $29,866, $58,283 for the three and six months ended June 30, 2019 and 2018, respectively)	$	246,279		$	202,304		$	479,291		$	399,130
Other fees	4,611			7,221			7,686			13,294
Performance income—realized	35,994			122,608			104,567			145,715
Total segment revenues	$	286,884		$	332,133		$	591,544		$	558,139
Segment expenses
Compensation and benefits	$	98,184		$	79,711		$	189,012		$	157,243
General, administrative and other expenses	21,816			17,860			42,510			34,187
Performance related compensation—realized	25,229			87,881			74,446			102,750
Total segment expenses	$	145,229		$	185,452		$	305,968		$	294,180
Segment realized net investment income
Investment income—realized	$	2,266		$	9,361		$	17,540		$	14,153
Interest and other investment income- realized	10,068			6,622			14,372			10,087
Interest expense	(5,394		)	(5,488		)	(10,587		)	(11,809		)
Total segment realized net investment income	$	6,940		$	10,495		$	21,325		$	12,431

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Total consolidated revenue	$	384,822		$	204,163		$	862,019		$	470,252
Performance income-unrealized	(98,662		)	124,343			(245,237		)	89,225
Management fees of Consolidated Funds eliminated in consolidation	8,735			8,272			17,148			15,583
Incentive fees of Consolidated Funds eliminated in consolidation	4,750			4,000			5,184			4,000
Principal investment income of Consolidated Funds eliminated in consolidation	(4,265		)	12,851			(3,132		)	10,650
Administrative fees(1)	(6,602		)	(6,770		)	(13,204		)	(13,182		)
Performance income reclass(2)	(26		)	(31		)	580			(1,006		)
Principal investment income	(1,579		)	(14,722		)	(31,471		)	(17,430		)
Net (revenue) expense of non-controlling interests in consolidated subsidiaries	(289		)	27			(343		)	47
Total consolidation adjustments and reconciling items	(97,938		)	127,970			(270,475		)	87,887
Total segment revenue	$	286,884		$	332,133		$	591,544		$	558,139


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


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

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Total consolidated expenses	$	335,701		$	221,017		$	704,808		$	427,300
Performance related compensation-unrealized	(67,459		)	100,886			(174,762		)	89,877
Expenses of Consolidated Funds added in consolidation	(28,912		)	(47,382		)	(42,313		)	(56,011		)
Expenses of Consolidated Funds eliminated in consolidation	13,485			12,270			22,332			19,583
Administrative fees(1)	(6,602		)	(6,770		)	(13,204		)	(13,182		)
OMG expenses	(53,868		)	(49,916		)	(107,161		)	(98,499		)
Acquisition and merger-related expense	(4,207		)	(47		)	(5,980		)	272
Equity compensation expense	(24,029		)	(22,507		)	(51,581		)	(43,594		)
Unamortized placement fees	(12,432		)	(1,852		)	(12,953		)	(3,516		)
Depreciation and amortization expense	(5,221		)	(7,711		)	(11,045		)	(14,887		)
Other expense(2)	—			(11,836		)	—			(11,836		)
Expense of non-controlling interests in consolidated subsidiaries	(1,227		)	(700		)	(2,173		)	(1,327		)
Total consolidation adjustments and reconciling items	(190,472		)	(35,565		)	(398,840		)	(133,120		)
Total segment expenses	$	145,229		$	185,452		$	305,968		$	294,180


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


(2)	2018 period includes $11.8 million payment to ARCC for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Total consolidated other income	$	35,262		$	67,926		$	63,132		$	70,166
Investment (income) loss - unrealized	7,618			(1,382		)	(8,565		)	4,269
Interest and other investment (income) loss - unrealized	(4,628		)	1,373			350			1,296
Other expense from Consolidated Funds added in consolidation, net	(33,008		)	(69,193		)	(64,215		)	(76,445		)
Other (income) expense from Consolidated Funds eliminated in consolidation, net	282			(993		)	(90		)	(534		)
OMG other income	(188		)	(3,699		)	(158		)	(6,467		)
Performance income reclass(1)	26			31			(580		)	1,006
Principal investment income	1,579			14,722			31,471			17,430
Other expense, net	2			1,718			1			1,725
Other income of non-controlling interests in consolidated subsidiaries	(5		)	(8		)	(21		)	(15		)
Total consolidation adjustments and reconciling items	(28,322		)	(57,431		)	(41,807		)	(57,735		)
Total segment realized net investment income	$	6,940		$	10,495		$	21,325		$	12,431


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

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

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



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Income before taxes	$	84,383		$	51,072		$	220,343		$	113,118
Adjustments:
Depreciation and amortization expense	5,221			7,711			11,045			14,887
Equity compensation expense	24,029			22,507			51,581			43,594
Acquisition and merger-related expense	4,207			47			5,980			(272		)
Unamortized placement fees	12,432			1,852			12,953			3,516
OMG expense, net	53,680			46,217			107,003			92,032
Other expense, net(1)	2			13,554			1			13,561
Expense of non-controlling interests in consolidated subsidiaries	933			719			1,809			1,359
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(8,079		)	(9,951		)	(25,124		)	(10,318		)
Total performance income - unrealized	(98,662		)	124,343			(245,237		)	89,225
Total performance related compensation - unrealized	67,459			(100,886		)	174,762			(89,877		)
Total investment (income) loss - unrealized	2,990			(9		)	(8,215		)	5,565
Realized income	148,595			157,176			306,901			276,390
Total performance income - realized	(35,994		)	(122,608		)	(104,567		)	(145,715		)
Total performance related compensation - realized	25,229			87,881			74,446			102,750
Total investment income - realized	(6,940		)	(10,495		)	(21,325		)	(12,431		)
Fee related earnings	$	130,890		$	111,954		$	255,455		$	220,994


(1)	2018 period includes $11.8 million payment to ARCC for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

15. CONSOLIDATION

Investments in Consolidated Variable Interest Entities

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

Investments in Non-Consolidated Variable Interest Entities

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

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



	As of June 30,		As of December 31,
	2019		2018
Maximum exposure to loss attributable to the Company's investment in non-consolidated VIEs	$	224,154	$	222,477
Maximum exposure to loss attributable to the Company's investment in consolidated VIEs	197,296		186,455
Assets of consolidated VIEs	8,421,736		8,141,280
Liabilities of consolidated VIEs	7,634,429		7,479,383



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2019		2018		2019		2018
Net income attributable to non-controlling interests related to consolidated VIEs	$	8,346	$	9,882	$	25,970	$	10,249

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

Consolidating Schedules

The following supplemental financial information illustrates the consolidating effects of the Consolidated Funds on the Company's financial condition as of June 30, 2019 and December 31, 2018 and results from operations for the three and six months ended June 30, 2019 and 2018.



	As of June 30, 2019
	Consolidated Company Entities			Consolidated Funds		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	247,220		$	—	$	—		$	247,220
Investments (includes $1,071,954 of accrued carried interest)	1,763,338			—		(197,296		)	1,566,042
Due from affiliates	242,515			—		(8,434		)	234,081
Other assets	358,091			—		—			358,091
Right-of-use operating lease assets	152,579			—		—			152,579
Assets of Consolidated Funds
Cash and cash equivalents	—			376,328		—			376,328
Investments, at fair value	—			7,926,615		—			7,926,615
Due from affiliates	—			15,888		—			15,888
Receivable for securities sold	—			76,993		—			76,993
Other assets	—			25,912		—			25,912
Total assets	$	2,763,743		$	8,421,736	$	(205,730	)	$	10,979,749
Liabilities
Accounts payable, accrued expenses and other liabilities	$	76,838		$	—	$	—		$	76,838
Accrued compensation	114,936			—		—			114,936
Due to affiliates	65,527			—		—			65,527
Performance related compensation payable	772,592			—		—			772,592
Debt obligations	566,277			—		—			566,277
Right-of-use operating lease liabilities	179,192			—		—			179,192
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—			75,647		—			75,647
Due to affiliates	—			8,434		(8,434		)	—
Payable for securities purchased	—			369,465		—			369,465
CLO loan obligations, at fair value	—			7,054,773		(23,932		)	7,030,841
Fund borrowings	—			126,110		—			126,110
Total liabilities	1,775,362			7,634,429		(32,366		)	9,377,425
Commitments and contingencies
Non-controlling interest in Consolidated Funds	—			787,307		(173,364		)	613,943
Non-controlling interest in Ares Operating Group entities	352,882			—		—			352,882
Stockholders' Equity
Series A Preferred Stock, $0.01 par value, 1,000,000,000 shares authorized (12,400,000 shares issued and outstanding)	298,761			—		—			298,761
Class A common stock, $0.01 par value, 1,500,000,000 shares authorized (107,458,309 shares issued and outstanding)	1,075			—		—			1,075
Class B common stock, $0.01 par value, 1,000 shares authorized (1,000 shares issued and outstanding)	—			—		—			—
Class C common stock, $0.01 par value, 499,999,000 shares authorized (1 share issued and outstanding)	—			—		—			—
Additional paid-in-capital	379,789			—		—			379,789
Retained earnings	(35,247		)	—		—			(35,247		)
Accumulated other comprehensive loss, net of tax	(8,879		)	—		—			(8,879		)
Total stockholders' equity	635,499			—		—			635,499
Total equity	988,381			787,307		(173,364		)	1,602,324
Total liabilities, non-controlling interests and equity	$	2,763,743		$	8,421,736	$	(205,730	)	$	10,979,749

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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



	As of December 31, 2018
	Consolidated Company Entities			Consolidated Funds		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	110,247		$	—	$	—		$	110,247
Investments (includes $841,079 of accrued carried interest)	1,512,592			—		(186,455		)	1,326,137
Due from affiliates	207,924			—		(8,547		)	199,377
Other assets	377,651			—		—			377,651
Assets of Consolidated Funds
Cash and cash equivalents	—			384,644		—			384,644
Investments, at fair value	—			7,673,165		—			7,673,165
Due from affiliates	—			17,609		—			17,609
Receivable for securities sold	—			42,076		—			42,076
Other assets	—			23,786		—			23,786
Total assets	$	2,208,414		$	8,141,280	$	(195,002	)	$	10,154,692
Liabilities
Accounts payable, accrued expenses and other liabilities	$	83,221		$	—	$	—		$	83,221
Accrued compensation	29,389			—		—			29,389
Due to affiliates	82,411			—		—			82,411
Performance related compensation payable	641,737			—		—			641,737
Debt obligations	480,952			—		—			480,952
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—			83,876		—			83,876
Due to affiliates	—			8,547		(8,547		)	—
Payable for securities purchased	—			471,390		—			471,390
CLO loan obligations	—			6,706,286		(28,195		)	6,678,091
Fund borrowings	—			209,284		—			209,284
Total liabilities	1,317,710			7,479,383		(36,742		)	8,760,351
Commitments and contingencies
Non-controlling interest in Consolidated Funds	—			661,897		(158,260		)	503,637
Non-controlling interest in Ares Operating Group entities	302,780			—		—			302,780
Stockholders' Equity
Series A Preferred Stock, $0.01 par value, 1,000,000,000 shares authorized (12,400,000 units issued and outstanding)	298,761			—		—			298,761
Class A common stock, $0.01 par value, 1,500,000,000 shares authorized (101,594,095 shares issued and outstanding)	1,016			—		—			1,016
Class B common stock, $0.01 par value, 1,000 shares authorized (1,000 shares issued and outstanding)	—			—		—			—
Class C common stock, $0.01 par value, 499,999,000 shares authorized (1 share issued and outstanding)	—			—		—			—
Additional paid-in-capital	326,007			—		—			326,007
Retained earnings	(29,336		)	—		—			(29,336		)
Accumulated other comprehensive loss, net of taxes	(8,524		)	—		—			(8,524		)
Total stockholders' equity	587,924			—		—			587,924
Total equity	890,704			661,897		(158,260		)	1,394,341
Total liabilities, non-controlling interests and equity	$	2,208,414		$	8,141,280	$	(195,002	)	$	10,154,692

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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



	For the Three Months Ended June 30, 2019
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $39,157)	$	246,581		$	—		$	(8,735	)	$	237,846
Carried interest allocation	119,712			—			—			119,712
Incentive fees	14,970			—			(4,750		)	10,220
Principal investment income	1,579			—			4,265			5,844
Administrative, transaction and other fees	11,200			—			—			11,200
Total revenues	394,042			—			(9,220		)	384,822
Expenses
Compensation and benefits	162,170			—			—			162,170
Performance related compensation	92,688			—			—			92,688
General, administrative and other expense	65,416			—			—			65,416
Expenses of the Consolidated Funds	—			28,912			(13,485		)	15,427
Total expenses	320,274			28,912			(13,485		)	335,701
Other income (expense)
Net realized and unrealized gain on investments	927			—			(406		)	521
Interest and dividend income	2,324			—			(672		)	1,652
Interest expense	(5,793		)	—			—			(5,793		)
Other income, net	5,078			—			(281		)	4,797
Net realized and unrealized loss on investments of the Consolidated Funds	—			(486		)	370			(116		)
Interest and other income of the Consolidated Funds	—			102,206			—			102,206
Interest expense of the Consolidated Funds	—			(68,712		)	707			(68,005		)
Total other income	2,536			33,008			(282		)	35,262
Income before taxes	76,304			4,096			3,983			84,383
Income tax expense (benefit)	9,772			(267		)	—			9,505
Net income	66,532			4,363			3,983			74,878
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			4,363			3,983			8,346
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	34,393			—			—			34,393
Net income attributable to Ares Management Corporation	32,139			—			—			32,139
Less: Series A Preferred Stock dividends paid	5,425			—			—			5,425
Net income attributable to Ares Management Corporation Class A common stockholders	$	26,714		$	—		$	—		$	26,714

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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



	For the Three Months Ended June 30, 2018
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $29,866)	$	202,304		$	—		$	(8,272	)	$	194,032
Carried interest allocation	(13,444		)				—			(13,444		)
Incentive fees	11,740						(4,000		)	7,740
Principal investment income	14,722			—			(12,851		)	1,871
Administrative, transaction and other fees	13,964			—			—			13,964
Total revenues	229,286			—			(25,123		)	204,163
Expenses
Compensation and benefits	138,992			—			—			138,992
Performance related compensation	(13,005		)	—			—			(13,005		)
General, administrative and other expense	59,918			—			—			59,918
Expenses of the Consolidated Funds	—			47,382			(12,270		)	35,112
Total expenses	185,905			47,382			(12,270		)	221,017
Other income (expense)
Net realized and unrealized loss on investments	4,438			—			(1,171		)	3,267
Interest and dividend income	2,356			—			—			2,356
Interest expense	(6,076		)	—			—			(6,076		)
Other expense, net	(2,978		)	—			991			(1,987		)
Net realized and unrealized gain on investments of the Consolidated Funds	—			33,819			668			34,487
Interest and other income of the Consolidated Funds	—			92,633			—			92,633
Interest expense of the Consolidated Funds	—			(57,259		)	505			(56,754		)
Total other income (expense)	(2,260		)	69,193			993			67,926
Income before taxes	41,121			21,811			(11,860		)	51,072
Income tax expense	36,834			69			—			36,903
Net income	4,287			21,742			(11,860		)	14,169
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			21,742			(11,860		)	9,882
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	16,062			—			—			16,062
Net loss attributable to Ares Management L.P.	(11,775		)	—			—			(11,775		)
Less: Preferred equity dividends paid	5,425			—			—			5,425
Net loss attributable to Ares Management L.P. common shareholders	$	(17,200	)	$	—		$	—		$	(17,200	)

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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



	For the Six Months Ended June 30, 2019
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $77,550)	$	479,653		$	—		$	(17,148	)	$	462,505
Carried interest allocation	317,005			—			—			317,005
Incentive fees	32,219			—			(5,184		)	27,035
Principal investment income	31,471			—			3,132			34,603
Administrative, transaction and other fees	20,871			—			—			20,871
Total revenues	881,219			—			(19,200		)	862,019
Expenses
Compensation and benefits	319,016			—			—			319,016
Performance related compensation	249,208			—			—			249,208
General, administrative and other expense	116,603			—			—			116,603
Expenses of the Consolidated Funds	—			42,313			(22,332		)	19,981
Total expenses	684,827			42,313			(22,332		)	704,808
Other income (expense)
Net realized and unrealized gain on investments	5,351			—			(1,354		)	3,997
Interest and dividend income	4,648			—			(1,152		)	3,496
Interest expense	(11,382		)	—			—			(11,382		)
Other income, net	210			—			90			300
Net realized and unrealized gain on investments of the Consolidated Funds	—			3,262			986			4,248
Interest and other income of the Consolidated Funds	—			195,390			—			195,390
Interest expense of the Consolidated Funds	—			(134,437		)	1,520			(132,917		)
Total other income (expense)	(1,173		)	64,215			90			63,132
Income before taxes	195,219			21,902			3,222			220,343
Income tax expense (benefit)	24,735			(846		)	—			23,889
Net income	170,484			22,748			3,222			196,454
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			22,748			3,222			25,970
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	93,396			—			—			93,396
Net income attributable to Ares Management Corporation	77,088			—			—			77,088
Less: Series A Preferred Stock dividends paid	10,850			—			—			10,850
Net income attributable to Ares Management Corporation Class A common stockholders	$	66,238		$	—		$	—		$	66,238

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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



	For the Six Months Ended June 30, 2018
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $58,283)	$	399,130		$	—		$	(15,583	)	$	383,547
Carried interest allocation	40,685			—			—			40,685
Incentive fees	16,811			—			(4,000		)	12,811
Principal investment income	17,430			—			(10,650		)	6,780
Administrative, transaction and other fees	26,429			—			—			26,429
Total revenues	500,485			—			(30,233		)	470,252
Expenses
Compensation and benefits	273,631			—			—			273,631
Performance related compensation	12,873			—			—			12,873
General, administrative and other expense	104,368			—			—			104,368
Expenses of the Consolidated Funds	—			56,011			(19,583		)	36,428
Total expenses	390,872			56,011			(19,583		)	427,300
Other income (expense)
Net realized and unrealized gain on investments	3,260			—			(832		)	2,428
Interest and dividend income	5,703			—			—			5,703
Interest expense	(12,945		)	—			—			(12,945		)
Other expense, net	(2,831		)	—			533			(2,298		)
Net realized and unrealized gain on investments of the Consolidated Funds	—			21,367			35			21,402
Interest and other income of the Consolidated Funds	—			157,055			—			157,055
Interest expense of the Consolidated Funds	—			(101,977		)	798			(101,179		)
Total other income (expense)	(6,813		)	76,445			534			70,166
Income before taxes	102,800			20,434			(10,116		)	113,118
Income tax expense	24,459			69			—			24,528
Net income	78,341			20,365			(10,116		)	88,590
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			20,365			(10,116		)	10,249
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	49,168			—			—			49,168
Net income attributable to Ares Management L.P.	29,173			—			—			29,173
Less: Preferred equity dividends paid	10,850			—			—			10,850
Net income attributable to Ares Management L.P. common shareholders	$	18,323		$	—		$	—		$	18,323

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Ares Management Corporation

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

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

16. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after June 30, 2019 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 July 2019, the Company's board of directors declared a quarterly dividend of $0.32 per share of Class A common stock payable on September 30, 2019 to common stockholders of record at the close of business on September 16, 2019.

In July 2019, the Company's board of directors declared a quarterly dividend of $0.4375 per share of Series A Preferred Stock payable on September 30, 2019 to preferred stockholders of record at the close of business on September 15, 2019. As September 15, 2019 falls on a Sunday, the effective record date for the dividend will be Friday, September 13, 2019.

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

Ares Management Corporation is a Delaware corporation, which was formerly a limited partnership formed on November 15, 2013 and which converted to a Delaware corporation effective on November 26, 2018. Unless the context otherwise requires, references to “Ares,” “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of Ares Management Corporation and its consolidated subsidiaries. The following discussion analyzes the financial condition and results of operations of the Company. “Consolidated Funds” refers collectively to certain Ares‑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. Additional terms used by the Company are defined in the Glossary and throughout the Management's Discussion and Analysis in this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10‑Q and the audited consolidated financial statements and the related notes included in the 2018 Annual Report on Form 10-K of Ares Management Corporation.

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 investment manager that operates integrated businesses, which are our reportable segments. 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 unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. During the six months ended June 30, 2019, we reclassified certain expenses from OMG to our operating segments. Historical results have been modified to conform to the current period presentation.

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 primarily consist of management fees, carried interest allocation, incentive fees, as well as principal investment income, administrative expense reimbursements and transaction fees. 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. Carried interest allocation and incentive fees are based on certain specific hurdle rates as defined in the funds' applicable investment management or partnership agreements. Carried interest allocation and incentive fees are collectively referred to as performance income in our segment results and non-GAAP measures. Principal investment income consists of interest and dividend income and net realized and unrealized gain (loss) from the equity method investments that we manage. Other income (expense) typically represents investment income, realized gains (losses) and unrealized appreciation (depreciation) resulting from our other investments as well as investments of the Consolidated Funds. Interest expense is a component of other income (expense). We provide administrative services to certain of our affiliated funds that are presented within administrative, transaction and other fees for GAAP reporting but are netted against the respective expenses for segment reporting purposes. We also receive transaction fees from certain funds for activities related to fund transactions, such as loan originations. In accordance with GAAP, we are required to consolidate funds where we have a significant economic interest and substantive control rights. However, for segment reporting purposes, we present revenues, expenses and realized net investment income (loss) on a combined basis, which reflects the results of our reportable segments without giving effect to the consolidation of the funds. Accordingly, our segment revenues consist of management fees, other fees and realized performance income. Our segment expenses consist of compensation and benefits, general, administrative and other expenses and realized performance income compensation, net of administrative fees. Our segment realized net investment income (loss) consist of realized net investment income, interest and other realized investment income and interest expense.

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 performance throughout market cycles. As of June 30, 2019, approximately 72% of our assets under management were in funds with a remaining contractual life of three years or more, approximately 74% were in funds with an initial duration greater than seven years at time of closing and 89% of our management fees are derived from permanent capital, CLOs and closed end funds. Our funds have a stable base of committed capital enabling us to invest in assets with a long-term focus over different points in a market cycle and to take advantage of market volatility. However, our results of operations, including the fair value of our AUM, are affected by a variety of factors, particularly in the United States and Western Europe, including conditions in the global financial markets and the economic and political environments.

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U.S. credit markets experienced positive performance in the second quarter as Federal Reserve policy and stable credit conditions largely offset volatility from global trade tensions and increasing uncertainty surrounding future economic growth. The expectations of a potential rate cut contributed to higher leveraged loan and high yield bond prices. The CSLLI, a leveraged loan index, returned 1.6% in the second quarter of 2019 while the ICE BAML High Yield Master II Index, a high yield bond index, returned 2.6% in the second quarter of 2019.

European credit markets experienced similar performance behind accommodative statements from the European Central Bank and strong European corporate earnings. The Credit Suisse Western European Leveraged Loan Index returned 1.1% during the second quarter of 2019 while the ICE BAML European Currency High Yield Index returned 2.4%.

In the U.S., the S&P 500 Index continued its strong rally to start the year with the index growing 4.3% in the second quarter of 2019 bringing year to date appreciation to 18.5%. Outside the U.S., the global equity markets saw broad based appreciation as well with the MSCI All Country World ex USA Index increasing 3.0% in the second quarter of 2019 bringing year to date appreciation of 13.6%. The intermediated private equity auction market remains highly competitive and leveraged buy out purchase price multiples remained near historical highs during the second quarter of 2019. Amidst a significant expansion in the size of the corporate debt market, leverage levels continue to increase and are even higher when EBITDA-adjustments are taken into account. These dynamics have led to a significant compression in private equity risk premiums. We continue to believe careful company selection, a focus on high-quality assets and a differentiated view to drive value creation is of paramount importance in the current market environment.

European and U.S. real estate fundamentals and pricing appear to have held steady or improved over the second quarter of 2019. While the global macroeconomic backdrop is clouded by trade tensions among other geopolitical volatilities, European and U.S. property performance have been bolstered by consumer spending, low unemployment rates and accommodative central bank policies. Leverage continued to be accretive to property values and the availability of investment capital maintained transaction volumes. Across our targeted markets in both the U.S. and Europe, we continue to find opportunities to capitalize on our deep understanding of local market and overall industry dynamics to acquire and lend on commercial real estate.

Notwithstanding the potential opportunities represented by market volatility, future earnings, cash flows, dividend payments and distributions are affected by a range of factors, including realizations of our funds’ investments, which are subject to significant fluctuations from period to period.

Recent Transactions

On July 9, 2019, we expanded our existing insurance platform, Ares Insurance Solutions, through the launch of Aspida Financial (“Aspida”). Aspida entered into an agreement to acquire a Michigan-domiciled insurance company and its insurance operations for approximately $75 million in cash. The transaction is expected to close prior to the end of 2019, subject to regulatory approval and other closing conditions.

Consolidation and Deconsolidation of Ares Funds

Consolidated funds represented approximately 6.4% of our AUM as of June 30, 2019, 3.6% of our management fees and 1.5% of our performance income for the six months ended June 30, 2019. As of June 30, 2019, we consolidated 14 CLOs and eight private funds, and as of June 30, 2018, we consolidated 12 CLOs and nine private funds.

Our CLOs serve as long-term, non-recourse financing for debt investments and as a way to minimize refinancing and maturity risk and secure a fixed cost of funds over an underlying market interest rate. As of June 30, 2019, our maximum exposure of loss for CLO securities was $100.8 million.

The consolidation of these funds significantly impacted interest and other income of Consolidated Funds, interest expense of Consolidated Funds, net realized and unrealized gain (loss) on investments of Consolidated Funds and non-controlling interests in Consolidated Funds, among others, for the three and six months ended June 30, 2019 and 2018. Also, the consolidation of these funds typically has the impact of decreasing management fees, carried interest allocation and incentive fees reported under GAAP to the extent these are eliminated upon consolidation. For the actual impact that consolidation had on our results, see the Consolidating Schedules within Note 15, “Consolidation”, to our condensed consolidated financial statements included herein.

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The assets and liabilities of our Consolidated Funds are held within separate legal entities and, as a result, the liabilities of our Consolidated Funds are typically non-recourse to us. Generally, the consolidation of our Consolidated Funds has a significant gross-up effect on our assets, liabilities and cash flows but has no net effect on the net income attributable to us. 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 in our condensed consolidated financial statements.

We generally deconsolidate funds and CLOs when we are no longer deemed to have a controlling interest in the entity. During the six months ended June 30, 2019, two entities were liquidated/dissolved and two entities experienced a significant change in ownership that resulted in deconsolidation of the fund and CLO during the period. During the six months ended June 30, 2018, one entity was liquidated/dissolved and no non-VIEs experienced a significant change in ownership or control that resulted in deconsolidation during the period.

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

Managing Business Performance

Non‑GAAP Financial Measures

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


•	Fee Related Earnings (FRE)


•	Realized Income (RI)

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

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 (“AUM”) 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 of the assets of a fund less the liabilities of the fund.

For CLOs, our AUM is equal to initial principal amounts of notes adjusted for paydowns.

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The tables below provide rollforwards of our total AUM by segment for the three months ended June 30, 2019 and 2018 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 3/31/2019	$	101,076		$	23,778		$	11,810		$	136,664
Net new par/equity commitments	2,350			997			455			3,802
Net change in debt commitments	3,341			—			111			3,452
Distributions	(2,376		)	(559		)	(650		)	(3,585		)
Change in fund value	1,114			519			142			1,775
Balance at 6/30/2019	$	105,505		$	24,735		$	11,868		$	142,108
Average AUM(1)	$	103,292		$	24,257		$	11,840		$	139,389



	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 3/31/2018	$	77,310		$	24,303		$	10,896		$	112,509
Net new par/equity commitments	9,359			350			307			10,016
Net change in debt commitments	1,990			—			—			1,990
Distributions	(1,800		)	(1,039		)	(240		)	(3,079		)
Change in fund value	(1		)	(12		)	(53		)	(66		)
Balance at 6/30/2018	$	86,858		$	23,602		$	10,910		$	121,370
Average AUM(1)	$	82,085		$	23,953		$	10,904		$	116,942

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

The tables below provide rollforwards of our total AUM by segment for the six months ended June 30, 2019 and 2018 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 12/31/2018	$	95,836		$	23,487		$	11,340		$	130,663
Net new par/equity commitments	4,915			1,028			617			6,560
Net new debt commitments	6,306			—			583			6,889
Distributions	(3,724		)	(1,199		)	(989		)	(5,912		)
Change in fund value	2,172			1,419			317			3,908
Balance at 6/30/2019	$	105,505		$	24,735		$	11,868		$	142,108
Average AUM(1)	$	100,805		$	24,000		$	11,673		$	136,478



	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 12/31/2017	$	71,732		$	24,530		$	10,229		$	106,491
Net new par/equity commitments	12,459			363			1,164			13,986
Net new debt commitments	4,745			—			—			4,745
Distributions	(3,136		)	(1,321		)	(531		)	(4,988		)
Change in fund value	1,058			30			48			1,136
Balance at 6/30/2018	$	86,858		$	23,602		$	10,910		$	121,370
Average AUM(1)	$	78,634		$	24,145		$	10,679		$	113,458

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

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The components of our AUM, including the portion that is FPAUM, are presented below as of June 30, 2019 and 2018 (in millions):



AUM: $142,108	AUM: $121,370



FPAUM	AUM not yet earning fees	Non-fee paying(1)	General partner and affiliates

(1) Includes $7.8 billion and $7.0 billion of AUM of funds from which we indirectly earn management fees as of June 30, 2019 and 2018, respectively.

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

Fee Paying Assets Under Management

The following components generally comprise our FPAUM:


•	The amount of limited partner capital commitments for certain closed-end funds within the reinvestment period in the Credit Group, certain 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, 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


•	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.

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The tables below provide rollforwards of our total FPAUM by segment for the three months ended June 30, 2019 and 2018 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 3/31/2019	$	62,924		$	17,322		$	6,975		$	87,221
Commitments	1,570			—			279			1,849
Subscriptions/deployment/increase in leverage	2,695			188			402			3,285
Redemptions/distributions/decrease in leverage	(2,992		)	(324		)	(229		)	(3,545		)
Change in fund value	566			2			36			604
FPAUM Balance at 6/30/2019	$	64,763		$	17,188		$	7,463		$	89,414
Average FPAUM(1)	$	63,845		$	17,256		$	7,220		$	88,321



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 3/31/2018	$	51,540		$	16,663		$	6,751		$	74,954
Commitments	1,888			350			97			2,335
Subscriptions/deployment/increase in leverage	1,951			171			280			2,402
Redemptions/distributions/decrease in leverage	(2,109		)	(590		)	(115		)	(2,814		)
Change in fund value	66			(5		)	(50		)	11
FPAUM Balance at 6/30/2018	$	53,336		$	16,589		$	6,963		$	76,888
Average FPAUM(1)	$	52,439		$	16,627		$	6,858		$	75,924

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

The tables below provide rollforwards of our total FPAUM by segment for the six months ended June 30, 2019 and 2018 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 12/31/2018	$	57,847		$	17,071		$	6,952		$	81,870
Commitments	3,408			81			365			3,854
Subscriptions/deployment/increase in leverage	6,628			500			559			7,687
Redemptions/distributions/decrease in leverage	(4,457		)	(468		)	(410		)	(5,335		)
Change in fund value	1,471			4			(3		)	1,472
Change in fee basis	(134		)	—			—			(134		)
FPAUM Balance at 6/30/2019	$	64,763		$	17,188		$	7,463		$	89,414
Average FPAUM(1)	$	61,844		$	17,194		$	7,130		$	86,168



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 12/31/2017	$	49,450		$	16,858		$	6,189		$	72,497
Commitments	2,818			363			863			4,044
Subscriptions/deployment/increase in leverage	3,915			374			415			4,704
Redemptions/distributions/decrease in leverage	(3,334		)	(1,016		)	(298		)	(4,648		)
Change in fund value	494			10			(2		)	502
Change in fee basis	(7		)	—			(204		)	(211		)
FPAUM Balance at 6/30/2018	$	53,336		$	16,589		$	6,963		$	76,888
Average FPAUM(1)	$	51,443		$	16,703		$	6,635		$	74,781

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

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

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

IGAUM generally represents the AUM of our funds that are currently generating on a realized or unrealized basis, performance income. It generally represents the NAV or total assets of our funds, as applicable, for which we are entitled to receive performance income, excluding capital committed by us and our professionals (from which we generally do not earn performance income). With respect to ARCC's AUM, only ARCC Part II Fees may be generated from IGAUM.

The charts below present our IEAUM and IGAUM by segment as of June 30, 2019 and 2018 (in millions):



Credit	Private Equity	Real Estate

As of June 30, 2019 and 2018, our available capital, which we refer to as dry powder, was $37.1 billion and $33.3 billion, respectively, primarily attributable to our funds in the Credit Group.

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Management Fees Fund Duration

We view the duration of funds we manage as a metric to measure the stability of our future management fees. For the three months ended June 30, 2019 and 2018, 83% and 81%, respectively, of our unconsolidated management fees were attributable to funds with three or more years in duration. The charts below present the composition of our unconsolidated management fees by the initial fund duration for the three months ended June 30, 2019 and 2018:

Permanent Capital

3 to 6 years

7 to 9 years

10 or more years

Differentiated Managed Accounts⁽¹⁾

Fewer Than 3 years

Managed Accounts

(1) Differentiated managed accounts have been managed by the Company for longer than three years, are investing in illiquid strategies or are co-investments structured to pay management fees.

Fund Performance Metrics

Fund performance information for our investment funds considered to be “significant funds” is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. Our significant funds include those that contributed at least 1% of our total management fees for the six months ended June 30, 2019 or represented at least 1% of the Company’s total FPAUM as of June 30, 2019, and for which we have sole discretion for investment decisions within the fund. In addition to management fees, each of our significant funds may generate performance income upon the achievement of performance hurdles. The fund performance information reflected in this discussion and analysis is not indicative of our overall performance. An investment in Ares is not an investment in any of our funds. Past performance is not indicative of future results. As with any investment there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these funds or our other existing and future funds will achieve similar returns.

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Results of Operations

Consolidated Results of Operations

We consolidate funds where we are deemed to hold a controlling financial interest. The Consolidated Funds are not necessarily the same entities in each year presented due to changes in ownership, changes in limited partners' rights, and the creation and termination of funds. The consolidation of these funds had no effect on net income attributable to us for the periods presented. The following table and discussion sets forth information regarding our consolidated results of operations for the three and six months ended June 30, 2019 and 2018 ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Revenues
Management fees (includes ARCC Part I Fees of $39,157, $77,550 and $29,866, $58,283 for the three and six months ended June 30, 2019 and 2018, respectively)	$	237,846		$	194,032		$	43,814		23	%	$	462,505		$	383,547		$	78,958		21	%
Carried interest allocation	119,712			(13,444		)	133,156			NM		317,005			40,685			276,320			NM
Incentive fees	10,220			7,740			2,480			32	%	27,035			12,811			14,224			111	%
Principal investment income	5,844			1,871			3,973			212	%	34,603			6,780			27,823			NM
Administrative, transaction and other fees	11,200			13,964			(2,764		)	(20	)%	20,871			26,429			(5,558		)	(21	)%
Total revenues	384,822			204,163			180,659			88	%	862,019			470,252			391,767			83	%
Expenses
Compensation and benefits	162,170			138,992			(23,178		)	(17	)%	319,016			273,631			(45,385		)	(17	)%
Performance related compensation	92,688			(13,005		)	(105,693		)	NM		249,208			12,873			(236,335		)	NM
General, administrative and other expenses	65,416			59,918			(5,498		)	(9	)%	116,603			104,368			(12,235		)	(12	)%
Expenses of Consolidated Funds	15,427			35,112			19,685			56	%	19,981			36,428			16,447			45	%
Total expenses	335,701			221,017			(114,684		)	(52	)%	704,808			427,300			(277,508		)	(65	)%
Other income (expense)
Net realized and unrealized gain on investments	521			3,267			(2,746		)	(84	)%	3,997			2,428			1,569			65	%
Interest and dividend income	1,652			2,356			(704		)	(30	)%	3,496			5,703			(2,207		)	(39	)%
Interest expense	(5,793		)	(6,076		)	283			5	%	(11,382		)	(12,945		)	1,563			12	%
Other income (expense), net	4,797			(1,987		)	6,784			NM		300			(2,298		)	2,598			NM
Net realized and unrealized gain (loss) on investments of Consolidated Funds	(116		)	34,487			(34,603		)	NM		4,248			21,402			(17,154		)	(80	)%
Interest and other income of Consolidated Funds	102,206			92,633			9,573			10	%	195,390			157,055			38,335			24	%
Interest expense of Consolidated Funds	(68,005		)	(56,754		)	(11,251		)	(20	)%	(132,917		)	(101,179		)	(31,738		)	(31	)%
Total other income	35,262			67,926			(32,664		)	(48	)%	63,132			70,166			(7,034		)	(10	)%
Income before taxes	84,383			51,072			33,311			65	%	220,343			113,118			107,225			95	%
Income tax expense	9,505			36,903			27,398			74	%	23,889			24,528			639			3	%
Net income	74,878			14,169			60,709			NM		196,454			88,590			107,864			122	%
Less: Net income attributable to non-controlling interests in Consolidated Funds	8,346			9,882			(1,536		)	(16	)%	25,970			10,249			15,721			153	%
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	34,393			16,062			18,331			114	%	93,396			49,168			44,228			90	%
Net income (loss) attributable to Ares Management Corporation	32,139			(11,775		)	43,914			NM		77,088			29,173			47,915			164	%
Less: Series A Preferred Stock dividends paid	5,425			5,425			—			—	%	10,850			10,850			—			—	%
Net income (loss) attributable to Ares Management Corporation Class A common stockholders	$	26,714		$	(17,200	)	43,914			NM		$	66,238		$	18,323		47,915			262	%

NM - Not Meaningful

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The following section discusses the period-over-period fluctuations of our condensed consolidated results of operations for the three and six months ended June 30, 2019 compared to 2018.

Three and Six Months Ended June 30, 2019 Compared to Three and Six Months Ended June 30, 2018

Revenues

Management Fees. Total management fees increased by $43.8 million, or 23%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $79.0 million, or 21%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases in total management fees were primarily driven by increases in ARCC Part I Fees and by higher FPAUM from capital deployments and new commitments during the current year periods. For detail regarding the fluctuations of management fees within each of our segments see “—Results of Operations by Segment.”

Carried Interest Allocation. Carried interest allocation increased by $133.2 million to $119.7 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $276.3 million to $317.0 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

Carried interest allocation for the three and six months ended June 30, 2019 and 2018 was principally composed of the following (in millions):



	Three Months Ended June 30, 2019		Primary Drivers	Six Months Ended June 30, 2019		Primary Drivers
Credit funds	$	35.9	Nine direct lending funds with $8.3 billion of IGAUM as of June 30, 2019 generating returns in excess of their hurdle rates. Ares Capital Europe III, L.P. (“ACE III”) and Ares Capital Europe IV, L.P. (“ACE IV”) generated $6.8 million and $7.2 million of carried interest allocation during the period, respectively	$	72.7	Nine direct lending funds with $9.3 billion of IGAUM as of June 30, 2019 generating returns in excess of their hurdle rates. ACE III and ACE IV generated $20.0 million and $19.7 million of carried interest allocation during the period, respectively
Private equity funds	65.0		Increased fair value of Ares Corporate Opportunities Fund IV, L.P.'s (“ACOF IV”) investment in a portfolio company resulting from a pending sale of the company	209.1		Market appreciation of Ares Corporate Opportunities Fund III, L.P.'s (“ACOF III”) investment in Floor & Decor Holdings, Inc.(“Floor & Decor”); increased fair value of ACOF IV's investment in a portfolio company resulting from a pending sale of the company; and market appreciation across multiple ACOF IV portfolio companies
Real estate funds	18.8		Market appreciation from multiple properties within three of our U.S. real estate equity funds, Ares European Real Estate Fund IV L.P. (“EF IV”) and certain European real estate equity funds	35.2		Market appreciation from multiple properties within four of our U.S. real estate equity funds, EF IV and two European real estate equity funds
Carried interest allocation	$	119.7		$	317.0



	Three Months Ended June 30, 2018			Primary Drivers	Six Months Ended June 30, 2018			Primary Drivers
Credit funds	$	25.4		Seven direct lending funds with $4.5 billion of IGAUM as of June 30, 2018 generating returns in excess of their hurdle rates. ACE III generated $12.1 million of carried interest allocation during the period	$	41.5		Seven direct lending funds with $4.5 billion of IGAUM as of June 30, 2018 generating returns in excess of their hurdle rates. ACE III generated $22.8 million of carried interest allocation during the period
Private equity funds	(53.2		)	Reduction of fair value of an ACOF IV industrial portfolio company and market depreciation of ACOF III's investment in Floor & Decor	(27.7		)	Reductions of fair value of an ACOF IV industrial portfolio company and an Ares Energy Investors Fund V, L.P. (“EIF V”) asset; offset by market appreciation of ACOF III's investment in Floor & Decor
Real estate funds	14.4			Market appreciation from multiple properties within four of our U.S. real estate equity funds and EF IV	26.9			Market appreciation from multiple properties within six of our U.S. real estate equity funds, EF IV and a certain European real estate equity fund
Carried interest allocation	$	(13.4	)		$	40.7

Incentive Fees. Incentive fees increased by $2.5 million, or 32%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $14.2 million, or 111%, for the six months ended June 30, 2019 compared to the six

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months ended June 30, 2018. The increases were primarily driven by direct lending funds that did not generate incentive fees in the prior periods but generated returns in excess of hurdle rates in the current year periods.

Principal Investment Income. Principal investment income increased by $4.0 million to $5.8 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $27.8 million to $34.6 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increase for the three month comparative period was primarily driven by a higher fair value of our investment in ACOF IV as a result of a pending sale of ACOF IV's investment in a portfolio company. The increase for the six month comparative period was primarily driven by a higher fair value of our investment in ACOF III as a result of market appreciation of Floor & Decor, which benefited from the general equity market rebound during 2019 and by a higher fair value of our investment in ACOF IV as a result of a pending sale of ACOF IV's investment in a portfolio company.

Administrative, Transaction and Other Fees. Administrative fees and other fees decreased by $2.8 million, or 20%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $5.6 million, or 21%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decreases for the comparative periods were primarily driven by fewer transaction-based fees based on loan originations within certain funds in our Credit Group that will fluctuate periodically with the volume of syndicated loan originations and with the amount of capital available for deployment.

Expenses

Compensation and Benefits. Compensation and benefits expenses increased by $23.2 million, or 17%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $45.4 million, or 17%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily driven by higher incentive compensation attributable to management fee growth, 7% headcount growth, increases in ARCC Part I Fees compensation of $5.8 million and $11.7 million for the three and six month comparative periods, respectively, and increases in equity compensation.

Equity compensation expense increased by $1.5 million and $8.0 million for the three and six month comparative periods primarily due to additional restricted units granted as part of our annual bonus program and to certain retention awards, including new restricted units granted to our Chief Executive Officer subsequent to June 30, 2018. Additionally, our annual equity compensation bonus program commenced in 2016 with awards scheduled to vest over a four year service period. As such, equity compensation expense for the three and six months ended June 30, 2019 reflects expenses associated with four years of bonus grants, whereas equity compensation expense for the three and six months ended June 30, 2018 reflected only three years of bonus grants.

Performance Related Compensation. Performance related compensation increased by $105.7 million to $92.7 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $236.3 million to $249.2 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.The increases in performance related compensation are largely correlated with the respective increases in carried interest allocation and incentive fees.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $5.5 million, or 9%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $12.2 million, or 12%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily driven by higher placement fees of $11.7 million and $11.2 million for the three and six month comparative periods, respectively, largely from fees associated with the launch of a fund in our special opportunities strategy. Additionally, we recognized higher professional service fees of $5.2 million and $9.0 million for the three and six month comparative periods, respectively, largely as a result of professional services related to due diligence, marketing and legal expenses related to the expansion of our existing insurance platform. The prior year periods include an $11.8 million one-time reimbursement to ARCC for certain rent and utilities for the first quarter of 2018 and the years ended 2017, 2016, 2015 and 2014. Beginning in the second quarter of 2018, we began to incur certain expenses that were previously incurred by ARCC. These expenses resulted in approximately $3.5 million in recurring occupancy and marketing related expenses for the six months ended June 30, 2019.

Expenses of the Consolidated Funds. Expenses of the Consolidated Funds decreased by $19.7 million, or 56%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $16.4 million, or 45%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decreases were primarily driven by higher professional fees incurred during the prior year periods as a result of CLO debt issuances during those periods. These fees were expensed in the period incurred, as CLO debt is recorded at fair value on our Consolidated Statements of Financial Condition.

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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 realized and unrealized gain on investments. Net realized and unrealized gain on investments decreased by $2.7 million, or 84%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and increased by $1.6 million, or 65%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decrease for the three month comparative periods was primarily due to net gains on our non-core investments recognized during the prior year period. The increase for the six month comparative periods was primarily due to higher net gains on our CLO investments, which benefited from favorable market conditions during the current year period.

Interest and Dividend Income. Interest and dividend income decreased by $0.7 million, or 30%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $2.2 million, or 39%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. During the second quarter of 2018, we sold $219.3 million of our investments in our CLO securities primarily resulting in a decrease in interest income attributable to CLO securities for the comparative periods.

Interest Expense. Interest expense decreased by $0.3 million, or 5%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $1.6 million, or 12%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decreases for the comparative periods were primarily driven by the pay off of term loans we had entered into to finance certain investments in CLOs during the second quarter of 2018.

Other income (expense), net. Other income (expense), net increased from other expense, net of $2.0 million and $2.3 million for three and six months ended June 30, 2018, respectively, to other income, net of $4.8 million and $0.3 million for the three and six months ended June 30, 2019. The increases were primarily driven by transaction gains from the revaluation of certain assets and liabilities denominated in foreign currencies for the three and six months ended June 30, 2019. The transaction gains were primarily due to the strengthening of the U.S. dollar against the British pounds sterling and the Euro.

Net realized and unrealized gain (loss) on investments of Consolidated Funds. Net realized and unrealized gain (loss) on investments of Consolidated Funds decreased from net realized and unrealized gain on investments of Consolidated Funds of $34.5 million for three months ended June 30, 2018 to net realized and unrealized loss on investments of Consolidated Funds of $0.1 million. Net realized and unrealized gain on investments of Consolidated Funds decreased by $17.2 million, or 80%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decreases for the comparative periods were primarily due to lower market prices for certain investments in our Asian private equity fund during the current year periods.

Interest and Other Income of the Consolidated Funds. Interest and other income of the Consolidated Funds increased by $9.6 million, or 10%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $38.3 million, or 24%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily driven by additional interest paying assets from four CLOs that we began consolidating subsequent to June 30, 2018 resulting in an increase in interest income for the comparative periods.

Interest Expense of the Consolidated Funds. Interest expense of the Consolidated Funds increased by $11.3 million, or 20%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $31.7 million, or 31%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily the result of interest expense from the debt issued for four CLOs we began consolidating subsequent to June 30, 2018 resulting in an increase in interest expense for the comparative periods.

Income tax expense. Income tax expense decreased by $27.4 million, or 74%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and decreased by $0.6 million, or 3%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decreases in income tax expense were primarily driven by two significant one-time deferred tax items related to our election to be taxed as a corporation for U.S. federal income tax purposes during 2018. Income tax expense for the three months ended June 30, 2018 included a $28.9 million valuation allowance recorded during the period against a deferred tax asset, which was established during the three months ended March 31, 2018, effectively eliminating any impact on income tax expense for the six months ended June 30, 2018. The decrease in effective tax rate for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 was primarily driven by one-time deferred tax items from the embedded net unrealized gains of both carried interest and the investment portfolio that were not subject to corporate taxes prior to our election to be taxed as a corporation for U.S. federal income tax purposes during 2018.

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Non-Controlling Interests. Net income attributable to non-controlling interests in Ares Operating Group entities represents results attributable to the owners of AOG Units that are not held by Ares Management Corporation and is allocated based on the weighted average daily ownership of the AOG unitholders. The weighted average daily ownership for non-controlling AOG unitholders decreased from 55.1% and 57.5% for the three and six months ended June 30, 2018 to 52.6% and 52.9% for the three and six months ended June 30, 2019. The decreases in non–controlling ownership were primarily driven by stock option exercises during the three months ended June 30, 2019 and by vestings of restricted stock awards during the six months ended June 30, 2019.

Net income attributable to non-controlling interests in Ares Operating Group entities increased by $18.3 million, or 114%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $44.2 million, or 90%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018 . The increases were primarily a result of net income increasing at a greater rate than the decrease in non-controlling interests in Ares Operating Group entities.

Segment Analysis

For segment reporting purposes, revenues and expenses are presented on a basis before giving effect to the results of our Consolidated Funds. As a result, segment revenues from management fees, performance income and investment income are 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 different than related amounts presented on a consolidated basis in accordance with GAAP due to the exclusion of the results of Consolidated Funds.

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 our management to make operating decisions, assess performance and allocate resources.

FRE, RI and Other Measures

FRE and RI are non‑GAAP financial measures our management uses when making resource deployment decisions and in assessing performance of our segments. For definitions of each of these non-GAAP financial measures see the Glossary. The following table sets forth FRE and RI by segment for the three and six months ended June 30, 2019 and 2018 ($ in thousands):



	Three Months Ended						Favorable (Unfavorable)					Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)					June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Fee Related Earnings:
Credit Group	$	97,940		$	79,160		$	18,780		24	%	$	190,119		$	156,108		$	34,011		22	%
Private Equity Group	25,959			26,808			(849		)	(3	)%	52,102			53,795			(1,693		)	(3	)%
Real Estate Group	6,991			5,986			1,005			17	%	13,234			11,091			2,143			19	%
Operations Management Group	(53,868		)	(49,916		)	(3,952		)	(8	)%	(107,161		)	(98,499		)	(8,662		)	(9	)%
Fee Related Earnings	$	77,022		$	62,038		14,984			24	%	$	148,294		$	122,495		25,799			21	%
Realized Income:
Credit Group	$	106,748		$	97,289		9,459			10	%	$	210,053		$	175,507		34,546			20	%
Private Equity Group	31,544			53,408			(21,864		)	(41	)%	75,568			80,735			(5,167		)	(6	)%
Real Estate Group	10,303			6,479			3,824			59	%	21,280			20,148			1,132			6	%
Operations Management Group	(54,284		)	(49,122		)	(5,162		)	(11	)%	(107,958		)	(96,263		)	(11,695		)	(12	)%
Realized Income	$	94,311		$	108,054		(13,743		)	(13	)%	$	198,943		$	180,127		18,816			10	%

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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 RI and FRE. The following table presents the reconciliation of income before taxes as reported in the Condensed Consolidated Statements of Operations to RI and FRE (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
Income before taxes	$	84,383		$	51,072		$	220,343		$	113,118
Adjustments:
Depreciation and amortization expense	5,221			7,711			11,045			14,887
Equity compensation expense	24,029			22,507			51,581			43,594
Acquisition and merger-related expense	4,207			47			5,980			(272		)
Unamortized placement fees	12,432			1,852			12,953			3,516
Other expense, net	2			13,554			1			13,561
Expense of non-controlling interests in consolidated subsidiaries	933			719			1,809			1,359
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(8,079		)	(9,951		)	(25,124		)	(10,318		)
Unconsolidated performance income - unrealized	(98,662		)	124,343			(245,237		)	89,225
Unconsolidated performance related compensation - unrealized	67,459			(100,886		)	174,762			(89,877		)
Unconsolidated net investment (income) loss - unrealized	2,386			(2,914		)	(9,170		)	1,334
Realized Income	94,311			108,054			198,943			180,127
Unconsolidated performance income - realized	(35,994		)	(122,608		)	(104,567		)	(145,715		)
Unconsolidated performance related compensation - realized	25,229			87,881			74,446			102,750
Unconsolidated net investment income - realized	(6,524		)	(11,289		)	(20,528		)	(14,667		)
Fee Related Earnings	$	77,022		$	62,038		$	148,294		$	122,495

Results of Operations by Segment

Credit Group—Three and Six Months Ended June 30, 2019 Compared to Three and Six Months Ended June 30, 2018

Fee Related Earnings:

The following table presents the components of the Credit Group's FRE and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Management fees (includes ARCC Part I Fees of $39,157, $77,550 and $29,866, $58,283 for the three and six months ended June 30, 2019 and 2018, respectively)	$	172,347		$	135,848		$	36,499		27	%	$	335,313		$	267,614		$	67,699		25	%
Other fees	3,939			6,877			(2,938		)	(43	)%	7,005			12,607			(5,602		)	(44	)%
Compensation and benefits	(64,965		)	(52,271		)	(12,694		)	(24	)%	(125,313		)	(102,965		)	(22,348		)	(22	)%
General, administrative and other expenses	(13,381		)	(11,294		)	(2,087		)	(18	)%	(26,886		)	(21,148		)	(5,738		)	(27	)%
Fee Related Earnings	$	97,940		$	79,160		18,780			24	%	$	190,119		$	156,108		34,011			22	%

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Management Fees

The charts below present Credit Group management fees and effective management fee rates for the three and six months ended June 30, 2019 ($ in millions):

The increases in management fees were primarily driven by the following: (i) higher ARCC Part I Fees primarily due to increases in interest income from a higher average size and weighted average yield of ARCC's portfolio and due to increases in capital structuring service fees, which were primarily the result of a higher number of transactions with larger portfolio companies in larger issuances; (ii) additional capital deployment within funds in existence in both periods; (iii) the formation of 29 new funds subsequent to June 30, 2018 with FPAUM of $11.4 billion as of June 30, 2019, and (iv) offset by the liquidation of five funds subsequent to June 30, 2018 with FPAUM of $0.8 billion as of June 30, 2018. CLOs accounted for approximately 9.7% of the Credit Group's management fees for the three and six months ended June 30, 2019 and for approximately 10.0% of the Credit Group's management fees for the three and six months ended June 30, 2018.

The increases in the effective management fee rate were primarily due to increased ARCC Part I Fees and to new direct lending funds with higher effective fee rates for the three and six months ended June 30, 2019 compared to the three and six months ended June 30, 2018.

Other Fees. Other fees decreased by $2.9 million, or 43%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $5.6 million, or 44%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decreases were primarily driven by fewer transaction-based fees based on loan originations within certain funds that will fluctuate periodically with the volume of syndicated loan originations and with the amount of capital available for deployment.

Compensation and Benefits. Compensation and benefits expenses increased by $12.7 million, or 24%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $22.3 million, or 22%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily driven by higher compensation in connection with higher management fees for the comparative periods, 10% headcount growth and by increases in ARCC Part I Fees compensation of $5.8 million and $11.7 million for the three and six month comparative periods, respectively. We continue

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to hire investment professionals to support our growing U.S. and European direct lending FPAUM, which increased by 33% for the comparative periods.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $2.1 million, or 18%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $5.7 million, or 27%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Beginning in the second quarter of 2018, we began to incur certain expenses that were previously incurred by ARCC. These expenses resulted in approximately $3.5 million in recurring occupancy and marketing related expenses for the six months ended June 30, 2019. Additionally, we continue to invest in expanding our retail distribution footprint through a joint venture, which pays a third party broker for retail distribution services.

Realized Income:

The following table presents the components of the Credit Group's RI and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Fee Related Earnings	$	97,940		$	79,160		$	18,780		24	%	$	190,119		$	156,108		$	34,011		22	%
Performance income-realized	15,959			41,672			(25,713		)	(62	)%	37,884			46,743			(8,859		)	(19	)%
Performance related compensation-realized	(9,564		)	(23,577		)	14,013			59	%	(22,227		)	(26,665		)	4,438			17	%
Realized net performance income	6,395			18,095			(11,700		)	(65	)%	15,657			20,078			(4,421		)	(22	)%
Investment income (loss)-realized	(310		)	595			(905		)	NM		548			1,366			(818		)	(60	)%
Interest and other investment income-realized	4,631			3,035			1,596			53	%	7,536			6,224			1,312			21	%
Interest expense	(1,908		)	(3,596		)	1,688			47	%	(3,807		)	(8,269		)	4,462			54	%
Realized net investment income (loss)	2,413			34			2,379			NM		4,277			(679		)	4,956			NM
Realized Income	$	106,748		$	97,289		9,459			10	%	$	210,053		$	175,507		34,546			20	%

NM - Not meaningful

Realized income for the periods presented was composed of FRE, as explained above, realized net performance income and realized net investment income for the respective periods.

Realized net performance income decreased by $11.7 million, or 65%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $4.4 million, or 22%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Realized net performance income for the three and six months ended June 30, 2019 was principally composed of incentive fees from certain direct lending funds that are generating returns in excess of their hurdle rate. Realized net performance income for the three and six months ended June 30, 2018 was principally composed of incentive fees from certain direct lending funds that are generating returns in excess of their hurdle rate and tax distributions received from ACE III and certain other direct lending funds.

Realized net investment income increased by $2.4 million to $2.4 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018. Realized net investment loss of $0.7 million for the six months ended June 30, 2018 increased to realized net investment income of $4.3 million for the six months ended June 30, 2019. The increases were primarily driven by lower interest expense for the comparative periods as a result of decreases in the cost basis of investments on which interest expense is allocated.

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Credit Group— Carried Interest and Incentive Fees

Accrued carried interest and incentive fee receivables for the Credit Group are composed of the following (in thousands):



	As of June 30,		As of December 31,
	2019		2018
ACE III	$	78,331	$	63,338
ACE IV	28,194		8,517
CSF III	13,056		9,962
ARCC	—		50,246
PCS	37,657		21,009
Other credit funds	72,765		57,583
Total Credit Group	$	230,003	$	210,655

The change in accrued carried interest and incentive fee receivable for the comparative periods was primarily composed of the following: (i) a $66.5 million increase in unrealized carried interest allocation for six months ended June 30, 2019; (ii) $50.2 million of incentive fees realized in 2018 received during the six months ended June 30, 2019; and (iii) foreign currency translation and other adjustments. The following tables presents the components of incentive fees and carried interest allocation for the Credit Group for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30, 2019						Three Months Ended June 30, 2018
	Realized		Unrealized		Net		Realized		Unrealized			Net
ACE III	$	—	$	6,801	$	6,801	$	15,361	$	(3,298	)	$	12,063
ACE IV	—		7,229		7,229		—		—			—
CSF III	—		1,828		1,828		—		727			727
PCS	—		11,282		11,282		—		6,424			6,424
Other credit funds	15,959		7,764		23,723		26,311		(8,421		)	17,890
Total Credit Group	$	15,959	$	34,904	$	50,863	$	41,672	$	(4,568	)	$	37,104



	Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
	Realized		Unrealized		Net		Realized		Unrealized			Net
ACE III	$	4,706	$	15,256	$	19,962	$	15,361	$	7,469		$	22,830
ACE IV	—		19,702		19,702		—		—			—
CSF III	—		3,095		3,095		—		(275		)	(275		)
PCS	—		16,398		16,398		—		10,674			10,674
Other credit funds	33,178		12,085		45,263		31,382		(6,344		)	25,038
Total Credit Group	$	37,884	$	66,536	$	104,420	$	46,743	$	11,524		$	58,267

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Credit Group—Assets Under Management

The tables below provide rollforwards of AUM for the Credit Group for the three months ended June 30, 2019 and 2018 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
Balance at 3/31/2019	$	21,242		$	4,246		$	2,462		$	6,576		$	41,997		$	24,553		$	101,076
Net new par/equity commitments	419			21			91			700			1,119			—			2,350
Net change in debt commitments	(118		)	—			—			75			3,195			189			3,341
Distributions	(761		)	(876		)	(95		)	(75		)	(465		)	(104		)	(2,376		)
Change in fund value	142			103			39			63			446			321			1,114
Balance at 6/30/2019	$	20,924		$	3,494		$	2,497		$	7,339		$	46,292		$	24,959		$	105,505
Average AUM(1)	$	21,083		$	3,870		$	2,480		$	6,958		$	44,145		$	24,756		$	103,292



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
Balance at 3/31/2018	$	17,413		$	4,582		$	3,161		$	4,905		$	34,560		$	12,689		$	77,310
Net new par/equity commitments	27			56			36			914			1,210			7,116			9,359
Net new debt commitments	457			—			—			—			1,533			—			1,990
Distributions	(172		)	(295		)	(297		)	(73		)	(862		)	(101		)	(1,800		)
Change in fund value	(98		)	38			31			7			397			(376		)	(1		)
Balance at 6/30/2018	$	17,627		$	4,381		$	2,931		$	5,753		$	36,838		$	19,328		$	86,858
Average AUM(1)	$	17,520		$	4,482		$	3,046		$	5,329		$	35,699		$	16,009		$	82,085


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

The tables below provide rollforwards of AUM for the Credit Group for the six months ended June 30, 2019 and 2018 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
Balance at 12/31/2018	$	18,880		$	4,024		$	2,761		$	5,448		$	40,668		$	24,055		$	95,836
Net new par/equity commitments	834			75			(74		)	1,966			1,591			523			4,915
Net change in debt commitments	1,964			—			—			75			3,928			339			6,306
Distributions	(966		)	(979		)	(371		)	(327		)	(743		)	(338		)	(3,724		)
Change in fund value	212			374			181			177			848			380			2,172
Balance at 6/30/2019	$	20,924		$	3,494		$	2,497		$	7,339		$	46,292		$	24,959		$	105,505
Average AUM(1)	$	20,349		$	3,921		$	2,573		$	6,454		$	42,986		$	24,522		$	100,805



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
Balance at 12/31/2017	$	16,530		$	4,630		$	3,333		$	4,791		$	30,640		$	11,808		$	71,732
Net new par/equity commitments	130			200			39			974			3,781			7,335			12,459
Net new debt commitments	1,574			—			—			—			2,925			246			4,745
Distributions	(580		)	(453		)	(473		)	(76		)	(1,331		)	(223		)	(3,136		)
Change in fund value	(27		)	4			32			64			823			162			1,058
Balance at 6/30/2018	$	17,627		$	4,381		$	2,931		$	5,753		$	36,838		$	19,328		$	86,858
Average AUM(1)	$	17,190		$	4,531		$	3,142		$	5,150		$	34,013		$	14,608		$	78,634


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

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Credit Group—Fee Paying AUM

The tables below provide rollforwards of fee paying AUM for the Credit Group for the three months ended June 30, 2019 and 2018 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
FPAUM Balance at 3/31/2019	$	19,666		$	4,247		$	2,060		$	3,190		$	23,681		$	10,080		$	62,924
Commitments	1,199			21			91			253			6			—			1,570
Subscriptions/deployment/increase in leverage	2			—			13			404			1,364			912			2,695
Redemptions/distributions/decrease in leverage	(727		)	(875		)	(108		)	(78		)	(924		)	(280		)	(2,992		)
Change in fund value	55			103			36			59			238			75			566
FPAUM Balance at 6/30/2019	$	20,195		$	3,496		$	2,092		$	3,828		$	24,365		$	10,787		$	64,763
Average FPAUM(1)	$	19,931		$	3,872		$	2,076		$	3,509		$	24,023		$	10,434		$	63,845



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
FPAUM Balance at 3/31/2018	$	15,592		$	4,578		$	2,621		$	3,515		$	18,158		$	7,076		$	51,540
Commitments	1,721			56			1			35			45			30			1,888
Subscriptions/deployment/increase in leverage	—			—			25			60			1,134			732			1,951
Redemptions/distributions/decrease in leverage	(163		)	(293		)	(307		)	(188		)	(890		)	(268		)	(2,109		)
Change in fund value	(6		)	39			29			10			186			(192		)	66
FPAUM Balance at 6/30/2018	$	17,144		$	4,380		$	2,369		$	3,432		$	18,633		$	7,378		$	53,336
Average FPAUM(1)	$	16,368		$	4,479		$	2,495		$	3,474		$	18,396		$	7,227		$	52,439

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

The tables below provide rollforwards of fee paying AUM for the Credit Group for the six months ended June 30, 2019 and 2018 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
FPAUM Balance at 12/31/2018	$	18,328		$	4,025		$	2,196		$	2,826		$	21,657		$	8,815		$	57,847
Commitments	2,628			75			102			583			20			—			3,408
Subscriptions/deployment/increase in leverage	17			—			23			614			3,448			2,526			6,628
Redemptions/distributions/decrease in leverage	(900		)	(978		)	(403		)	(318		)	(1,239		)	(619		)	(4,457		)
Change in fund value	122			374			174			123			479			199			1,471
Change in fee basis	—			—			—			—			—			(134		)	(134		)
FPAUM Balance at 6/30/2019	$	20,195		$	3,496		$	2,092		$	3,828		$	24,365		$	10,787		$	64,763
Average FPAUM(1)	$	19,396		$	3,923		$	2,116		$	3,281		$	23,234		$	9,894		$	61,844



	Syndicated Loans			High Yield			Credit Opportunities			Alternative Credit			U.S. Direct Lending			European Direct Lending			Total Credit Group
FPAUM Balance at 12/31/2017	$	15,251		$	4,629		$	2,809		$	3,434		$	16,869		$	6,458		$	49,450
Commitments	2,425			189			4			95			75			30			2,818
Subscriptions/deployment/increase in leverage	—			12			25			149			2,373			1,356			3,915
Redemptions/distributions/decrease in leverage	(566		)	(451		)	(499		)	(289		)	(1,136		)	(393		)	(3,334		)
Change in fund value	38			4			30			43			452			(73		)	494
Change in fee basis	(4		)	(3		)	—			—			—			—			(7		)
FPAUM Balance at 6/30/2018	$	17,144		$	4,380		$	2,369		$	3,432		$	18,633		$	7,378		$	53,336
Average FPAUM(1)	$	15,996		$	4,529		$	2,600		$	3,460		$	17,887		$	6,971		$	51,443

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

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The components of our AUM, including the portion that is FPAUM, for the Credit Group are presented below as of June 30, 2019 and 2018 (in millions):



AUM: $105,505	AUM: $86,858



FPAUM	AUM not yet earning fees	Non-fee paying(1)	General partner and affiliates

(1) Includes $7.8 billion and $7.0 billion of AUM of funds for which we indirectly earn management fees as of June 30, 2019 and 2018, respectively.

Credit Group—Fund Performance Metrics as of June 30, 2019

The Credit Group managed 170 funds and accounts as of June 30, 2019. ARCC contributed approximately 53% of the Credit Group’s total management fees for the six months ended June 30, 2019. In addition to ARCC, four significant funds, ACE III, ACE IV, Ares Private Credit Solutions, L.P. (“PCS”) and Ares Credit Strategies Fund III L.P. (“CSF III”), contributed approximately 13% of the Credit Group’s management fees for the six months ended June 30, 2019. ACE III and ACE IV focus on direct lending to European middle market companies. PCS targets junior capital needs of upper middle market companies in North America. CSF III focuses on European and U.S. direct lending strategies.

We do not present fund performance metrics for significant funds with less than two years of investment performance, which begins from the date of the fund's first investment, except for those significant funds that pay management fees on invested capital, in which case performance is shown at the earlier of (i) the one-year anniversary of the fund's first investment or (ii) such time that the fund has invested at least 50% of its capital. The following table presents the performance data for our significant non-drawdown fund in the Credit Group as of June 30, 2019 ($ in millions):

Returns(%)(1)

Year of Inception

AUM

Current Quarter

Year-To-Date

Since Inception(2)

Primary

Investment Strategy

Fund

Gross

Net

Gross

Net

Gross

Net

ARCC(3)

2004

16,645

N/A

2.8

N/A

5.9

N/A

11.8

U.S. Direct Lending


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


(2)	Since inception returns are annualized.


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

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The following table presents the performance data of our significant drawdown funds as of June 30, 2019 ($ in millions):



	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)		Primary Investment Strategy
Fund	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		Gross(3)	Net(4)	Gross(5)	Net(6)	Primary Investment Strategy
CSF III	2010	$	1,138	$	1,135	$	1,209	$	617	$	1,112	$	1,729	1.5x	1.4x	8.9	7.9	European & U.S. Direct Lending
ACE III(7)	2015	5,050		2,822		2,505		503		2,628		3,131		1.3x	1.3x	15.4	11.6	European Direct Lending
PCS	2017	3,555		3,365		1,449		98		1,502		1,600		1.2x	1.1x	14.4	10.0	U.S. Direct Lending
ACE IV Unlevered(8)	2018	9,014		2,851		939		11		974		985		1.1x	1.1x	N/A	N/A	European Direct Lending
ACE IV Levered(8)	2018	9,014		4,819		1,578		26		1,685		1,711		1.1x	1.1x	N/A	N/A	European Direct Lending


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


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

(3)

The gross multiple of invested capital (“MoIC”) is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC for CSF III is before giving effect to management fees and carried interest, as applicable. The gross MoIC for all other credit funds is before giving effect to management fees, carried interest, other expenses and taxes, as applicable.

(4)

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

(5)

The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs for CSF III are calculated before giving effect to management fees and carried interest, as applicable. The gross IRRs for all other Credit funds are calculated before giving effect to management fees, carried interest, other expenses and taxes, as applicable.

(6)

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

(7)

ACE III is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC presented in the chart are for the Euro denominated feeder fund. The gross and net IRR for the U.S. dollar denominated feeder fund are 15.0% and 11.3%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.3x and 1.2x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund's closing. All other values for ACE III are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(8)

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

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Private Equity Group—Three and Six Months Ended June 30, 2019 Compared to Three and Six Months Ended June 30, 2018

Fee Related Earnings:

The following table presents the components of the Private Equity Group's FRE and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Management fees	$	52,162		$	49,318		$	2,844		6	%	$	103,558		$	99,205		$	4,353		4	%
Other fees	—			337			(337		)	NM		—			677			(677		)	NM
Compensation and benefits	(21,291		)	(18,672		)	(2,619		)	(14	)%	(42,487		)	(37,871		)	(4,616		)	(12	)%
General, administrative and other expenses	(4,912		)	(4,175		)	(737		)	(18	)%	(8,969		)	(8,216		)	(753		)	(9	)%
Fee Related Earnings	$	25,959		$	26,808		(849		)	(3	)%	$	52,102		$	53,795		(1,693		)	(3	)%

NM - Not meaningful

Management Fees

The charts below present Private Equity Group management fees and effective management fee rates for the three and six months ended June 30, 2019 and 2018 ($ in millions):

Our first energy opportunities fund, which launched in the fourth quarter of 2018, generated management fees of $2.6 million and $5.2 million for the three and six months ended June 30, 2019, respectively. Capital deployment in Ares Special Situations Fund IV, L.P. (“SSF IV”) increased its fee basis, which generated additional management fees of $2.2 million and $4.0 million for the three and six month comparative periods, respectively. Conversely, monetizations and distributions of portfolio holdings of infrastructure and power funds and by ACOF III and ACOF IV were the primary drivers for decreases in management fees attributable to those funds of $1.7 million and $4.4 million for the three and six month comparative periods.

Compensation and Benefits. Compensation and benefits expenses increased by $2.6 million, or 14%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $4.6 million, or 12%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily driven by the timing of certain annual discretionary payments that were paid in the second quarter of the current year but paid during the third quarter in the prior year.

General, administrative and other expenses. General, administrative and other expenses increased by $0.7 million, or 18%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $0.8 million, or 9%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. General, administrative and other expenses

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will generally fluctuate with the volume of deal flow and new fund launches both of which increased during the comparative periods.

Realized Income:

The following table presents the components of the Private Equity Group's RI and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Fee Related Earnings	$	25,959		$	26,808		$	(849	)	(3	)%	$	52,102		$	53,795		$	(1,693	)	(3	)%
Performance income-realized	18,369			80,415			(62,046		)	(77	)%	62,492			84,813			(22,321		)	(26	)%
Performance related compensation-realized	(14,696		)	(64,311		)	49,615			77	%	(49,993		)	(67,871		)	17,878			26	%
Realized net performance income	3,673			16,104			(12,431		)	(77	)%	12,499			16,942			(4,443		)	(26	)%
Investment income-realized	1,030			9,016			(7,986		)	(89	)%	11,966			9,687			2,279			24	%
Interest and other investment income-realized	3,318			2,920			398			14	%	3,612			2,979			633			21	%
Interest expense	(2,436		)	(1,440		)	(996		)	(69	)%	(4,611		)	(2,668		)	(1,943		)	(73	)%
Realized net investment income	1,912			10,496			(8,584		)	(82	)%	10,967			9,998			969			10	%
Realized Income	$	31,544		$	53,408		(21,864		)	(41	)%	$	75,568		$	80,735		(5,167		)	(6	)%

Realized income for the periods presented was composed of FRE, as explained above, realized net performance income and realized net investment income for the respective periods.

Realized net performance income and realized net investment income for the three months ended June 30, 2019 were primarily attributable to a dividend from an ACOF III professional services portfolio company. Realized net performance income and realized net investment income for the six months ended June 30, 2019 were primarily attributable to realizations from ACOF III's partial sales of its positions in Floor & Decor, a real estate development portfolio company and a dividend from an ACOF III professional services portfolio company.

Realized net performance income and realized net investment income for the three and six months ended June 30, 2018 were primarily attributable to realizations from the monetization of multiple investments held within ACOF III.

Private Equity Group—Carried Interest

Accrued carried interest for the Private Equity Group is composed of the following (in thousands):



	As of June 30,		As of December 31,
	2019		2018
ACOF III	$	334,471	$	316,377
ACOF IV	287,294		183,595
EIF V	15,694		—
First flagship energy opportunities fund	11,033		—
Other funds	4,972		6,900
Total Private Equity Group	$	653,464	$	506,872

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The following table presents the components of carried interest allocation for the Private Equity Group for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30, 2019								Three Months Ended June 30, 2018
	Realized		Unrealized			Net			Realized		Unrealized			Net
ACOF III	$	18,369	$	(32,252	)	$	(13,883	)	$	80,415	$	(90,234	)	$	(9,819	)
ACOF IV	—		60,237			60,237			—		(41,578		)	(41,578		)
EIF V	—		15,694			15,694			—		—			—
First flagship energy opportunities fund	—		5,482			5,482			—		—			—
Other funds	—		(2,554		)	(2,554		)	—		(1,793		)	(1,793		)
Total Private Equity Group	$	18,369	$	46,607		$	64,976		$	80,415	$	(133,605	)	$	(53,190	)



	Six Months Ended June 30, 2019									Six Months Ended June 30, 2018
	Realized			Unrealized			Net			Realized		Unrealized			Net
ACOF III	$	64,665		$	18,094		$	82,759		$	83,209	$	(59,584	)	$	23,625
ACOF IV	—			103,698			103,698			1,604		(33,150		)	(31,546		)
EIF V	—			15,694			15,694			—		(16,215		)	(16,215		)
First flagship energy opportunities fund	—			11,033			11,033			—		—			—
Other funds	(2,173		)	(1,904		)	(4,077		)	—		(3,590		)	(3,590		)
Total Private Equity Group	$	62,492		$	146,615		$	209,107		$	84,813	$	(112,539	)	$	(27,726	)

Private Equity Group—Assets Under Management

The tables below provide rollforwards of AUM for the Private Equity Group for the three months ended June 30, 2019 and 2018 (in millions):



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Energy Opportunities			Total Private Equity Group
Balance at 3/31/2019	$	17,519		$	3,588		$	1,809		$	862		$	23,778
Net new equity commitments	—			—			997			—			997
Distributions	(523		)	(24		)	(11		)	(1		)	(559		)
Change in fund value	425			(7		)	77			24			519
Balance at 6/30/2019	$	17,421		$	3,557		$	2,872		$	885		$	24,735
Average AUM(1)	$	17,470		$	3,573		$	2,340		$	874		$	24,257



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Total Private Equity Group
Balance at 3/31/2018	$	18,728		$	4,061		$	1,514		$	24,303
Net new equity commitments	—			350			—			350
Distributions	(485		)	(545		)	(9		)	(1,039		)
Change in fund value	(157		)	117			28			(12		)
Balance at 6/30/2018	$	18,086		$	3,983		$	1,533		$	23,602
Average AUM(1)	$	18,407		$	4,022		$	1,524		$	23,953


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

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The tables below provide rollforwards of AUM for the Private Equity Group for the six months ended June 30, 2019 and 2018 (in millions):



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Energy Opportunities			Total Private Equity Group
Balance at 12/31/2018	$	17,159		$	3,842		$	1,733		$	753		$	23,487
Net new equity commitments	(125		)	—			1,072			81			1,028
Distributions	(947		)	(208		)	(43		)	(1		)	(1,199		)
Change in fund value	1,334			(77		)	110			52			1,419
Balance at 6/30/2019	$	17,421		$	3,557		$	2,872		$	885		$	24,735
Average AUM(1)	$	17,366		$	3,663		$	2,138		$	833		$	24,000



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Total Private Equity Group
Balance at 12/31/2017	$	18,557		$	4,423		$	1,550		$	24,530
Net new equity commitments	13			350			—			363
Distributions	(509		)	(763		)	(49		)	(1,321		)
Change in fund value	25			(27		)	32			30
Balance at 6/30/2018	$	18,086		$	3,983		$	1,533		$	23,602
Average AUM(1)	$	18,457		$	4,156		$	1,532		$	24,145


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

Private Equity Group—Fee Paying AUM

The tables below provide rollforwards of fee paying AUM for the Private Equity Group for the three months ended June 30, 2019 and 2018 (in millions):



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Energy Opportunities		Total Private Equity Group
FPAUM Balance at 3/31/2019	$	11,809		$	3,411		$	1,339		$	763	$	17,322
Subscriptions/deployment/increase in leverage	76			—			112			—		188
Redemptions/distributions/decrease in leverage	(317		)	(2		)	(5		)	—		(324		)
Change in fund value	2			—			—			—		2
FPAUM Balance at 6/30/2019	$	11,570		$	3,409		$	1,446		$	763	$	17,188
Average FPAUM(1)	$	11,690		$	3,410		$	1,393		$	763	$	17,256



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Total Private Equity Group
FPAUM Balance at 3/31/2018	$	12,104		$	3,634		$	925		$	16,663
Commitments	—			350			—			350
Subscriptions/deployment/increase in leverage	94			33			44			171
Redemptions/distributions/decrease in leverage	(66		)	(500		)	(24		)	(590		)
Change in fund value	(5		)	—			—			(5		)
FPAUM Balance at 6/30/2018	$	12,127		$	3,517		$	945		$	16,589
Average FPAUM(1)	$	12,116		$	3,576		$	935		$	16,627

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

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The tables below provide rollforwards of fee paying AUM for the Private Equity Group for the six months ended June 30, 2019 and 2018 (in millions):



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Energy Opportunities		Total Private Equity Group
FPAUM Balance at 12/31/2018	$	11,716		$	3,472		$	1,201		$	682	$	17,071
Commitments	—			—			—			81		$	81
Subscriptions/deployment/increase in leverage	200			46			254			—		$	500
Redemptions/distributions/decrease in leverage	(350		)	(109		)	(9		)	—		$	(468	)
Change in fund value	4			—			—			—		$	4
Change in fee basis	—			—			—			—		$	—
FPAUM Balance at 6/30/2019	$	11,570		$	3,409		$	1,446		$	763	$	17,188
Average FPAUM(1)	$	11,698		$	3,431		$	1,329		$	736	$	17,194



	Corporate Private Equity			Infrastructure & Power			Special Opportunities			Total Private Equity Group
FPAUM Balance at 12/31/2017	$	12,073		$	4,019		$	766		$	16,858
Commitments	13			350			—			363
Subscriptions/deployment/increase in leverage	123			34			217			374
Redemptions/distributions/decrease in leverage	(80		)	(886		)	(50		)	(1,016		)
Change in fund value	(2		)	—			12			10
FPAUM Balance at 6/30/2018	$	12,127		$	3,517		$	945		$	16,589
Average FPAUM(1)	$	12,101		$	3,723		$	879		$	16,703

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

The components of our AUM, including the portion that is FPAUM, for the Private Equity Group are presented below as of June 30, 2019 and 2018 (in millions):



AUM: $24,735	AUM: $23,602



FPAUM	Non-fee paying	AUM not yet earning fees	General partner and affiliates

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Private Equity Group—Fund Performance Metrics as of June 30, 2019

The Private Equity Group managed 23 commingled funds and related co-investment vehicles as of June 30, 2019. Our significant funds combined for approximately 90% of the Private Equity Group’s management fees for the six months ended June 30, 2019. Our Corporate Private Equity funds focus on majority or shared-control investments, principally in under-capitalized companies in North America, Europe and Asia. Our special opportunities funds invest opportunistically across a broad spectrum of distressed or mispriced investments. Our infrastructure and power funds focus on generating long-term, stable cash-flowing investments in the power generation, transmission and midstream energy sector. Our energy opportunities fund targets investments in the energy industry where its flexible capital can provide attractive risk-adjusted returns while mitigating commodity risk. ACOF III, ACOF IV and U.S. Power Fund IV ("USPF IV") are in harvest mode, meaning they are generally not seeking to deploy capital into new investment opportunities, while ACOF V, SSF IV, EIF V and the first flagship energy opportunities fund are in deployment mode.

The following table presents the performance data as of June 30, 2019 for our significant funds in the Private Equity Group, all of which are drawdown funds ($ in millions):



	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)				Primary Investment Strategy
Fund	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		Gross(3)	Net(4)	Gross(5)		Net(6)		Primary Investment Strategy
ACOF III	2008	$	2,936	$	3,510	$	3,885	$	7,656	$	2,650	$	10,306	2.7x	2.2x	29.1		20.8		Corporate Private Equity
USPF IV	2010	1,628		1,688		2,085		1,215		1,538		2,753		1.3x	1.2x	8.5		5.3		Infrastructure and Power
ACOF IV	2012	5,633		4,700		4,230		2,707		4,920		7,627		1.8x	1.6x	19.0		12.3		Corporate Private Equity
EIF V	2015	855		801		757		237		680		917		1.2x	1.1x	15.4		8.9		Infrastructure and Power
SSF IV(7)	2015	1,518		1,515		2,805		1,458		1,305		2,763		1.0x	0.9x	(1.4	)	(3.3	)	Special Opportunities
ACOF V	2017	8,198		7,850		4,570		158		5,154		5,312		1.2x	1.1x	13.9		7.4		Corporate Private Equity
First flagship energy opportunities fund	2019	885		756		616		4		699		703		1.1x	1.1x	N/A		N/A		Energy Opportunities


(1)	Realized proceeds represent 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 market value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations indicated.


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

(4)

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

(5)

The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. For SSF IV, cash flows used in the gross IRR calculation are based on the actual dates of the cash flows. For all other funds, cash flows are assumed to occur at month-end. The gross IRRs are calculated before giving effect to management fees, carried interest, other expenses and taxes, as applicable.

(6)

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

(7)

In January 2017, a new team assumed portfolio management of SSF IV. In addition to presenting the cumulative performance measure for SSF IV, we have also adopted a new performance measurement called “SSF IV 2.0”. SSF IV 2.0 is a subset of SSF IV positions and is intended to provide insight into the new team’s cumulative investment performance. SSF IV 2.0 investments represent (i) existing and re-underwritten positions by the new team on January 1, 2017 and (ii) all new investments made by the new team since January 1, 2017. As part of the re-underwriting process, each liquid investment in the SSF IV portfolio was evaluated and a determination was made whether to continue to hold such investment in the SSF IV portfolio or dispose of such investment. At the same time, legacy illiquid investments have been excluded from the SSF IV 2.0 track record as it was not possible to dispose of such investments in the near-term due to their private, illiquid nature. Since January 2017, SSF IV 2.0 has generated gross and net internal rates of return of 12.2% and 8.2% through June 30, 2019, respectively. The IRR is an annualized since inception internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Cash flows used in the IRRs calculations are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest, other expenses and taxes, as applicable. The net IRRs are calculated after giving effect to estimated management fees, carried interest and other expenses.

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Real Estate Group—Three and Six Months Ended June 30, 2019 Compared to Three and Six Months Ended June 30, 2018

Fee Related Earnings:

The following table presents the components of the Real Estate Group's FRE and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Management fees	$	21,770		$	17,138		$	4,632		27	%	$	40,420		$	32,311		$	8,109		25	%
Other fees	672			7			665			NM		681			10			671			NM
Compensation and benefits	(11,928		)	(8,768		)	(3,160		)	(36	)%	(21,212		)	(16,407		)	(4,805		)	(29	)%
General, administrative and other expenses	(3,523		)	(2,391		)	(1,132		)	(47	)%	(6,655		)	(4,823		)	(1,832		)	(38	)%
Fee Related Earnings	$	6,991		$	5,986		1,005			17	%	$	13,234		$	11,091		2,143			19	%

NM - Not meaningful

Management Fees

The charts below present Real Estate Group management fees and effective management fee rates for the three and six months ended June 30, 2019 and 2018 ($ in millions):

Our fifth flagship European real estate equity fund generated additional management fees of $6.3 million and $10.9 million for the three and six month comparative periods, respectively, of which $3.6 million and $4.6 million were attributable to one-time catch up fees for the three and six month comparative periods, respectively, from additional capital commitments to the fund during the three and six month periods ended June 30, 2019. Conversely, multiple property sales held within several of our real estate equity funds resulted in decreases in management fees of $2.1 million and $4.1 million for the three and six month comparative periods, respectively.

The increases in effective management fee rates between periods were primarily due to deployment of capital within our real estate equity funds. Our latest U.S. and European real estate equity funds pay a lower fixed fee on committed capital and then a higher fee on deployed capital. Immediately following capital raising, our effective fee rate decreases temporarily and increases as capital is subsequently deployed.

Compensation and Benefits. Compensation and benefits expenses increased by $3.2 million, or 36%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $4.8 million, or 29%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily driven by higher compensation in connection with higher management fees for the comparative periods.

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Realized Income:

The following table presents the components of the Real Estate Group's RI and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Fee Related Earnings	$	6,991		$	5,986		$	1,005		17	%	$	13,234		$	11,091		$	2,143		19	%
Performance income-realized	1,666			521			1,145			220	%	4,191			14,159			(9,968		)	(70	)%
Performance related compensation-realized	(969		)	7			(976		)	NM		(2,226		)	(8,214		)	5,988			73	%
Realized net performance income	697			528			169			32	%	1,965			5,945			(3,980		)	(67	)%
Investment income (loss)-realized	1,546			(250		)	1,796			NM		5,026			3,100			1,926			62	%
Interest and other investment income-realized	2,119			667			1,452			218	%	3,224			884			2,340			265	%
Interest expense	(1,050		)	(452		)	(598		)	(132	)%	(2,169		)	(872		)	(1,297		)	(149	)%
Realized net investment income (loss)	2,615			(35		)	2,650			NM		6,081			3,112			2,969			95	%
Realized Income	$	10,303		$	6,479		3,824			59	%	$	21,280		$	20,148		1,132			6	%

NM - Not Meaningful

Realized income for the periods presented was composed of FRE, as explained above, realized net performance income and realized net investment income for the respective periods.

Realized net performance income for the six months ended June 30, 2019 was primarily attributable to the monetization of several properties held within a certain European equity real estate fund and a certain U.S. equity real estate fund. Realized net performance income for the six months ended June 30, 2018 was primarily attributable to tax distributions received from EF IV.

Realized net investment income for the three and six months ended June 30, 2019 was primarily attributable to sales of multiple properties held within various U.S. real estate equity funds resulting in realized gains from our investments in these funds and to interest income from our investment in a U.S. real estate equity funds that was made in the fourth quarter of 2018. Realized net investment income for the six months ended June 30, 2018 was primarily attributable to sales of multiple properties held within Ares US Real Estate Fund VIII, L.P. ("US VIII") and various other U.S. real estate equity funds resulting in net realized gains from our investments in these funds.

Real Estate Group— Carried Interest and Incentive Fees

Accrued carried interest and incentive fee receivables for the Real Estate Group are composed of the following (in thousands):



	As of June 30,		As of December 31,
	2019		2018
US VIII	$	58,054	$	50,847
EF IV	66,186		65,166
Other real estate funds	64,247		57,236
Subtotal	188,487		173,249
Other fee generating funds(1)	12,310		12,197
Total Real Estate Group	$	200,797	$	185,446


(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 change in accrued carried interest and incentive fee receivable for the comparative periods was composed of the following: (i) a $32.1 million increase in unrealized carried interest allocation for the six months ended June 30, 2019; (ii) $16.9 million of realized carried interest allocation in 2018 received during the six months ended June 30, 2019; and (iii) foreign currency translation and other adjustments.

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The following table presents the components of incentive fees and carried interest allocation for the Real Estate Group for the three and six months ended June 30, 2019 and 2018 (in thousands):



	Three Months Ended June 30, 2019								Three Months Ended June 30, 2018
	Realized		Unrealized			Net			Realized		Unrealized			Net
US VIII	$	—	$	3,474		$	3,474		$	—	$	436		$	436
EF IV	—		6,197			6,197			—		11,012			11,012
Other real estate funds	1,666		7,508			9,174			—		2,934			2,934
Subtotal	1,666		17,179			18,845			—		14,382			14,382
Other fee generating funds(1)	—		(27		)	(27		)	521		(552		)	(31		)
Total Real Estate Group	$	1,666	$	17,152		$	18,818		$	521	$	13,830		$	14,351



	Six Months Ended June 30, 2019						Six Months Ended June 30, 2018
	Realized		Unrealized		Net		Realized		Unrealized			Net
US VIII	$	—	$	7,207	$	7,207	$	—	$	4,766		$	4,766
EF IV	—		1,072		1,072		12,396		1,104			13,500
Other real estate funds	3,724		23,694		27,418		1,242		7,447			8,689
Subtotal	3,724		31,973		35,697		13,638		13,317			26,955
Other fee generating funds(1)	467		113		580		521		(1,527		)	(1,006		)
Total Real Estate Group	$	4,191	$	32,086	$	36,277	$	14,159	$	11,790		$	25,949


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

Real Estate Group—Assets Under Management

The tables below provide rollforwards of AUM for the Real Estate Group for the three months ended June 30, 2019 and 2018 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
Balance at 3/31/2019	$	3,894		$	3,897		$	4,019		$	11,810
Net new equity commitments	38			279			138			455
Net new debt commitments	—			—			111			111
Distributions	(492		)	(59		)	(99		)	(650		)
Change in fund value	64			65			13			142
Balance at 6/30/2019	$	3,504		$	4,182		$	4,182		$	11,868
Average AUM(1)	$	3,699		$	4,040		$	4,101		$	11,840



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
Balance at 3/31/2018	$	4,505		$	3,388		$	3,003		$	10,896
Net new equity commitments	110			197			—			307
Distributions	(133		)	(99		)	(8		)	(240		)
Change in fund value	72			(135		)	10			(53		)
Balance at 6/30/2018	$	4,554		$	3,351		$	3,005		$	10,910
Average AUM(1)	$	4,530		$	3,370		$	3,004		$	10,904

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

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The tables below provide rollforwards of AUM for the Real Estate Group for the six months ended June 30, 2019 and 2018 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
Balance at 12/31/2018	$	4,163		$	3,711		$	3,466		$	11,340
Net new equity commitments	(72		)	470			219			617
Net new debt commitments	—			—			583			583
Distributions	(788		)	(93		)	(108		)	(989		)
Change in fund value	201			94			22			317
Balance at 6/30/2019	$	3,504		$	4,182		$	4,182		$	11,868
Average AUM(1)	$	3,854		$	3,930		$	3,889		$	11,673



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
Balance at 12/31/2017	$	4,578		$	2,704		$	2,947		$	10,229
Net new equity commitments	144			965			55			1,164
Distributions	(267		)	(248		)	(16		)	(531		)
Change in fund value	99			(70		)	19			48
Balance at 6/30/2018	$	4,554		$	3,351		$	3,005		$	10,910
Average AUM(1)	$	4,546		$	3,148		$	2,985		$	10,679

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

Real Estate Group—Fee Paying AUM

The tables below provide rollforwards of fee paying AUM for the Real Estate Group for the three months ended June 30, 2019 and 2018 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 3/31/2019	$	2,625		$	3,317		$	1,033		$	6,975
Commitments	—			279			—			279
Subscriptions/deployment/increase in leverage	144			32			226			402
Redemptions/distributions/decrease in leverage	(141		)	(12		)	(76		)	(229		)
Change in fund value	—			22			14			36
FPAUM Balance at 6/30/2019	$	2,628		$	3,638		$	1,197		$	7,463
Average FPAUM(1)	$	2,627		$	3,478		$	1,115		$	7,220



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 3/31/2018	$	3,008		$	2,729		$	1,014		$	6,751
Commitments	97			—			—			97
Subscriptions/deployment/increase in leverage	14			240			26			280
Redemptions/distributions/decrease in leverage	(67		)	(40		)	(8		)	(115		)
Change in fund value	7			(67		)	10			(50		)
FPAUM Balance at 6/30/2018	$	3,059		$	2,862		$	1,042		$	6,963
Average FPAUM(1)	$	3,034		$	2,796		$	1,028		$	6,858

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

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The tables below provide rollforwards of fee paying AUM for the Real Estate Group for the six months ended June 30, 2019 and 2018 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 12/31/2018	$	2,739		$	3,269		$	944		$	6,952
Commitments	—			365			—			365
Subscriptions/deployment/increase in leverage	155			88			316			559
Redemptions/distributions/decrease in leverage	(266		)	(58		)	(86		)	(410		)
Change in fund value	—			(26		)	23			(3		)
FPAUM Balance at 6/30/2019	$	2,628		$	3,638		$	1,197		$	7,463
Average FPAUM(1)	$	2,664		$	3,408		$	1,058		$	7,130



	Real Estate Equity - U.S.			Real Estate Equity - Europe			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 12/31/2017	$	3,062		$	2,064		$	1,063		$	6,189
Commitments	126			737			—			863
Subscriptions/deployment/increase in leverage	51			338			26			415
Redemptions/distributions/decrease in leverage	(148		)	(83		)	(67		)	(298		)
Change in fund value	5			(27		)	20			(2		)
Change in fee basis	(37		)	(167		)	—			(204		)
FPAUM Balance at 6/30/2018	$	3,059		$	2,862		$	1,042		$	6,963
Average FPAUM(1)	$	3,043		$	2,552		$	1,040		$	6,635

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

The components of our AUM, including the portion that is FPAUM, for the Real Estate Group are presented below as of June 30, 2019 and 2018 (in millions):



AUM: $11,868	AUM: $10,910



FPAUM	Non-fee paying	AUM not yet earning fees	General partner and affiliates

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Real Estate Group—Fund Performance Metrics as of June 30, 2019

The Real Estate Group managed 45 funds as of June 30, 2019. Our significant funds in the Real Estate Group combined for approximately 57% of the Real Estate Group’s management fees for the six months ended June 30, 2019. EF IV and our fifth flagship European real estate fund are commingled funds focused on real estate assets located in Europe, primarily in the United Kingdom, France and Germany; and Ares US Real Estate Fund IX, L.P. ("VEF IX"), a commingled equity fund focused on real estate assets located in United States.

The following table presents the performance data as of June 30, 2019 for our significant funds in the Real Estate Group, all of which are drawdown funds ($ in millions):



	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)		Primary Investment Strategy
Fund	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		Gross(3)	Net(4)	Gross(5)	Net(6)	Primary Investment Strategy
EF IV(7)	2014	$	1,074	$	1,302	$	1,105	$	739	$	962	$	1,701	1.5x	1.3x	19.2	13.4	European Real Estate Equity
VEF IX	2017	1,029		1,040		595		19		584		603		1.1x	1.0x	N/A	N/A	U.S. Real Estate Equity
Fifth flagship European real estate fund(8)	2018	1,557		1,547		308		43		303		346		1.1x	1.0x	N/A	N/A	European Real Estate Equity


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


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


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

(4)

The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner which does not pay management fees, carried interest or has such fees rebated outside of the fund. The net MoIC is after giving effect to management fees, carried interest as applicable and other expenses. Net fund-level MoICs would generally likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)

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

(6)

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

(7)

EF IV is made up of two parallel funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC and gross and net IRRs presented in the chart are for the Euro denominated parallel fund. The gross and net IRRs for the U.S. Dollar denominated parallel fund are 18.8% and 13.5%, respectively. The gross and net MoIC for the U.S. Dollar denominated parallel fund are 1.5x and 1.3x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of fund's closing. All other values for EF IV are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(8)

Our fifth flagship European real estate fund is made up of two parallel funds, one denominated in U.S. Dollars and one denominated in Euros. The gross MoIC presented in the chart is for the Euro denominated parallel fund. The gross and net MoIC for the U.S. Dollar denominated parallel fund are 1.1x 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 our fifth flagship European real estate fund are for the combined fund and are converted to U.S. Dollars at the prevailing quarter-end exchange rate.

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Operations Management Group—Three and Six Months Ended June 30, 2019 Compared to Three and Six Months Ended June 30, 2018

Fee Related Earnings:

The following table presents the components of the OMG's FRE and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Compensation and benefits	$	(33,994	)	$	(30,680	)	$	(3,314	)	(11	)%	$	(66,655	)	$	(60,872	)	$	(5,783	)	(10	)%
General, administrative and other expenses	(19,874		)	(19,236		)	(638		)	(3	)%	(40,506		)	(37,627		)	(2,879		)	(8	)%
Fee Related Earnings	$	(53,868	)	$	(49,916	)	(3,952		)	(8	)%	$	(107,161	)	$	(98,499	)	(8,662		)	(9	)%

Compensation and Benefits. Compensation and benefits expenses increased by $3.3 million, or 11%, for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and by $5.8 million, or 10%, for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The increases were primarily driven by higher incentive compensation attributable to management fee growth and 7% headcount growth for the comparative periods. We continue to invest in resources dedicated to help evolve our middle and back office capabilities to support the growing needs of our business in the years ahead.

Realized Income:

The following table presents the components of the OMG's RI and the changes for the comparative periods ($ in thousands):



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
Fee Related Earnings	$	(53,868	)	$	(49,916	)	$	(3,952	)	(8	)%	$	(107,161	)	$	(98,499	)	$	(8,662	)	(9	)%
Investment income-realized	—			798			(798		)	NM		—			1,636			(1,636		)	NM
Interest and other investment income (loss)-realized	(17		)	584			(601		)	NM		(2		)	1,736			(1,738		)	NM
Interest expense	(399		)	(588		)	189			32	%	(795		)	(1,136		)	341			30	%
Realized net investment income (loss)	(416		)	794			(1,210		)	NM		(797		)	2,236			(3,033		)	NM
Realized Income	$	(54,284	)	$	(49,122	)	(5,162		)	(11	)%	$	(107,958	)	$	(96,263	)	(11,695		)	(12	)%

NM - Not Meaningful

Realized income for the periods presented was composed of FRE, as explained above, and realized net investment income for the respective periods.

Realized net investment income decreased from $0.8 million and $2.2 million for the three and six months ended June 30, 2018 to realized net investment loss of $0.4 million and $0.8 million for the three and six months ended June 30, 2019. The decreases were primarily driven by net investment income from our non–core energy investments recognized in the prior year periods that were subsequently sold in the fourth quarter of 2018.

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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, and net realized performance income, which is unpredictable as to amount and timing, (4) fund distributions related to our investments that are also unpredictable as to amount and timing and (5) net borrowing from the Credit Facility. As of June 30, 2019, our cash and cash equivalents were $247.2 million and we had $320.0 million of borrowings outstanding under our Credit Facility. Our ability to draw from 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 (1) provide capital to facilitate the growth of our existing investment management businesses, (2) fund our investment commitments, (3) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management businesses, (4) pay operating expenses, including cash compensation to our employees and payments under the tax receivable agreement (“TRA”), (5) fund capital expenditures, (6) service our debt, (7) pay income taxes and (8) make dividend payments to our Class A common stockholders and the Series A Preferred stockholders in accordance with our dividend policy.

In the normal course of business, we intend to pay dividends based on our expected fee related earnings. If cash flow from operations were insufficient to fund dividends over a sustained period of time, we expect that we would suspend paying such dividends. Unless quarterly dividends have been declared and paid (or declared and set apart for payment) on the Series A Preferred Stock, we may not declare or pay or set apart payment for dividends on any shares of our Class A common stock during the period. Dividends on Series A Preferred Stock are not cumulative and the Series A Preferred Stock is not convertible into our Class A common stock or any other security.

In February 2019, our board of directors authorized the repurchase of up to $150 million of shares of our Class A common stock. Under this stock repurchase program, shares may be repurchased from time to time in open market purchases, privately negotiated transactions or otherwise, including in reliance on Rule 10b5-1 of the Securities Act. The program is scheduled to expire in February 2020. Repurchases under the program depend on the prevailing market conditions and other factors.

During the three and six months ended June 30, 2019, we repurchased 0.4 million shares as part of the stock repurchase program at a total cost of $10.4 million. As of June 30, 2019, the amount remaining available for repurchases under the program was $139.6 million.

Our accrued carried interest and incentive fee receivable by segment as of June 30, 2019 is set forth below (in thousands):



	Accrued Carried Interest & Incentive Fee Receivable
Credit Group	$	230,003
Private Equity Group	653,464
Real Estate Group	188,487
Total	$	1,071,954

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

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Cash Flows

The table below summarizes our condensed consolidated statements of cash flows by activity attributable to the Company and to our Consolidated Funds. Negative amounts represent a net outflow or use of cash (in thousands).



	For the Six Months Ended June 30,
	2019			2018
Net cash provided by the Company's operating activities	$	205,776		$	371,274
Net cash used in the Consolidated Funds' operating activities	(1,497,088		)	(1,658,875		)
Net cash used in operating activities	(1,291,312		)	(1,287,601		)
Net cash used in the Company's investing activities	(5,653		)	(7,126		)
Net cash used in the Company's financing activities	(44,551		)	(349,661		)
Net cash provided by the Consolidated Funds' financing activities	1,489,676			1,642,676
Net cash provided by financing activities	1,445,125			1,293,015
Effect of exchange rate changes	(11,187		)	8,231
Net change in cash and cash equivalents	$	136,973		$	6,519

Operating Activities

Net cash flows used in operating activities were $1.3 billion for the six months ended June 30, 2019 and 2018. Net cash flows provided by the Company's operating activities were $205.8 million for the six months ended June 30, 2019 compared to $371.3 million for the six months ended June 30, 2018. The decrease in cash provided by the Company's operating activities was primarily driven by the sale of $206.0 million of CLO securities in the prior year period subsequent to the removal of U.S. risk retention requirements related to open market CLO managers.

Net cash used in the Consolidated Funds' operating activities was $1.5 billion for the six months ended June 30, 2019 compared to net cash used in Consolidated Funds' operating activities of $1.7 billion for the six months ended June 30, 2018. Net cash used in the Consolidated Funds' operating activities were principally attributable to the consolidation of recently launched funds' investment purchases during the comparative periods.

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 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 certain acquisitions and purchases of fixed assets. Net cash used in the Company's investing activities was principally composed of furniture, fixtures, equipment and leasehold improvements purchased during the comparative periods.

Financing Activities

Net cash used in the Company's financing activities was $44.6 million for the six months ended June 30, 2019 compared to $349.7 million for the six months ended June 30, 2018. Net cash used in the Company's financing activities for the six months ended June 30, 2019 was principally composed of $163.2 million of distributions to AOG unitholders and dividends to our Class A common stockholders and Series A Preferred stockholders and $10.4 million of stock repurchases, offset by $85.0 million of net borrowings on the Company's Credit Facility and $78.8 million of net cash proceeds from exercises of stock options.

Net cash used in the Company's financing activities for the six months ended June 30, 2018 was principally composed of $192.4 million of distributions to AOG unitholders, common and preferred shareholders and $247.0 million of net repayments on the Company's debt facilities, offset by $105.4 million of net proceeds from our common share offering. The decrease in distributions and dividends was primarily due to a change in the timing of dividend payments to our Class A common stockholders to match the related income in the current quarter, as a result of our election to be treated as a corporation for U.S. federal income tax purposes. Dividends paid during the six months ended June 30, 2019 were related to income for that period, while distributions paid during the six months ended June 30, 2018 were related to income for the nine month period ended June 30, 2018.

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Net cash provided by Consolidated Funds' financing activities was $1.5 billion for the six months ended June 30, 2019 compared to $1.6 billion for the six months ended June 30, 2018 . Net cash provided by Consolidated Funds' financing activities was principally attributable to the consolidation of newly launched funds for both comparative periods. Net borrowings of our Consolidated Funds was $1.4 billion for the six months ended June 30, 2019 compared to net borrowings of $1.6 billion for the six months ended June 30, 2018. Net contributions of our Consolidated Funds were $84.5 million and $35.7 million for the six months ended June 30, 2019 and 2018, respectively.

Capital Resources

The following table summarizes the Company's debt obligations ($ in thousands):



					As of June 30, 2019			December 31, 2018
	Debt Origination Date	Maturity	Original Borrowing Amount		Carrying Value		Interest Rate	Carrying Value		Interest Rate
Credit Facility(1)	Revolver	3/21/2024	N/A		$	320,000	3.69%	$	235,000	4.00%
Senior Notes(2)	10/8/2014	10/8/2024	$	250,000	246,277		4.21%	245,952		4.21%
Total debt obligations					$	566,277		$	480,952

(1)


(2)	The Senior Notes were issued in October 2014 by Ares Finance Co. LLC, 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.

As of June 30, 2019, we were in compliance with all covenants under our debt obligations.

We intend to use a portion of our available liquidity to pay cash dividends to our Series A Preferred stockholders and our Class A common stockholders on a quarterly basis in accordance with our dividend policies. Our ability to make cash dividends to the Series A Preferred stockholders and our Class A common stockholders 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 expect dividend payments for the remainder of the fiscal year to be consistent with dividends paid during the six months ended June 30, 2019.

We are required to maintain minimum net capital balances for regulatory purposes for our United Kingdom subsidiary and for our broker-dealer subsidiary. 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, 2019, we were required to maintain approximately $28.6 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 shares of our Class A common stock on a one-for-one basis. These exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of Ares Management Corporation that otherwise would not have been available. These increases in tax basis may increase depreciation and amortization for U.S. federal income tax purposes and thereby reduce the amount of tax that we would otherwise be required to pay in the future. We entered into the tax receivable agreement (“TRA”) with the TRA recipients that provides payment to the TRA recipients of 85% of the amount of actual cash savings, if any, in U.S. federal, state, local and foreign income tax or franchise tax that we actually realize as a result of these increases in tax basis and of certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA and interest accrued thereon. Future payments under the TRA in respect of subsequent exchanges are expected to be substantial. As of June 30, 2019, the TRA liability balance was $24.9 million. In 2018, there were exchanges of approximately 13.1 million of AOG Units for shares of our Class A common stock. In connection with these conversions, we recognized deferred tax benefits of $25.2 million, which increased

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additional paid in capital by $3.8 million and our TRA liability by $21.4 million. An immaterial number of AOG Units were exchanged prior to 2018 and during the six months ended June 30, 2019.

Series A Preferred Stock

As of June 30, 2019 and December 31, 2018, the Company had 12,400,000 shares of Series A Preferred Stock, $0.01 par value per share, designated as “7.00% Series A Preferred Stock” outstanding. When, as and if declared by the Company’s board of directors, dividends on the Series A Preferred Stock are paid quarterly at a rate per annum equal to 7.00%. The Series A Preferred Stock may be redeemed at our option, in whole or in part, at any time on or after June 30, 2021, at a price of $25.00 per share.

Critical Accounting Estimates

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

Recent Accounting Pronouncements

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

Off‑Balance Sheet Arrangements

In the normal course of business, we engage in off‑balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications and potential contingent repayment obligations. See Note 8, “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, 2019 and December 31, 2018, we had aggregate unfunded commitments of $304.1 million and $267.6 million, respectively, including commitments to both non-consolidated funds and Consolidated Funds.

ARCC Fee Waiver

In conjunction with ARCC's acquisition of American Capital, Ltd. (“ACAS”), we agreed to waive up to $10 million per quarter of ARCC's Part I Fees for ten calendar quarters, which began in the second quarter of 2017. ARCC Part I Fees will only be waived to the extent they are paid. The maximum amount of fees that may be waived in a quarter is $10 million, and if ARCC Part I Fees are less than $10 million in any single quarter, the shortfall will not carry over to subsequent quarters. As of June 30, 2019, there is one remaining quarter as part of the fee waiver agreement, with a maximum of $10.0 million in potential waivers. ARCC Part I Fees are reported net of the fee waiver.

Indemnification Arrangements

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 consolidated financial statements. As of June 30, 2019, we have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.

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Contingent Obligations

The partnership documents governing our funds generally include a contingent repayment 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, carried interest, a component of performance income, generally, is subject to reversal in the event that the funds incur future losses. These losses are limited to the extent of the cumulative performance income recognized to date.

Due in part to our investment performance and the fact that our performance income is generally determined on a liquidation basis, if the funds were liquidated at their fair values as of June 30, 2019 and December 31, 2018, there would have been $0.6 million and $0.4 million, respectively, of repayment obligations. There can be no assurance that we will not incur additional contingent repayment obligation in the future. If all of the existing investments were deemed worthless, the amount of cumulative revenues that have been recognized would be reversed. As of June 30, 2019 and December 31, 2018, had we assumed all existing investments were worthless, the amount of carried interest, net of tax, subject to contingent repayment would have been approximately $401.0 million and $469.0 million, respectively, of which approximately $297.5 million and $351.9 million, respectively, would be reimbursable to us by certain professionals who are the recipients of such carried interest. We believe that the possibility of all of the existing investments becoming worthless is remote.

Performance income is 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, public equity market volatility, industry trading multiples and interest rates.

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

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

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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 income 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. It 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 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, 2019. For additional information on our market risks, refer to our Annual Report on Form 10-K for the year ended December 31, 2018, 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, 2019. Based upon that evaluation and subject to the foregoing, our principal executive officers and principal financial officer concluded that, as of June 30, 2019, 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, 2019 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

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, 2019 and December 31, 2018, 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

For a discussion of our other potential risks and uncertainties, see the information under “Item 1A. Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2018, which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in our 2018 Form 10‑K.

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

We did not sell any equity securities during the period covered in this report that were not registered under the Securities Act of 1933.

Except as set forth below, all unregistered sales of equity securities during the period covered by this Quarterly Report were previously disclosed in our current reports on Form 8-K or quarterly reports on Form 10-Q ($ in thousands; except share data):



Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs (1)
April 1, 2019 - April 30, 2019	—	$	—	—	$	150,000
May 1, 2019 - May 31, 2019	400,000	26.12		400,000	139,551
June 1, 2019 - June 30, 2019	—	—		—	139,551
Total	400,000			400,000

(1)

As permitted by our policies and procedures governing transactions in our securities by our directors, executive officers and other employees, from time to time some of these persons may establish plans or arrangements complying with Rule 10b5‐1 under the Exchange Act, and similar plans and arrangements relating to our Class A common stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRA”) and Section 13(r) of the Exchange Act, require an issuer to disclose in its annual and quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions relating to Iran. On June 20, 2019, certain investment funds managed or advised by U.K.-based affiliates of Ares (the “Ares Entities”) acquired approximately 28.7% of the ordinary shares and 54.3% of the preferred shares of AgriBriefing 1364 Limited (“AgriBriefing”), a company based in London that provides price reporting data on a subscription basis to participants in the agricultural industry. Although the Ares Entities do not hold the largest voting position in AgriBriefing, their holdings of ordinary and preferred shares represent a majority of the outstanding equity interests in AgriBriefing. In addition, the Ares Entities hold certain contractual veto rights and the right to appoint a director to the board of directors of AgriBriefing. As a result, under applicable SEC definitions, the Ares Entities may be deemed to control AgriBriefing; however, this statement is not meant to be an admission that common control exists.

Subsequent to completion of the Ares Entities’ investment in AgriBriefing, in connection with Ares’ routine quarterly survey of its investment funds’ portfolio companies, AgriBriefing informed the Ares Entities that it had subscription contracts with five customers whose billing addresses were based in Iran. We have not been able to verify the identity or affiliations of these customers. As a result, it appears that we are required to provide this disclosure under ITRA and Section 13(r) of the Exchange Act.

These subscriptions generated annual gross revenues of less than €25,000 (less than 1% of AgriBriefing’s revenues) and de minimus net profits.

AgriBriefing has confirmed that each of the subscriptions commenced prior to the investment in AgriBriefing by the Ares Entities, and that it has terminated these subscriptions and does not intend to engage in any further dealings or transactions with these customers.

Based on currently available information, we and the Ares Entities have no reason to believe that any of the five customers are listed on the U.S. Treasury Department Office of Foreign Assets Control list of Specially Designated Nationals or that AgriBriefing has conducted any dealings in violation ITRA.

This disclosure does not relate to any activities conducted by Ares and does not involve Ares. This disclosure relates solely to activities conducted by AgriBriefing and its consolidated subsidiaries.

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Item 6. Exhibits, Financial Statement Schedules

(a)Exhibits.

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



Exhibit No.		Description
3.1		Certificate of Incorporation of Ares Management Corporation (incorporated by reference to Exhibit 99.3 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on November 15, 2018).
3.2		Bylaws of Ares Management Corporation (incorporated by reference to Exhibit 99.4 to the Registrant’s Current Report on Form 8-K (File No. 001-36429) filed with the SEC on November 15, 2018).
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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

* These certifications are not deemed filed by the SEC and are not to be incorporated by reference in any filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, irrespective of any general incorporation language in any filings.

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SIGNATURES



	ARES MANAGEMENT CORPORATION


Dated: August 1, 2019	By:		/s/ Michael J Arougheti
		Name:	Michael J Arougheti
		Title:	Co‑Founder, Chief Executive Officer & President (Principal Executive Officer)


Dated: August 1, 2019	By:		/s/ Michael R. McFerran
		Name:	Michael R. McFerran
		Title:	Chief Financial Officer & Chief Operating Officer (Principal Financial and Accounting Officer)