ARES: Fee Strength And Credit Competitiveness Will Drive Long-Term Performance

Key Takeaways

• Diversification across asset classes and international markets is strengthening Ares' growth prospects, fee stability, and global reach.
  
• Increasing perpetual capital and a robust investment pipeline support recurring revenues, higher profitability, and greater earnings visibility.
  
• Expanding competition, evolving industry trends, and regulatory pressures threaten Ares' margins, fee revenues, and long-term growth, especially given its exposure to retail and new business lines.

Catalysts

Operates as an alternative asset manager in the United States, Europe, and Asia.

• Growing institutional and retail demand for alternative investments, fueled by persistent low-to-moderate interest rates and demographic-driven underfunded pensions, is accelerating Ares' AUM growth and providing strong visibility to future management and fee-related revenue.
  
• Expansion into multiple asset classes (infrastructure, real estate, sports/media, secondaries), with recent successes like the GCP acquisition and the scaling of data center asset management, are expected to deliver higher management and development fees, supporting long-term revenue and FRE growth.
  
• Robust international fundraising, particularly in Europe and Asia-Pacific, and ongoing success in deepening distribution partnerships, are broadening Ares' addressable markets, increasing global deal flow, and positioning the company for sustained earnings growth.
  
• The significant ramp in perpetual capital (now nearly 50% of fee-paying AUM), combined with consistent investment performance and low client redemptions, is expected to drive higher recurring fee revenues, greater profitability, and improved earnings visibility.
  
• High levels of un-deployed capital (dry powder) and a record investment pipeline position Ares to quickly convert AUM not yet paying fees into fee-generating assets, accelerating management fee and net earnings growth over the next 12-18 months.

Ares Management Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Ares Management's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.5% today to 28.2% in 3 years time.
• Analysts expect earnings to reach $1.9 billion (and earnings per share of $8.36) by about May 2029, up from $561.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.6 billion in earnings, and the most bearish expecting $1.5 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 24.0x on those 2029 earnings, down from 50.6x today. This future PE is lower than the current PE for the US Capital Markets industry at 39.4x.
• Analysts expect the number of shares outstanding to grow by 2.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.26%, as per the Simply Wall St company report.

Risks

• Intensifying competition in private credit and alternative assets is driving some peers to cut fees to attract capital, which could lead to future fee pressure and margin compression for Ares; this threatens long-term management fee revenue and FRE margins.
  
• High reliance on perpetual capital and semi-liquid funds from the wealth and retail channels may increase exposure to cyclical shifts in retail investor sentiment or regulatory changes that could trigger elevated redemptions or asset outflows, negatively impacting AUM stability and future revenues.
  
• Heavy investment in new business lines-such as data centers and sports/media/entertainment-comes with integration and execution risks, especially as current margin compression (from GCP acquisition) persists; if synergies or scale are not realized as planned, net margins and overall earnings growth could be impaired.
  
• The growing democratization of access to alternatives (e.g., potential inclusion in 401(k)s and the rise of retail/passive products) may ultimately erode Ares' competitive advantage, as increased competition from low-fee entrants or technology-driven platforms could compress management fees and reduce long-term revenue growth.
  
• Industry-wide secular risks-such as rising regulatory scrutiny, evolving tax regimes, and the shift toward ESG compliance-may raise operating costs, limit accessible markets, or disadvantage Ares if its exposure to less ESG-friendly sectors remains significant, potentially impacting both net margins and long-term earnings prospects.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $145.35 for Ares Management based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $190.0, and the most bearish reporting a price target of just $125.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $6.9 billion, earnings will come to $1.9 billion, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 9.3%.
• Given the current share price of $126.0, the analyst price target of $145.35 is 13.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.