Welcome to the Ares Management Corporation's Third Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded on Monday, November 3, 2025. I will now turn the call over to Greg Mason, Co-Head of Public Markets Investor Relations for Ares Management.

Good morning, and thank you for joining us today for our third quarter 2025 conference call. I'm joined today by Michael Arougheti, our Chief Executive Officer; and Jarrod Phillips, our Chief Financial Officer. We also have a number of executives with us today who will be available during Q&A. Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. Please also note that past performance is not a guarantee of future results and nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in Ares or any Ares Fund. During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our third quarter earnings presentation available on the Investor Resources section of our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. Note that we plan to file our Form 10-Q later this month. This morning, we announced that we declared a quarterly dividend of $1.12 per share on our Class A and nonvoting common stock, representing an increase of 20% over our dividend from the same quarter a year ago. The dividend will be paid on December 31, 2025, to holders of record as of December 17. As we have in the past, we expect to announce an increase in our quarterly dividend level beginning with the first quarter of next year. Now I'll turn the call over to Mike, who will start with some comments on the current market environment and our third quarter financial results.

Thank you, Greg, and good morning. We appreciate you joining us. Ares generated another outstanding quarter of financial results, reflecting the broad-based strength of our investment platform, our leadership in many of the fastest-growing private market segments, and the continued strong fund performance that we're providing to our investors. Our third quarter results included strong year-over-year growth in management fees of 28%, FRE of 39%, and realized income of 34%. We raised more than $30 billion of new capital in the quarter, which was our highest quarter on record. Year-to-date, we've raised over $77 billion and over the last 12 months, we've raised over $105 billion, up 24% from $85 billion in the comparable prior year period. Our gross deployment was even stronger, totaling over $41 billion invested in the quarter, 55% higher than the second quarter, and 30% above our previous high in the fourth quarter of last year. As a result, AUM increased to more than $595 billion, and fee-paying AUM increased to $368 billion, both up 28% year-over-year. We're experiencing significant growth across nearly every major investment strategy as demand from both institutional and individual investors continues to increase. Investors are seeking durable income above what they can find in the traded markets as well as differentiated private market solutions in asset classes like infrastructure, real estate, secondaries, and global private credit. Based on our continued strong fund performance and the strength and breadth of our fundraising channels, we now expect to meaningfully exceed last year's $93 billion. We continue to see strong fundamental credit performance and solid growth metrics across our portfolios. Our net realized loss rates remain very low and are consistent with our cumulative average annual loss rate of just 1 basis point that we've generated in our direct lending strategy over the past 2 decades. We're also seeing the transaction market starting to rebound across many of our investment groups and believe that we are well positioned for new deployment opportunities with nearly $150 billion in dry powder. Our firm-wide investment pipeline remains at elevated levels near our record pipeline that we discussed 3 months ago. Our fundraising continues to benefit from our strong and diverse product lineup of approximately 40 funds in the market. We're seeing continued high demand for our private credit strategies from both institutional and individual investors and accelerating interest in areas outside of private credit. During the quarter, we held the final close for our third infrastructure secondaries fund. We noted on last quarter's call that we believe the fund would hit its hard cap of $3 billion in the final close. Due to investor demand, we increased the hard cap and closed on $3.3 billion in equity commitments, which resulted in the fund being over 3 times larger than its predecessor, including $2 billion in related vehicles. We believe that this $5.3 billion pool of capital is among the largest ever raised in the infrastructure secondaries market. The market opportunity for deployment is strong and building as GPs seek solutions, and LPs seek liquidity. Even with the significant upside in this fund, we estimate that 35% of the fund could be committed by the end of the year. Also in the infrastructure sector, we anticipate additional closings this week, marking the first official close of our sixth infrastructure debt fund, which would bring the total to $5.3 billion in capital, inclusive of related vehicles and leverage with $2 billion raised post-quarter end. Notably, the team has already committed $2.5 billion of capital across North America and Europe. We're seeing significant momentum across our entire infrastructure platform, which includes debt, core and opportunistic equity, data centers, and secondaries. Over the past 12 months, including the commitments to infrastructure debt early in the fourth quarter, we've raised over $10 billion across our various infrastructure products. We had another strong quarter in our credit strategies, raising $19.3 billion with particular strength in our perpetual capital funds. In alternative credit, our open-ended core alternative credit fund raised over $1 billion in its semi-annual subscription on September 30, bringing total AUM in the fund to over $7.4 billion. We believe that this is the largest non-rated asset-based finance fund in the market, and we've now raised 3 out of the 4 largest institutional ABF funds in the non-rated market. Also at quarter-end, over $3.4 billion of LP commitments in Pathfinder II, representing more than half of total fund commitments, elected to extend the reinvestment period for another 2 years, providing additional investment capacity for our Pathfinder series. Our leadership position could further widen next year with the launch of our third alternative credit fund in January. Also within credit, we held the final close for our inaugural specialty healthcare fund with $1.5 billion in total available capital, including anticipated leverage. Within real estate, we're seeing positive fundraising momentum. Our fifth Japan industrial development fund is targeting a significant first close in the first quarter of 2026, and we anticipate our 11th U.S. value-add real estate fund could hit its hard cap of $2.6 billion in the first part of next year, significantly exceeding the $1.8 billion raised in the prior vintage. We believe our real estate business is benefiting from its strong track record as certain LPs are rotating away from other real estate managers to Ares. Last week, we also held a final close for ACOF VII, bringing total commitments in the fund to $3.8 billion. The final close was above our most recent expectation as we believe both ACOF VI continued top quartile performance and ACOF VII's seed portfolio and strong pipeline provided some late-stage momentum. ACOF VII turned on its management fees on November 1. As we look to next year, we see continued strong demand for our institutional funds. In addition to the funds in the market I mentioned previously, we anticipate good momentum into the final close for our third special opportunities fund, which has closed on over $5.9 billion, and we expect a number of new funds in the market, including our seventh special situations fund in Asia, our 10th real estate secondaries fund, and a new large global fund in our digital infrastructure business based upon our global seed portfolio, just to name a few. In late 2026, there is potential for the launch of our fourth U.S. senior direct lending fund. The strength of our institutional fundraising this quarter was matched by continued momentum in our wealth business. August marked a new monthly record for equity capital raised across our semi-liquid funds, surpassing $2 billion and fueling our highest quarterly equity inflows in our history at $5.4 billion. Year-to-date, through the third quarter, we've raised over $12 billion in gross equity capital in our semi-liquid wealth strategies, up more than 70% year-over-year, and our market share for the third quarter exceeded 10%, ranking us #2 in industry fundraising per industry data. Our results reflect the enhanced scale, diversity, and durability of our global wealth platform. Approximately 40% of third quarter inflows came from outside the U.S., including strong demand from Japan following our first dedicated product launch there. We also saw early momentum in our sports and infrastructure offerings, which are expanding our reach across RIAs and family offices and key geographies such as Canada, the Middle East, and Asia Pacific. The third quarter was also a record fundraising quarter for our diversified non-traded REIT, driven by our industry-leading 1031 Exchange program and the highest quarterly common stock raise in over 2 years. We remain the market leader in the 1031 Exchange space with over 20% market share, and we recently closed on the largest transaction in history, approaching $100 million in size, which underscores our ability to execute complex exchange opportunities at scale. We continue to see strong inflows this quarter and remain confident in the long-term growth of our wealth business. Just last month, we raised our 2028 AUM target for semi-liquid wealth products from $100 billion to $125 billion, reflecting both our current run rate and the strength of adviser demand across geographies and channels. With 8 semi-liquid products gaining momentum, we believe that we're well positioned to meet evolving investor needs for durable income, diversified equity growth, and tax-advantaged real asset exposure that can protect against inflation. Our wealth distribution footprint continues to expand, yet of our 80-plus partnerships, about half currently distribute only one product, highlighting significant white space for multiproduct expansion. We're also deepening engagement across the RIA and IBD channels, where we see meaningful opportunity for private markets adoption. We believe the secular shift toward private markets and wealth portfolios is still in its early innings. Our ability to innovate, deliver strong investment performance, and broaden access globally positions us well to lead this transformation.

Thanks, Mike. Good morning, everyone. As Mike stated, our business continued its acceleration in the third quarter with 20-plus percent year-over-year growth in both AUM and FPU, translating into robust management fee and FRE growth and culminating in 25% year-over-year growth in after-tax realized income per share of Class A stock. We see broad-based positive momentum across our businesses as we continue to attract significant capital in the institutional and wealth channels, source differentiated new deployment opportunities, and ultimately seek to deliver attractive risk-adjusted investment returns for our investors. Now let me walk through a summary of our quarterly results. Management fees were a record $971 million, representing a 28% year-over-year increase. Along with the significant final close of our third infrastructure secondaries fund that Mike discussed, we generated $29 million in catch-up fees during the quarter. Excluding all catch-up fees, management fees increased at a 21% annualized rate compared to the second quarter due to the strong net deployment and a 21% annualized run rate increase in FPAUM during the quarter. While we anticipate that catch-up management fees will return to more normalized levels next quarter, the pipeline for new deployment remains elevated. We have $81 billion of AUM not yet paying fees that is available for future deployment and $4.6 billion of development assets not yet stabilized that could generate over $770 million in additional management fees. Other fees were up modestly over the second quarter, largely due to a small amount of leasing fees from our new Japan data center development fund. Fee-related performance revenues totaled $85 million in the quarter. The most notable contribution was the annual payment from our open-ended core alternative credit fund. As a reminder, this fund crystallizes FRPR annually in the third quarter for the prior year period. So this year's crystallization represents 2024's AUM and returns. As Mike mentioned, this fund continues to increase its AUM. This gives us good insight into 2026's potential FRPR, which assuming continued performance of the fund has the potential to be larger at this time next year, simply due to the growth in AUM. As we look to the fourth quarter, we anticipate approximately $125 million in FRPR from the credit group, which would bring total FRPR year-over-year growth to approximately 17%. This anticipated growth reflects the strong net additions in our FRPR-eligible funds and solid credit performance, which more than offsets the 100 basis point decline we saw in base rates. I would note that our fourth quarter payments are based on total returns for the year and could be impacted by changes in market values into year-end. Within real estate, our diversified non-traded REIT is on a trajectory that could enable us to generate a small amount of FRPR in the fourth quarter, assuming continued performance at the current annualized level as the fund is above its high watermark and approaching its 5% hurdle rate. We now believe we're positioned to generate FRPR from our diversified non-traded REIT next year, dependent on the market backdrop and fund performance. To put the potential FRPR in perspective, hypothetically, if we had started off 2025 at our high watermark and just needed to exceed the 5% annual hurdle, we estimate that the diversified non-traded REIT would have been able to generate approximately $30 million in gross FRPR or about $12 million of net FRPR at the current annualized level. Based on a continuation of its current performance trajectory, our industrial non-traded REIT could also exceed its high watermark in 2026. Compensation and benefit expenses increased 4.6% quarter-over-quarter, reflecting headcount growth and higher performance expectations, but it increased at a slower rate than our non-Part I management fees, which grew 7.6%. This excludes both Part I and FRPR, which remain at fixed ratios on associated revenues. Excluding supplemental distribution fees, which increased $4 million over the previous quarter due to record fundraising in the wealth channel, G&A expenses also grew at a slower rate than management fees. We expect that G&A expenses should not grow more than 50% to 75% of the rate of management fees on a long-term basis, and we expect continued improvement in that percentage as we scale various strategies. Fee-related earnings of $471 million for the quarter increased 39% year-over-year. FRE margins totaled 41.4% in the third quarter, up slightly from the second quarter. But as expected, the integration of GCP continued to temporarily compress margins in the third quarter. We expect full-year FRE margins to be at or slightly above 2024 levels, including the impact from GCP. Given the expense reductions and growth in revenue we expect in GCP throughout 2026, next year is expected to be a better year for margin expansion, and we expect to be closer to the top end of our 0 to 150 basis point annual margin expansion guidance. Turning to our performance-related balances. We experienced very strong market appreciation across our investment portfolios this quarter and net accrued performance income on an unconsolidated basis also increased 9.2% to $1.2 billion at the end of the quarter, of which over $1 billion is in European-style waterfall funds, with the remaining $180 million in American-style funds. We currently expect more material amounts of these potential American-style performance fees could be recognized in 2026 and beyond. With respect to our European-style funds, we continue to expect $500 million in total net realized performance income across 2025 and 2026 combined. From a timing perspective, it is difficult to be precise on the specific quarters, but we anticipate we will see approximately $450 million over the next 5 quarters, including $200 million in Q4 and early Q1 combined. Realized income totaled $456 million for the quarter, a 34% year-over-year increase. During the quarter, our effective tax rate on realized income was 8.6%, which is in line with our range of 8% to 12% for 2025. As you can see in the earnings presentation, we continue to generate strong performance across our strategies with nearly every composite reporting solid quarterly and annual returns. In credit, our primary strategies have generated double-digit returns ranging from 10% to 23% over the last 12 months. That strong performance continued in the third quarter. Quarterly gross returns were 7.2% for our APAC credit strategy, 5.6% for alternative credit, 4.8% for U.S. junior direct lending, 4.2% for opportunistic credit, 2.6% for U.S. senior direct lending and 2.3% for European direct lending. As we've scaled our direct lending funds, we've generally seen performance as good, if not better, than the predecessor fund. In real estate, we continue to see improvements in rent growth and property values. Our Americas real estate equity composite is up 9.1% on a gross basis over the last 12 months, and our diversified non-traded REIT has generated a net return of 7.9% for the first 9 months of the year. In our secondaries group, APMF continued its strong performance with gross returns of 14.7% over the last 12 months. I'll now turn the call back to Mike for some concluding remarks.

Thanks, Jarrod. Before wrapping up the call, I want to provide some thoughts about current credit market conditions. Due to several high-profile bankruptcies or instances of fraud in the news, there have been many questions and concerns about what this could mean for a credit cycle and private credit players like Ares. Based upon the strength that we're seeing in our portfolios and what we're hearing from our peers and general credit trends, these events appear to be idiosyncratic and isolated, and not the sign of a turn in the credit cycle. From our vantage point, our credit portfolios also remain healthy, and we've not seen any deterioration in credit fundamentals or changes in amendment activity that would indicate a turn in the cycle is coming. Within corporate credit, over 93% of our credit exposures are senior debt. Our loans on non-accrual at our publicly traded BDC, Ares Capital Corporation, are 1% at fair value and 1.8% at cost, a decline from the second quarter and 100 basis points below ARCC's historical average. From a fundamental standpoint, we continue to see healthy year-over-year double-digit EBITDA growth across our U.S. direct lending strategies and interest coverage ratios are improving. Loan-to-value ratios remain conservative and near historic lows at roughly 42% in the U.S. and 48% in Europe. This means that our corporate borrowers would have to lose on average more than 50% of their enterprise value, resulting in a total loss for the private equity sponsor before we lose $1 of our principal. Within our asset-based finance strategy, we're materially underweight non-residential consumer assets, which represent less than 5% of our entire ABF portfolio, while the broader industry is closer to one-third of their portfolios. Our alternative credit strategy has negligible exposure to subprime consumer assets at less than 1%, and its total auto exposure, which is mostly prime, is about 1% of our ABF AUM. Our non-accrual rate in alternative credit is essentially 0, and we're not seeing a material change in loss curves relative to our underwritten estimates. Our credit team operates with an open-source investment model focused on identifying attractive relative value across different asset classes. This means that we're never forced to invest in any particular sub-industry. Over 90% of our investments are either sourced through proprietary channels or via limited processes. These investments are directly structured, allowing us to embed collateral protections using our own downside analysis. Looking at the bigger picture, we believe that Ares would benefit if a credit cycle were to occur, as we have in past cycles. Performing for our investors is always our top priority, and we take pride in our historical track record of performance during previous credit cycles where we've generated higher returns than the peer average and the comparable traded credit markets. This outperformance has enabled us to be front-footed and accelerate our growth during these periods. For example, during the GFC, from the end of 2007 through the end of 2010, ARCC had no aggregate net realized losses for that 3-year period and generated 540 basis points of annual incremental return above the bank loan index with an annualized return of 11.2% over that 3-year period versus a 5.8% annual return for the leveraged loan index. The combination of higher spreads, credit outperformance, and the ability to raise capital from institutional investors during the market dislocation enabled us to increase our management fees at a 27% CAGR. We executed a similar playbook again during 2020 and 2021 through credit outperformance as exemplified by ARCC's lower non-accruals and net realized losses versus peers. When we combined our credit outperformance with our deployment of our significant dry powder, our management fees at Ares increased again at a 27% CAGR from year-end 2019 through 2021. We'd expect to see strong growth again if the credit cycle were to turn for a few key reasons. First, typically more than 85% of our annual revenue is generated by management fees and our management fees and fee-related earnings are generally insulated from credit losses. As an asset-light third-party asset manager, we have minimal direct exposure to loans and bonds, and we do not use significant amounts of leverage. At the end of the third quarter, we had a corporate investment portfolio of over $2.6 billion with approximately $331 million in credit assets compared to our $368 billion in fee-paying AUM. Second, when a credit cycle does occur, investors understand that it is often providing a superior vintage for returns as capital is scarce. For Ares, in every vintage year that was originated during the last 2 recessions from 2008 to 2009 and 2020 to 2022, we generated returns that exceeded our 20-year averages for both our U.S. senior and junior debt loans, and nearly all were 100 to 500 basis points better. In order to outperform, a firm must have capital to invest when others retrench. On that point, Ares possesses among the highest, if not the highest, amount of credit dry powder among our peers. Our ability to provide flexible capital and accelerate deployment has been key to our outperformance in previous cycles, along with our deep underwriting processes, significant diversification, strong restructuring teams, and emphasis on investing in cycle-resilient businesses and industries. Our experience tells us that the small potential for loss management fees should be more than offset by new management fees from deploying a small portion of capital already raised and not yet paying fees. So maybe now to conclude. We believe that the credit markets remain healthy and private credit spreads continue to offer meaningfully better risk-adjusted returns relative to traded credit markets, where spreads are near historical tights across investment grade, syndicated bank loans, and high yield. Private activity is increasing, spurred by the need for DPI, prospects of lower rates, and continued healthy cash flow growth. When we enter the next credit cycle, we believe that Ares, with its balance sheet-light management fee-centric model, will be well positioned to outperform and even potentially accelerate growth for the reasons that I cited. We continue to actively invest in growing and expanding our investment teams across products and geographies, and when combined with our significant fundraising efforts, we're better positioned than ever before to provide a broad range of investment solutions to our investors around the globe. I'm excited to see how 2025 wraps up, and I believe that we have very strong momentum heading into next year. Finally, we understand that we are now the largest eligible financial company not in the S&P 500 Index. When that time comes, we believe that entry would be beneficial to our shareholders. As always, I'm just so proud and grateful for the hard work and dedication of our employees around the globe, and I'm also deeply appreciative of our investors' continuing support for our company. And I think with that, operator, could you please open the line for questions?

Our first question comes from Alex Blostein with Goldman Sachs.

Lots of good color on credit. So I actually was going to ask you guys something on a different topic, which is about real estate and maybe real assets broadly. It feels like there's a number of green shoots across the real estate market, as you pointed out. So maybe you could expand a little bit how you envision your franchise position in case LP appetite starts to normalize and resume in the real estate channel across both the institutional base as well as your wealth clients.

Thanks, Alex. I think as people know now, our real estate business is global, and I think we are the third largest institutional real estate manager in the market. That gives us many of the benefits of scale that we've experienced over the years in other parts of our business in terms of origination, the ability to invest in portfolio management, and access to financing. And I think most importantly, our transformation to a fully vertically integrated platform. When you look at the business today, which, as I think we've talked about before, is largely concentrated in industrials and multifamily as our two highest conviction sectors. We now have the ability to develop through to asset manage the entirety of the business, and that's a highly, highly differentiated skill set. As you mentioned, there are tailwinds occurring in real estate. We are coming out of a period of pretty meaningful supply constraint in the market, which has supported values and rent growth across the portfolio. As we begin to see rates come down, that's usually pretty constructive for real estate transaction volumes. We're already beginning to see that. If you look at our real estate deployment quarter-over-quarter, Q3 versus Q2, we deployed about 51% more than we did last quarter. Year-over-year deployment in real estate around the globe is about 78% higher year-on-year. So we're already beginning to see the green shoots materialize, and I think given our position, we will be a pretty big beneficiary of that increased transaction volume.

And we'll go next to Steven Chubak with Wolfe Research.

So I also appreciate the color, Mike, on credit performance trends and the historical perspective. I too am going to ask on a separate topic of fundraising. Just the momentum you've seen is quite impressive, especially given the small contribution from campaign fundraising this past year. So as we look ahead to next year, just given a more meaningful contribution or anticipated contribution in campaign fundraising, the near-record transaction pipeline you cited, how are you thinking about the outlook, especially versus a tough 2025 fundraising comp? And how will that mix of deployment potentially evolve as we look ahead to next year?

Yes. Thanks, Steve. It's a good question. We came into this year giving you all commentary on two fronts. One, that we felt given what we saw in the world that we might be able to surpass our prior record of $93 billion. Here we are now after 3 quarters expressing high conviction that we, in fact, will. That's obviously a function of outstanding underlying performance that's supporting continued investor demand. I also think it reflects the continued investment we're making in our global distribution, both wealth and institutional. Interestingly, when we came into this year, it was in the absence of the large flagship credit funds that we made the prediction that we could beat our record. What that's demonstrating is the diversity of strategies is resonating with investors. We had over 40 funds in the market this year institutionally, and absent the large flagships, we've been able to put forward the type of results that we are. As I mentioned in the prepared remarks, I think next year, you're going to see us tying up some of our large funds that are currently in the market, opportunistic credit, some of our real estate funds, and then we will give way to some of our flagship credit funds again, like our Pathfinder series and potentially our senior direct lending fund. Lastly, I would just mention, and it's really the combination of wealth, but also just the way that the product portfolio has transformed to include open-ended funds, SMAs, broad global strategic partnerships, investments in growing our insurance business to name a few, the floor for annual fundraising just continues to be raised year in and year out. So unlike 10 years ago, where we saw much more volatility year-over-year, we go into any given year now just with a much higher level of conviction around what that base number could be. So we're pretty excited about next year. We'll know more when we get into the year and see what the market looks like and what our LP allocations are, but we don't expect this to slow down.

We'll go next to Craig Siegenthaler with Bank of America.

Can you guys hear me, OK?

Yes.

Perfect. My question is on the potential for lower yields in private credit, driven mostly by lower base rates. So how do you think investors will react to lower yields if the Fed continues to cut? Could we see softer private credit fundraising if they pivot to other asset classes? Or do you expect some of that record cash and money market funds on the sidelines to provide a new source of flows?

It's a good question, Craig. I would say in terms of investor appetite, and I've talked about this before when we've been in transitioning rate environments, the investor appetite for private credit exposures is not an expression of desire for absolute return. It's about relative return relative to the traded alternatives. When you look at where private credit spreads are, both high-grade and sub-investment grade, they're still offering a significant amount of excess return relative to the loan market, the bond market, and the IG market. If you look at private credit spreads today, they're probably 225 basis points in excess of the traded alternative, and that's kind of right in line with what we've seen historically. Based on real-time numbers coming through wealth in October and November, we're just not seeing any negative investor reaction to a shift in base rates. I'd also highlight that if you were to go look at the disclosures in ARCC, the business model is just not that sensitive to a decline in rates. Our historical experience has been that when rates are coming down, two things happen. One, credit spreads typically widen, and we've actually seen a modest widening already taking place within the private market. Transaction activity tends to pick up dramatically, and deployment increases, which in turn enhances fees. When you look at the impact of lower rates generally on the business, it tends to be a net tailwind, not a net headwind.

And we'll go next to Patrick Davitt with Autonomous Research.

Just touching on the point you just made on spread. Obviously, had some wobbles in the bank loan market, had some deals pulled and reprice, which theoretically, to your point, should be good for direct lending dynamics. So curious if you're seeing any signs that banks are getting more conservative, potentially less competitive. Through that lens, kind of how the new origination spreads track through Q3 and looking so far in Q4?

Yes. I think Kort and the team did a good job talking about our positioning on the ARCC earnings call, and we've tried as best we can globally to maintain a broad exposure to all parts of the private credit market from lower middle market through to upper nonsponsored/sponsored with really deep industry capabilities, not to mention all of the great work that we do in our ABF business. When we're looking at the bank behavior at the top end of the market, it's just less relevant to us than it is to other players who haven't made the investments in that core middle market origination. I would say right now, we're not seeing a meaningful pullback in risk appetite, but we are seeing spread moderation in our market. We probably saw 25 basis points of spread widening in the third quarter, and that may persist and continue. As volumes pick up and the supply/demand in the market gets back to stasis, that's generally a good thing for spreads as well. Even if we're in an environment where banks are still taking risks, when transaction volumes pick up, we tend to see more price stability. The good news for us is if it happens, we can go in and take share. If the banks continue to drive volumes into the loan and bond market, that's a big boon to our liquid credit business, and we tend to participate there. We’ve always felt like we’re well hedged against that behavior at the upper end of the market.

And we'll move next to Bill Katz with Cowen.

I joined a couple of minutes late, so I apologize if this question is a bit redundant. And maybe just to change topics a little bit. I was wondering if you could give us an update on the GCP transaction. It seems like the integration is going very well from Jarrod's comments on the margin opportunity into next year. But I’m wondering if you could talk a little bit about the growth opportunity, whether it be on the infrastructure side or the real estate side. It seems like still pretty fertile areas as well.

Jarrod, do you want to handle that one?

Bill, great to hear from you. GCP is going very, very well, as I mentioned in my prepared remarks. We're really excited about a number of different phases of that transaction. You highlighted what I mentioned in the prepared remarks around our expense synergies, but you also highlighted there in your question, two of the things we're pretty excited about. One is the expansion of the real estate platform. As Mike mentioned, that took us to one of the three largest alternative real estate managers in the marketplace today. That gives us advantages of scale. It's helping us to build out our vertically integrated real estate platform and is making us a player globally in a number of different geographies that we didn't have a presence before. The second piece and probably the most exciting piece is the opportunities in data centers. This is something I've talked to a lot of you about in the past, and we've discussed extensively in the market. We're very excited with the land that we've banked and the opportunity set that we have there. Not all data centers are necessarily created equal. What we've looked for and what we've banked are urban-adjacent sites that will provide low latency to those urban centers and be very attractive to cloud computing while being a beneficiary of AI, but not necessarily dependent on AI. These are really high-quality sites that investors are looking for. The ability to put them either into single-site funds like we did with our Japanese data center or to put them into funds that are co-mingled with a number of different sites in them is really exciting as we see that market demand on the fundraising side for these properties and these high-quality assets, and the ability to grow off of that. Right now, we have about $6 billion in the ground that we're going to be able to develop and manage, and that will lead to our next series of funds. That's not to mention some of the smaller things around the edges like the self-storage business, which we see meaningful tailwinds and a lot of growth opportunity. Across the growth front from GCP, it matches the profile of what we're trying to do as a business, which is continue to grow at that 16% to 20% FRE that we set out for you and the 20% plus RI targets that we've set out. This fits beautifully into that, and we're very excited to have them on board.

And we'll go next to Brennan Hawken with BMO.

I wanted to touch on wealth and fundraising. Mike, you spoke to the floor being higher in fundraising, and it looked like you had a nice acceleration on the wealth front. You also spoke to offshore being particularly strong. Was there anything in particular in the quarter that caused the pickup in fundraising on wealth to be particularly noteworthy? Or is this just a building pace that you expect to continue to strengthen?

Sure. Yes, we're super excited about the progress that we've made in wealth. I think as folks know, we have 8 semi-liquid products, all of which are growing nicely. We continue to add distribution partners and deepen our relationships with our existing platform partners as well. It was a very strong quarter, obviously. As you can see, Q4 is shaping up to probably be our second-highest quarter on record relative to this quarter. We've seen $1.3 billion of equity in October, another $1.6 billion in November, and then we'll see how December shakes up, but Q4 is shaping up to be a pretty strong quarter. I would highlight two things that probably elevated the Q3 numbers slightly relative to the run rate going into Q4. Number one is we meaningfully launched our efforts in the Japanese market, and we saw a very high demand in Q3 as we onboarded our platform partners there. I think we'll continue to see demand coming out of that market, but we won't get that big pop. Second, as some of these new funds are coming online like an ACI or an SME, you tend to see a little bit of front-loaded demand as those funds are getting seeded early in their distribution life cycle. I think Q4 is going to be really strong. My sense is it's shaping up to be the second highest, but it will probably fall short of Q3 just because of the few things I mentioned.

And we'll go next to Ken Worthington with JPMorgan.

Can you talk about the acquisition of BlueCove and liquid credit and how it fits into the insurance capabilities and your operations there?

Yes, thanks, Ken. It's a good question. We didn't talk about this a lot, but Ares started our partnership with BlueCove in 2023. We made a minority investment and began to spend time with the company, took a seat on the company's Board, and began to actively collaborate with the platform in our insurance business and our quantitative research group. We watched AUM go from about $1.8 billion to $5.5 billion. While still relatively small for Ares, we're seeing some pretty significant growth in demand. I think this is a very interesting complement to our existing actively managed loan and bond business, and they have a very interesting systematic IG capability, which, to your specific question, I think will be a meaningful value add to our affiliated insurance platform as well as our third-party clients. Our expectation is that the full acquisition will close in Q1, but you're going to begin to see meaningful synergies as we introduce our global investor base to their capability sets that we're super excited about.

We'll go next to Michael Cyprys with Morgan Stanley.

I wanted to ask about asset-based finance, big market opportunity, but comprised of many different types of assets, as you noted, including some smaller niche areas. I was hoping if you could talk about how you go after this market opportunity in scale and talk about how you're expanding your sourcing funnel from partnerships to flow agreements, acquisitions and how that sourcing funnel might evolve and look 3 to 5 years from now as compared to today?

Yes, I appreciate the question. Look, we've got one of the largest, if not the largest, businesses in the non-rated part of the market. As we've talked about, we feel that the opportunity to lead there gives us high profit, high margin, really durable alpha, and the ability to deliver differentiated performance to our investors. That's not to say that we're not focused on the investment grade part of the market; about 50% of our business continues to be in the rated side of the business, but we think that we need to be balanced between the IG and non-IG part of the market. Depending on where we are, that's obviously going to drive sourcing differently. We have close to 100 people in that business now. They are doing everything from calling directly on specialty finance companies and aggregators, building relationships with banks to have flow agreements across the asset waterfront and, in some instances, acquiring minority or control positions in asset aggregation platforms themselves. Unlike some of our peers, we've probably been less focused exclusively on platform acquisition. We've done it, but it's not the core way that we're thinking about sourcing. I think we'll continue to do it in situations where we see durable demand from our clients for a certain asset type where we want to lock in flow. The bank conversation is continuing. The combination of SRTs, portfolio purchases, and forward flow agreements continues to be a big driver of deployment there. The gross deployment trends in the business, we're just seeing a significant uptick as we head into the end of the year. If you look at Q3 versus Q2, we had nearly doubled the deployment in that part of the business. Year-over-year, it's well in excess of 30%, and the pipeline in that business, particularly going into Q4 and Q1, is significant. So I think the momentum continues. As I mentioned, we'll be coming into the market with our next vintage fund early in the new year.

We'll go next to Ben Budish with Barclays.

I was wondering if you could unpack the deployment in the quarter a little bit more. I think the sequential step-up was quite a bit larger than I think a lot of folks expected. You talked about the pipeline sort of remaining near your all-time highs. Was there anything that stood out this quarter? Should this be a number that is repeatable in upcoming quarters? You talked about again, a very robust pipeline, and a lot of opportunities in the next few quarters. I'm just curious if anything stood out, anything unusual that may not be repeatable in the near term?

Yes. No, I don't think there's anything special other than as we've talked about. The transaction market is coming back to life. It's a combination of strong economic fundamentals, decline in rates or at least a forward trajectory of declining rates, and a general pro-business deregulatory tone coming out of the current administration is bringing capital into the market. If you look at the deployment, it's been very broad-based across each of our businesses. We don't have one asset class or one geography driving the deployment. There have been quarters in prior years where we've seen, for example, direct lending carrying a significant amount of weight, but when you look at the distribution of the deployment, it is very broad-based, and I would expect that to continue.

Our next question comes from Brian McKenna with Citizens.

So you had a great outcome in the quarter for a direct lending portfolio company. It was actually an underperforming asset that was previously on non-accrual status. The investment got restructured and became an equity owner. You actually sold it in the quarter for $260 million and generated a 15% IRR on the investment. That's probably more than what you would have generated if the loan had performed. So how critical is your portfolio management and workout capabilities to get outcomes like this? And then can you just remind us of historical recovery rates within your direct lending business?

Sure. I'm glad you highlighted it because, again, when we spend time talking about how you create value, we're trying to anchor people on the loan-to-value statistics within the portfolio. The reason that's so important, and this is a perfect example, is if you were sitting in a capital structure at 40% loan-to-value and there are 60% of the equity below you, that gives you a significant amount of optionality to capture or recapture all or a portion of that equity value when a company or an asset underperforms. Go back and look at our 30-year history, we've had 100 basis points plus of positive impact to our returns because of that phenomenon. To your question, you need very deep, very experienced portfolio management and restructuring teams. I think we probably have the largest capability in the market. Last I checked, we probably have 65 people doing that business in the U.S. and maybe 35 or 40 people doing that business in Europe. Our portfolio management team is probably larger than most people's entire teams that are competing with us in private credit. I think this is going to be critical; you're going to see dispersion of return when we hit a cycle. To capture this upside, you need not just portfolio management capability but also dry powder. We're always ensuring that we're entering any potential cycle with enough liquidity to capture that option value. In terms of recovery rates, if you look historically at U.S. direct lending, it’s about 93% and 95% in European direct lending.

And we'll go next to Brian Bedell with Deutsche Bank.

Maybe just to come back to the comments you had at the opening, Mike, about the credit cycle and the idiosyncratic instances of fraud. We have had a few in a very short time frame in the industry. Do you think there's anything structurally going on in the industry aside from a credit cycle that is creating these fraud events? Is this something that could be a concern for retail investors? What kind of questions are you getting from your financial adviser partners regarding this?

Yes, it's a good question. To be honest with you, it's a little bit of a head-scratcher because everything that we're seeing tells an opposite story. When you look at bank earnings, when you look at the top 5 banks in the country, they showed no meaningful increase in loan loss reserves. When you look at the card companies, you're not seeing any meaningful pickups or spikes in delinquencies and charge-offs. There's a kind of growing narrative about credit concern, but when you look at all of the data from the largest pools of capital, you just don't see it. So it is altogether possible that it's just idiosyncratic and coincidental. It's possible that as the cycle progresses, with deal flow picking up, you have a lot of people wanting to participate in the growth in private credit. Some smaller players or new entrants may be taking risks or distributing risks that otherwise wouldn't be taken by some incumbents. If you look at our ABF business, we have a list of things that we find are interesting, sometimes interesting, and never interesting, and trade finance is at the top of the list of things that we categorically avoid for these reasons regarding collateral monitoring and the potential for fraud. It could simply indicate growth in the sector and the desire to compete, leading to risks that shouldn't be taken. I don't believe this points to anything more significant; the industry is concentrated in the hands of large platforms, about 65% and growing of the assets that get raised and deployed are among large incumbents focused on the right types of risks and structures. When you see these types of things pop up, it's noteworthy and getting attention, but I don't see anything in our numbers that indicates a more significant concern.

Thank you. I will now turn the call back to Mr. Arougheti for any closing remarks.

I don't have any other than we're obviously really excited with the performance that we had this quarter. The momentum in the business continues, and we're looking forward to giving you all the update on our Q4 performance on next earnings call. So thanks for joining us today.

Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference call will be available through December 3, 2025, to domestic callers by dialing 1(800) 839-4992 and to international callers by dialing 1 (402) 220-2686. An archived replay will also be available on a webcast link located on the homepage of the Investor Resources section of our website.