Welcome to the Ares Management, L.P. First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded on Tuesday, May 12, 2015. I would now like to turn the call over to Carl Drake, Head of Ares Management Public Investor Relations. Please go ahead.

Good afternoon and thank you for joining us today for our first quarter earnings conference call. I am joined today by Michael Arougheti, our President; and Michael McFerran, our Chief Financial Officer. In addition, Greg Margolies, our Head of Tradable Credit; and Bennett Rosenthal, our Co-Head of Private Equity will also be on the call today and available for questions. Before we begin, I want to remind you that comments made during the course of this conference call and webcast contain forward-looking statements and are subject to risks and uncertainties. Our actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in our SEC filings. We assume no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results. Moreover, investors should note that investment performance of our funds as well as an investment in our funds is discrete from an investment in Ares Management L.P. During this conference call, we will refer to certain non-GAAP financial measures. We use these as measures of operating performance, not as measures of liquidity. These measures should not be considered in isolation from, or as a substitute for, measures prepared in accordance with generally accepted accounting principles. These measures may not be comparable to similarly-titled measures used by other companies. In addition, please note that our management fees include ARCC Part I Fees. Please refer to our earnings release and Form 10-Q for definitions and reconciliations of these measures to the most directly comparable GAAP measures. I’d like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Ares funds. We’ve also posted a new first quarter earnings presentation under the Investor Resources section of our website at aresmgnt.com, which can be used as a resource for today’s call. To give a quick recap of our first quarter results, we generated $0.35 per unit in after-tax economic net income and $0.26 per common unit in distributable earnings, up 18% over the prior year period. We also declared a first quarter distribution per common unit of $0.25, our highest quarterly distribution as a public company. I will now turn the call over to Michael Arougheti, Ares’ Co-Founder and President.

Great. Thanks, Carl, and good afternoon, everyone. I’m more then pleased to be joined today by our new CFO, Michael McFerran, who joined us a little over a month ago. And as you may have seen from our press release, Mike has extensive public company experience in the alternative asset management sector and a deep accounting and finance expertise across the financial services industry. We believe he will be a great asset to our senior leadership team, not only in leading our reporting functions, but also implementing new value add systems to support our growth and business management. I’d also like to take this opportunity to thank Dan Nguyen for his service as our CFO and his many contributions to the firm over the years. Dan, of course, continues to be a highly-valued financial executive at Ares, serving as the Divisional CFO for both our Tradable Credit and Private Equity Groups, as well as assisting on strategic projects. So, before I walk you through a few highlights for the first quarter, I’d like to start with maybe some market observations that will contextualize our investment strategy and growth opportunity in the current market environment. In general, we are seeing good underlying economic fundamentals in our markets with benign credit and fairly solid earnings growth. However, excess liquidity in certain markets has created supply/demand imbalances, which can have mixed implications for our business. On the one hand, asset values are higher on realizations and our access to efficient capital has improved, enhancing our returns. However, this has to be measured against increased competition for assets making selectivity critical at this stage of the cycle. At Ares, as you know, we leverage our proprietary sourcing and research advantages across our collaborative platform to invest in what we view as superior risk reward…

Thanks Mike. I’m truly thrilled to be part of Ares and work with this extraordinary group of people, as I’ve started of here over the past six weeks. I look forward to meeting everyone on the call in the months ahead. And to start with a quick summary of our results and key metrics and then follow up with a review of our balance sheet and our upcoming distribution. Overall, we are pleased with our performance, as we begin the year with double digit year-over-year growth across all key metrics, including AUM, Fee Earning AUM, and fee related earnings. In addition to asset and towline growth, we have witnessed strong margin improvement to scale and cost management. Now let’s go through the numbers. For the first quarter generated management fees and fee related earnings of $162.3 million and $47.6 million, respectively, a growth rate of 16% and 54% over the prior year period. Our first quarter fee related earnings also benefited from year-over-year and sequentially through substantial margin improvement totaling 720 basis points and 440 basis points respectively. First quarters fee related earnings growth of $7.6 million compared to fourth quarter fee related earnings of $40 million reflected the contribution from EIF, as well as certain scale and cost efficiencies as we manage the business to a higher contribution margin. Also as a reminder, our fourth quarter earnings included $6.2 million of catch up management fees from our real estate private equity funds. Looking longer term, we continue to expect management fee growth from additional capital raising, as well as new management fees paid on funds where we are paid as we invest. Of our $10.1 billion in AUM not yet earnings fees, we would expect to earn approximately $98.5 million in annual management fees assuming new investors capital. Moving…

Great, thanks Mike, again, great to have you onboard. As we cross our one year anniversary as a public company, we are pleased that we’re delivering on our key performance metrics including quality fund performance, double-digit asset growth, margin improvement and a relatively steady distribution. The fund raising environment and outlook for us remains very strong as Ares is increasingly becoming an attractive solutions provider for an increasing number of global investors. On the investing side, our $18.9 billion of dry powder gives us the ability to grow our fee streams as we patiently invest this capital. As I said, we continue to be highly selective, leveraging our platform advantages to invest opportunistically with a broad market view. Moreover, our balance sheet and access to capital provide optionality for us to expand our business with accretive acquisitions like EIF and to execute on our core strategic growth objectives. So ultimately, our goal continues to be to offer stable and predictable distributions built around a high percentage of growing fee related earnings and enhanced by long-term performance fees. And that concludes our prepared remarks. Again, thanks everyone for your time and support and operator if you’d open up the line for questions.

Thank you. [Operator Instructions] Our first question comes from Mike Carrier from Bank of America Merrill Lynch.

Thanks guys. First question, just on the fee related earnings and the margin and I realized EIF come in and so there was some benefit there but just wanted to get a sense, I think the pace that we saw even sequentially, over 400 basis points of operating leverage was more than expected. So just wanted to get a sense on the outlook, anything like unusual in either the comp or the non-comp, maybe expense lines or on the management fee side, any types of catch ups that benefited the quarter to boost the margin?

Yeah, I’ll just make a general comment. Obviously, as we said in the prepared remarks, EIF was a contributor as we brought the fee paying AUM onboard and got the efficiencies from those new assets. Secondly, as I highlighted, on deployment and this would be a recurring theme, the fact that we continue to have $10 billion-plus of assets that we manage that are not currently generating fees, obviously, with that deployment comes very accretive growth. And as Mike said in his prepared remarks, we believe that based on the dry power that we have today as it invest, there is about $98.5 million of embedded management fee that comes at a very high margin. Third, as we’ve discussed, I think on the prior two earnings calls, both prior to becoming a public company but I think now more than ever as a public company, we are laser focused on generating good efficiencies in our middle and back office. We’re laser focused on building out scalable systems so that we can actually drive margin absorption and frankly, we’re holding our business heads much more accountable for delivering margin and delivering comp against that margin. So it’s really a combination of all of those things. I would not expect to see a 440 basis point increase in FRE margins every quarter, but obviously we’re thrilled with the trajectory.

Okay, thanks. And then maybe a second question. Just on investment income, [indiscernible] came in a bit – maybe a bit lower than expected, but it sounds like performance across a lot of the products was relatively strong. So I didn’t know if there was something that was a nuance that created maybe less upside on the investment income with the balance sheet or if it was something else. Just any color on that?

Yeah, it is a little bit of an anomaly because if you look, as I highlighted, across almost every strategy we’re managing we’ve seen very good sequential performance. Two big things to highlight on the investment income; one, we had two positions in our ACOF Asia fund that had mark-to-market challenges in the quarter, just based on some of the volatility in the market and we also saw some volatility in the mark-to-market in some of our special situations funds, driven little bit based on the energy volatility there. So nothing that we’re concerned about, in fact, most of the investments contributed to that softness have actually improved post quarter-end and that’s basically it.

Okay. Alright, that’s helpful. Thanks a lot.

Sure.

Thank you. Our next question comes from Ken Worthington from JPMorgan.

Hi, good afternoon. First on the acquisition front. EIF closed in 1Q. I think you’ve got First Capital closing in 2Q. How does the environment look for further acquisitions as you look out to the rest of the year and I guess how regularly are you in conversation with firms? Are conversations fairly regular? Are they few and far between and maybe how is that changed in the last year or so?

Sure. So there is a couple of questions in there. I’m going to take it very high-level to start because we’ve talked about this before. We believe that our industry is consolidating, for better or for worse? I would say for better. It’s consolidating behind a couple of key industry trends one of which is that the global investor base in shrinking its number of manager relationships. Two, I think both the institutional and retail investor has recognized the benefits of scale both in terms of information and investing advantages, relationships with the Street, deal flow et cetera, et cetera. So the consolidation trend is undeniable. There is also an underlying trend that we’re experiencing in EIF, an area where no exceptions, which is, there is a generational transfer that’s occurring within the alternative asset management space. So to oversimplify it, if you go back and say that the bulk of alternative asset management platforms were put in place in the late 80s and early 90s, you now have a class of founders and senior partners who have built really high-quality institutional businesses and are thinking about the longevity of those platforms. And so when you think about this consolidation trend, the supply of opportunity is increasing just at a time when the demand for scale platform is increasing. I think that’s why you are seeing so much M&A opportunity particularly in these smaller and mid-sized alt managers. Second, as we’ve talked about before, acquisitions have always been a part of our growth story. We’ve enjoyed tremendous organic growth, but have always used acquisitions of teams, assets, platforms, to enhance our capabilities and then try to deliver better returns to our investors. That being said, you will not see us just making acquisitions for acquisition sake or acquisitions to bulk…

Okay, great. And then, just secondly, in terms of returns, it looks like private equity had a very good quarter in terms of returns. So what got well or particularly well there this quarter and then real estate seem to not do as well, maybe what didn’t work as well in real estate this quarter? Thank you.

This is Bennett Rosenthal by the way. I would say from a private equity perspective, if you look down the list, there is a lot of green in terms of improved valuation, which would tell you – and if you look at our EBITDA growth across the portfolio, it’s pretty strong. So it’s pretty much across-the-board in terms of our private equity portfolio with nothing really dominating as I look at it. We obviously took Smart & Final public and that’s doing quite well and we’ve had growth in a number of other portfolio companies. So it’s pretty broad based across the portfolio.

Okay, okay. And in real estate?

On the real estate funds, I mean, the returns were low-single digits. Just looking at the asset class and where we are, we don’t think those were bad. And as you know, if you look, the nature of these assets is you are not necessarily going to have linear relationships of appreciation.

Okay, okay. Fair enough. Thank you very much.

Thank you. Our next question comes from Doug Mewhirter from SunTrust.

Hi, good afternoon. I just had a question. This is partially addressed from ARCC’s view point week or two ago, but I just wanted to see – get your comments on the uncertainties surrounding GE Capital. And, obviously, it may or not affect ARCC directly, but also how it would affect the other markets in which you participate in? Because obviously they are a very broadly diversified platform sort of the good and the bad from what is happening now.

Sure. Again, as I often do, I will try to take this high level and then maybe get specific on some of the markets that we play in. To start, as I – and I mentioned this in our prepared remarks, generally speaking, Ares’ position to take advantage of market dislocation probably the biggest singular trend driving our business right now is changing bank behavior both in the U.S. and Europe. It is having a meaningful positive impact on the opportunity in U.S. and European Direct Lending as well as our Tradable Credit business. I view the GE announcement of, a couple of weeks ago, really as just the continuation of this trend of banks and regulated institutions exciting attractive markets to our benefit just because of regulatory cost of capital, regulatory burdens, et cetera, et cetera. So, at a high level, GE exciting the business is a very, very good thing for Ares. We expect that it will create opportunities within direct lending both in the U.S. and Europe. We think that it will create opportunities in our commercial real estate lending businesses in both the U.S. and Europe. We think that it will drive growth in our commercial finance platform, which as we’ve talked about is still in its infancy as a business here, but has been growing quite dramatically. So, I would expect increased share because of GE leaving for Ares. I would also expect that the ROA and ROE on a lot of the businesses that GE used to participate in will become more attractive. As good as GE is at credit and investing in many of the markets where we would bump into them, they were effectively an unnatural competitor. They have the lowest cost of capital with the highest balance sheet leverage and, as…

Good. Thanks, it’s very helpful. Thank, that’s all my questions.

Thank you. Our next question comes from Michael Cyprus from Morgan Stanley.

Hi this is Nick Stelzner filling in for Mike Cyprus. Just a question on energy investment opportunity you seemed cautious but optimistic on the opportunity last quarter, can you provide some color on how that has panned out and are you still seeing opportunities in the space?

Sure. This is Greg Margolies and our review generally has been very much two-fold. One taking what the market is offering and what I mean by that there has certainly been price volatility over the course of the last six months in the energy space across both E&P, as well as services and we are very selective in terms of our entry point and that’s what I mean by taking what the market is offering. Secondly, we are also very selective in terms of the companies we are looking at. We don’t believe that it is everything for sale is a good sale or good buy in energy today or even over the course of last few months. So, we’ve been very selective in terms of the companies that we are investing in, where the assets are, what patients remain in those [indiscernible] in those patients, cost of lift etcetera. So, we have been very selective we are happy with the positions we have built in our portfolio across our alternative businesses in tradable credit. We certainly have had an uplift as WTI is up to over $60, $60.5 today. That volatility and the underlying commodity has driven volatility, upward volatility recently in the underlying loan and bond prices. So, we continue to watch the market for interesting entry prices in the select unions that we follow when we like.

Great, that’s very helpful. And then just one other unrelated question on expenses, as we look forward from here if the current quarter is going to comp and non-comp expense amounts is that the right starting point and how should we think about the growth rate from here as you guys build out the platform?

You know the team is [indiscernible] past earnings calls. As the business grows we think there is a lot of scalability, built within in as we deploy the dry power Mike talked about, but the existing investment team. So, I think this is a good starting point I think about future quarters.

Okay great. That’s helpful, thank you.

[Operator Instructions] Our next question comes from Robert Lee from KBW.

Thanks. Good morning or afternoon everyone. First question is I guess on expanding the LP base, I mean I know that’s been a objective of the firm particularly expanding the base of LPs outside the U.S. could you maybe update us with any kind of statistics or what not that you may have on the progress there?

Sure. So, Robert I think there are really two themes that we’ve highlighted in the past. One is increasing the LP base and two increasing the amount of cross-selling within the LP base. And I will give you a couple of statistics to help think about it, but hopefully over time what you will see as we deploy more resources behind our business development and marketing efforts and we broaden our product offering that you’re going to see both of those occurring. So, order of magnitude over the last year we’ve raised close to $10 billion about $9.6 billion organically for that 108 new institutional investors, about half of those investors were new to Ares. So, again that’s also telling you that we are cross-selling very efficiently into our existing LP base and then as you would expect when we make acquisitions like we did with EIS, it gives us the opportunities I mentioned in my prepared remarks to cross-sell our product into that very happy LP base. So, to put that in perspective EIS came with about $4.6 billion of AUM in the first quarter. They had a 129 institutional limited partners that 85 of them we did not have a relationship with. So, what you are going to see is as we get out into the market and market our products and mark the platform capabilities we’re going to broaden the investor base and then obviously as we make some of these tuck-in acquisitions we’re going to get introduced to loyal LPs who I think will have an open mindedness to trying out new product in other parts of the platform where they maybe underinvested. And then lastly, as we’ve articulated in the past we are seeing global demand for alternatives increasing across all of our investor classes from pension sovereigns, insurance, high network endowments etcetera. We have put renewed focus on the insurance base, as we’ve said on prior calls. And an interesting statistic if you look at the first quarter, about 65% of the capital that we raised in the first quarter actually came from insurance companies. And if you look at the AUM that we manage now, about $3.6 billion a year ago has grown to about $6.8 billion from the insurance market. So the efforts that we’ve been putting behind generating more demand for the assets we manage in that space is bearing fruit as well.

Alright, great. And then maybe a quick kind of follow up on the distribution, you know, if I look at it, it’s I guess, this quarter, last quarter kind of have been paying out somewhere around 95% of DE and I guess, who is relative to where, a year ago when you first went public, that’s a little bit higher payout rate than I would have expected. Should we be thinking that, that’s really kind of a payout rate to expect going forward? Obviously it will bounce around giving your capital needs or is the goal here really kind of to have this base distribution around $0.24, $0.25 and kind of build from there. I mean how should we be thinking of that?

Yeah, I think our thinking on that, frankly, is developing as we continue to operate in the public markets more than anything we think it’s important that we have predictability and stability in the distribution and if we execute the way that we know we can, we should also see growth. So I’d say in the early days, it is more important to us that we are focusing on the stability and the predictability of that distribution which has been reflected in our past four quarter’s performance. The range of distribution that we put out at the IPO I think still stands. You may see a slightly above or slightly under in any given quarter, but generally speaking, I think we’re going to try to stick to that initial range.

Okay, great. And then maybe then just one last question if I could on capital raising. I guess you mentioned you raised just under $10 billion organically last year, the past 12 months about $2.5 billion, I guess first quarter. You have a lot of initiatives, is there kind of a general kind of capital raising goal that you have for 2015 or the next 12, 18 months. The kind of comfortable kind of the current pace do you think there is a potential for it to even accelerate some, just given the backdrop of strong demand.

Yeah, so just to clarify the $10 billion because if people try to reconcile the number, understand that $10 billion that I quoted was just from direct institutional investors, but as people know, we raise a significant amount of capital through our publicly traded entities and indirectly through things like CLOs. So when you look at the last 12 months numbers, I believe it’s that $14.5 billion relative to the $9.6 billion of total AUM. Look, I think that the pace that we’re on is a good pace. I do believe it can accelerate for the fine reason and I mentioned this in the prepared remarks. If you look at our current fundraising pipeline, we are in the really nice position now of being in the market or soon to be in the market with what we would call flagship funds in many of our core strategies and I think, as most people know, the flagship funds tend to, while they raise episodically, if you have good performance, you tend to get them in and out of the market more quickly and you tend to get them raised at higher levels from the predecessor fund. So whether we’re talking about the special situations fund that we just closed at $1.5 billion against $1 billion target or our third European direct lending fund or our [indiscernible] power fund, you are starting to see funds three, four, five and mature strategies with a lot of momentum. So I can craft some scenarios here where that kind of momentum would continue just based on the strategies we’re in the market with.

Alright, great. Thank you for taking my questions.

Thank you.

Thank you. At this time, we have no further questions. I will turn the call back over to mismanagement for closing remarks.

Great. We have no further prepared remarks. Again, now that I just wanted to welcome Mike to his first call here and thank him and also thank you for your time and attention staying. We look forward to catching up again next quarter.

Thank you. Ladies and gentlemen, this concludes our conference call for today. If you have missed any part of today’s call, an archived replay of this conference call will be available through June 11, 2015 by dialing 877-660-6853 and to international callers by dialing 1201-612-7415. For all replays, please reference conference number 13606085. An archived replay will also be available on the webcast link located on the home page of the Investor Resources section of our website. Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.