Ares Management Corp (ARES) FY 2021 MD&A

Results of Operations

Consolidated Results of Operations

We consolidate funds and entities 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' or investor rights, and the creation and termination of funds and entities. The consolidation of these funds and entities had no effect on net income attributable to us for the periods presented. As such, we separate the analysis of the Consolidated Funds and evaluate that activity in total. The following table and discussion sets forth information regarding our consolidated results of operations ($ in thousands):

NM - Not Meaningful

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Consolidated Results of Operations of the Company

Management Fees. Management fees increased by $460.4 million, or 40%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by higher FPAUM from capital deployment in direct lending funds. Management fees also increased by $97.9 million and $40.5 million in connection with the Landmark Acquisition and Black Creek Acquisition, respectively, that were completed during 2021. In addition, the full year impact of the SSG Acquisition that closed in the third quarter of 2020 increased management fees by $39.7 million for the year ended December 31, 2021 when compared to the year ended December 31, 2020. 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 $1,567.9 million to $2,073.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The activity was principally composed of the following ($ in millions):

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Incentive Fees. Incentive fees increased by $295.0 million to $332.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The activity was principally composed of the following ($ in millions):

Principal Investment Income. Principal investment income increased by $70.9 million, or 248%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The activity for the year ended December 31, 2021 was primarily driven by market appreciation of various investments within ACOF IV, ACOF VI and within various funds in our U.S. real estate equity, private equity secondaries, real estate secondaries and special opportunities strategies. The COVID-19 pandemic caused extreme volatility during 2020. The global equity and credit markets experienced significant downturns in the first quarter of 2020 that continued to rebound in 2021. The year ended December 31, 2020 also included gains from a higher fair value of our investments in ACOF IV, primarily driven by higher asset appreciation of AZEK recognized in connection with the partial sale, and in an infrastructure and power fund, primarily from higher asset appreciation and subsequent sale of an investment in a wind project.

Administrative, Transaction and Other Fees. Administrative, transaction and other fees increased by $53.8 million, or 130%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily due to new fee streams following the completion of the Black Creek Acquisition. Black Creek serves as an integrated property development and real estate investment management specialist, generating various property-related fees, such as acquisition, development and property management, and the distribution of shares in our non-traded REITs. These fees collectively contributed $17.9 million for the year ended December 31, 2021, which represents the amount generated in the period following the completion of the Black Creek Acquisition. We also earn fees from the Black Creek funds that we manage for administrative and other services, which contributed $11.2 million for the year ended December 31, 2021. In addition, certain private credit funds pay administrative fees on invested capital and an increase in deployment resulted in an increase to this fee base. Administrative fees from private funds increased by $4.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase for the year ended December 31, 2021 compared to the year ended December 31, 2020 was also driven by higher transaction fees of $5.0 million for certain funds as a result of increased originations.

Compensation and Benefits. Compensation and benefits increased by $395.4 million, or 52%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by (i) headcount growth to support the expansion of our business, (ii) strategic initiatives and acquisitions, and (iii) higher incentive compensation and equity compensation attributable to improved operating performance and margin expansion from scaling our business. Average headcount for the year-to-date period increased by 30% to 1,771 professionals for the 2021 period from 1,364 professionals for the same period in 2020.

Headcount growth attributable to the Landmark Acquisition and Black Creek Acquisition contributed $81.5 million in recurring employment related costs to the year ended December 31, 2021. The performance-based, acquisition-related compensation arrangements (“earnouts”) that were established in connection with the Landmark Acquisition and Black Creek Acquisition also contributed $66.9 million to the year ended December 31, 2021. The earnouts are based on the achievement of revenue targets for certain funds. As both earnouts are subject to the continued and future services of senior professionals and advisors, they are required to be recorded as compensation expense and recognized ratably over the respective service periods.

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See “Note 10. Commitments and Contingencies” for a further description of the contingent liabilities related to these arrangements.

Compensation and benefits were further driven by an increase in Part I Fees compensation of $25.4 million for the year ended December 31, 2021, when compared to the same period in 2020. Part I Fees compensation is driven by Part I Fees revenue earned during the respective periods.

The following table presents equity compensation expense based on the different types of restricted unit awards. Amounts presented include recurring expense, accelerated expense recognized in connection with the achievement of a performance condition and reversal of previously recognized expense resulting from forfeitures ($ in thousands):

NM - Not Meaningful

Equity compensation expense increased by $114.2 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to performance-based restricted units granted to certain executive officers in the first quarter of 2021 and to the approval of multi-year future grant awards to these executive officers, as well as to certain other senior leaders, that will be granted during the first quarter of 2022, 2023 and 2024. The 2021 periods included accelerated expense from the performance-based restricted awards from the vesting of Tranche I, II, III and IV of the performance-based restricted units as a result of meeting the applicable performance condition of $55.00, $60.00, $65.00 and $75.00 per share, respectively. Additional equity compensation expense was incurred for the year ended December 31, 2021 from an increase in units awarded as part of the recurring annual award programs. The year ended December 31, 2020 included accelerated expense from the vesting of restricted units granted to our Chief Executive Officer as a result of achieving the applicable performance conditions of $35.00 per share.

For detail regarding the fluctuations of compensation and benefits within each of our segments see “—Results of Operations by Segment.”

Performance Related Compensation. Performance related compensation increased by $1,336.7 million to $1,740.8 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Changes in performance related compensation are directly associated with the changes in carried interest allocation and incentive fees described above and may include performance allocations to charitable organizations as part of our philanthropic initiatives.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $185.2 million, or 71%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The Landmark Acquisition and Black Creek Acquisition have contributed $76.8 million in general, administrative and other expenses to the year ended December 31, 2021. These expenses were driven by amortization expense of $47.1 million for the year ended December 31, 2021 related to the intangible assets recorded in connection with the Landmark Acquisition and the Black Creek Acquisition. These expenses were also driven by placement fees of $9.6 million primarily in connection to new commitments to an open-ended industrial real estate fund. The impact from the Landmark Acquisition and Black Creek Acquisition has been excluded from the discussion below.

Placement fees for the year ended December 31, 2021 increased by $61.9 million, primarily due to new commitments to PCS II, SDL II, Ares Climate Infrastructure Partners, L.P. (“ACIP”) and our second special opportunities fund. In addition, the SSG Acquisition during the second half of 2020 resulted in an increase in amortization expense of $17.8 million for the year ended December 31, 2021 when compared to the same period in 2020. Certain expenses have also increased during the current

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period, including occupancy costs to support our growing headcount and information services and information technology to support the expansion of our business. Collectively, these expenses increased by $9.1 million for the year ended December 31, 2021, when compared to the same period in 2020. The increase was also driven by higher professional service fees of $8.6 million for the year ended December 31, 2021, largely as a result of due diligence and legal expenses related to our recent acquisitions and higher recruiting fees to support the expanding platform.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the second half of 2021. We, however, recognized cost savings when comparing the years ended December 31, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services from the modified remote working environment, decreased by $2.8 million for the year ended December 31, 2021, when compared to the same period in 2020. Despite the significant addition in headcount and the number of funds that we manage, these expenses were $17.6 million lower for the year ended December 31, 2021 when compared to the pre-pandemic period in 2019, primarily driven by $14.4 million of travel expenses and $2.2 million of marketing expenses.

Net Realized and Unrealized Gains (Losses) on Investments. Net realized and unrealized gains (losses) on investments increased from a loss of $9.0 million for the year ended December 31, 2020 to a gain of $19.1 million for the year ended December 31, 2021. The activity for the year ended December 31, 2021 was primarily attributable to unrealized gains on certain strategic initiative related investments and on our U.S. CLO investments. The activity for the year ended December 31, 2020 was primarily attributable to unrealized losses recognized on certain strategic initiative related investments and an unrealized loss from market depreciation of properties held by AREA Sponsor Holdings LLC.

Interest Expense. Interest expense increased by $11.9 million, or 48%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The issuance of the 2051 Subordinated Notes on the last day of the second quarter increased interest expense by $9.4 million for the year ended December 31, 2021. The issuance of the 2030 Senior Notes late in the second quarter of 2020 increased interest expense by $6.1 million for the year ended December 31, 2021. The increase for the year ended December 31, 2021 was partially offset by a lower average outstanding balance of the Credit Facility when compared to the same period in 2020.

Other Income, Net. Other income, net increased by $3.1 million, or 28%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. Other income, net for the year ended December 31, 2021 included a $42.3 million bargain purchase gain from the Black Creek Acquisition. The bargain purchase gain resulted from the fair value of the identifiable tangible and intangible assets that we acquired exceeding the purchase consideration. The purchase agreement with Black Creek contains provisions that required us to record separate contingent consideration liabilities that are (i) dependent on the achievement of revenue targets for certain Black Creek funds and (ii) obligated us to pay the sellers 50% of the incentive fees realized for certain Black Creek funds for the year ended December 31, 2021. Other income, net includes $23.2 million from the revaluation of these contingent considerations for the year ended December 31, 2021. See “Note 10. Commitments and Contingencies” for a further description of the contingencies.

Other income, net also included transaction gains (losses) associated with currency fluctuations impacting the revaluation of non-functional currency balances and was based on the fluctuations in currency exchange rates for the years ended December 31, 2021 and 2020. Transaction losses during the year ended December 31, 2021 were primarily attributable to the British pound strengthening against Euro, while transaction gains during the year ended December 31, 2020 were primarily attributable to the British pound weakening against the U.S. dollar.

Income Tax Expense Income tax expense increased by $92.4 million, or 168%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The changes in the comparative periods are primarily a result of increases in taxable income and weighted average daily ownership. The weighted average daily ownership for AMC common stockholders increased from 54.0% for the year ended December 31, 2020 to 58.5% for the year ended December 31, 2021. The changes in ownership were primarily driven by the issuance of Class A common stock in connection with stock option exercises, vesting of restricted stock awards and private and public offerings of Class A and non-voting common stock. The increase in the weighted average daily ownership for the AMC common stockholders was partially offset by the issuance of AOG Units in connection with the Landmark Acquisition and the Black Creek Acquisition that increased the ownership of AOG Units not held by AMC.

Redeemable and Non-Controlling Interests. Net income (loss) attributable to redeemable and non-controlling interests in AOG entities represents results attributable to the holders of AOG Units and other ownership interests that are not held by AMC. In connection with the SSG Acquisition, the former owners of SSG retained an ownership interest in a subsidiary of an

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AOG entity that is reflected as redeemable interest in AOG entities. Net income (loss) attributable to redeemable interest in AOG entities is allocated based on the ownership percentage for periods presented.

Net income (loss) attributable to non-controlling interests in AOG entities is generally allocated based on the weighted average daily ownership of the other AOG unitholders, except for income (loss) generated from certain joint venture partnerships. Net income (loss) is allocated to other strategic distribution partners with whom we have established joint ventures based on the respective ownership percentages and based on the activity of certain membership interests. For the years ended December 31, 2021 and 2020, net income of $23.8 million and net loss of $3.2 million, respectively, was allocated based on ownership percentages of the strategic distribution partners and the activity of those membership interests.

Net income attributable to non-controlling interests in AOG entities increased by $245.2 million, or 169%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The changes in the comparative periods are a result of the respective changes in income before taxes and weighted average daily ownership. While income before taxes increased, the weighted average daily ownership for the non-controlling AOG unitholders decreased from 46.0% for the year ended December 31, 2020 to 41.5% for the year ended December 31, 2021.

Consolidated Results of Operations of the Consolidated Funds

The following table presents the results of operations of the Consolidated Funds ($ in thousands):

NM - Not Meaningful

The results of operations of the Consolidated Funds primarily represents activity from certain CLOs that we are deemed to control. Expenses primarily reflect professional fees that were incurred as a result of debt issuance costs related to the issuance of new, refinanced or restructured CLOs. These fees were expensed in the period incurred, as CLO debt is recorded at fair value on our Consolidated Statements of Financial Condition. For the year ended December 31, 2021, expenses were driven by professional fees incurred from the issuance of three new U.S. CLOs and the restructure of our European CLO legal entities. For the year ended December 31, 2020, expenses were primarily driven by the issuance of two European CLO. Net realized and unrealized gains fluctuated for the comparative periods, primarily due to a significant change in the value of loans held by the CLOs. The CSLLI returned 5.4% for 2021 when compared to 2.8% for the prior year. The decrease in interest expense was attributable to lower interest rates from refinanced CLOs since the third quarter of 2020 and from the deconsolidation of one CLO as a result of significant change in ownership during the year ended December 31, 2020, which was partially offset by newly issued CLOs at lower interest rates during the year ended December 31, 2021.

Revenues and other expense attributable to AMC represents management fees, incentive fees, principal investment income and administrative, transaction and other fees that are attributable to AMC’s proportional share in the activity of the Consolidated Funds and is eliminated from the respective components of AMC's results upon consolidation. The price fluctuations associated with the COVID-19 pandemic previously mentioned resulted in an increase in principal investment income and a decrease in other expense.

Segment Analysis

For segment reporting purposes, revenues and expenses are presented before giving effect to the results of our Consolidated Funds and the results attributable to non-controlling interests of joint ventures that we consolidate. As a result, segment revenues from management fees, fee related performance revenues, performance income and investment income are different than those presented on a consolidated basis in accordance with GAAP. Revenues recognized from Consolidated

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Funds are eliminated in consolidation and results attributable to the non-controlling interests of joint ventures have been excluded by us. 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 and the non-controlling interests of joint ventures.

Non-GAAP Financial Measures

We use the following non-GAAP measures to make operating decisions, assess performance and allocate resources:

•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. Beginning in the fourth quarter of 2021, fee related performance revenues, together with fee related performance compensation, has been presented within FRE because it represents incentive fees from perpetual capital vehicles that is measured and received on a recurring basis and is not dependent on realization events from the underlying investments. Fee related performance revenues and fee related performance compensation were previously presented within realized net performance income. Historical periods have been modified to conform to the current period presentation. The following table sets forth FRE and RI by reportable segment and OMG ($ in thousands):

NM - Not Meaningful

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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 Consolidated Statements of Operations to RI and FRE of the reportable segments and OMG ($ in thousands):

(1)Represents components of the purchase agreements associated with earnouts resulting from the Landmark Acquisition and the Black Creek Acquisition that are recorded as compensation expense and are presented within compensation and benefits in the Company’s Consolidated Statements of Operations.

(2)Represents a component of the purchase price from incentive fees associated with one-time contingent consideration recorded in connection with the Black Creek Acquisition. 100% of the fees recognized in 2021 is presented within incentive fees in the Company’s Consolidated Statements of Operations of which 50% is included on an unconsolidated basis for segment reporting purposes.

For the specific components and calculations of these non-GAAP measures, as well as a reconciliation of the reportable segments to the most comparable measures in accordance with GAAP, see “Note 16. Segment Reporting”, to our audited consolidated financial statements included in this Annual Report on Form 10-K. Discussed below are our results of operations for our reportable segments and OMG.

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Results of Operations by Segment

Credit Group—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of the Credit Group's FRE ($ in thousands):

Management Fees. The chart below presents Credit Group management fees and effective management fee rates ($ in millions):

Management fees on existing direct lending funds increased primarily from deployment of capital with Pathfinder, ACE IV, ACE V and SDL, collectively generating additional fees of $63.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Management fees from ARCC, excluding Part I Fees described below, increased by $36.6 million over the period primarily due to an increase in the average size of ARCC's portfolio. The remaining increases in management fees from funds in existence in both periods was primarily driven by deployment of capital in other direct lending funds and SMAs. Part I Fees increased primarily due to an increase in pre-incentive fee net investment income generated by ARCC and CADC, driven by an increase in originations and in the average size of their portfolios. Management fees from CLOs also increased primarily due to the net addition of three CLOs for the year ended December 31, 2021 compared

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to the year ended December 31, 2020. The launch of PCS II during the fourth quarter of 2020 and SDL II during 2021 also contributed to the increase in management fees, generating fees of $17.3 million for the year ended December 31, 2021.

The decrease in effective management fee rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was driven by the decrease in Part I Fees' contribution to the effective management fee rate due to the proportional increase in fees from other credit funds.

Fee Related Performance Revenues. Fee related performance revenues increased by $64.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to fee related performance revenues from direct lending SMAs driven by increased deployment, which resulted in higher net investment income on a larger invested capital base, together with a recovery of valuations following the significant downturns experienced in the global credit markets at the onset of the COVID-19 pandemic in 2020.

Other Fees. Other fees increased by $8.5 million, or 45%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by administrative fees from private funds. Certain private credit funds pay administrative fees on invested capital and an increase in deployment resulted in an increase to the fee basis. The increase was also driven by higher transaction fees for certain funds as a result of increased originations.

Compensation and Benefits. Compensation and benefits increased by $90.3 million, or 28%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily driven by (i) an increase in fee related performance compensation of $39.4 million from direct lending SMAs, (ii) higher Part I Fees compensation of $25.4 million, (iii) higher incentive compensation attributable to improved operating performance and margin expansion from scaling our business and (iv) headcount growth and merit increases for the year ended December 31, 2021, when compared to the same period in 2020. The increase in compensation and benefits was further driven by the increase in payroll related taxes of $5.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily attributable to the vesting of non-recurring equity compensation awards. The increase in salaries and benefits is partially offset by lower discretionary payments of $7.0 million made during the year ended December 31, 2021 when compared to the same period in 2020.

Average headcount for the year-to-date period increased by 6% to 433 investment and investment support professionals for the 2021 period from 409 professionals for the same period in 2020 as we added additional investment professionals to support our growing U.S. and European direct lending platforms.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $0.7 million, or 1%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. In connection with our fundraising efforts, placement fees increased by $4.5 million for the year ended December 31, 2021 when compared to the same periods in 2020. The increase was primarily associated with new commitments to PCS II, ACE V, SDL II and an alternative credit fund. Certain expenses have also increased during the current period, including information services and information technology to support the expansion of our business. Collectively, these expenses increased by $1.9 million for the year ended December 31, 2021 when compared to the same period in 2020.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the second half of 2021. We, however, recognized cost savings when comparing the years ended December 31, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services from the modified remote working environment, decreased by $2.2 million for the year ended December 31, 2021, when compared to the same period in 2020.

During 2020, we also recorded $3.2 million in one-time expenses related to expense concessions made to a limited number of funds.

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Realized Income:

The following table presents the components of the Credit Group's RI ($ in thousands):

NM - Not Meaningful

Realized net performance income for the years ended December 31, 2021 and 2020 was primarily attributable to tax distributions on direct lending funds with European-style waterfalls, driven by net investment income on an increasing invested capital base of those funds. The tax distributions were made to provide cash sufficient to pay tax liabilities attributable to the funds’ taxable income that is allocated to its carry participants prior to the funds making carried interest distributions. Realized net performance income for the year ended December 31, 2021 also included performance revenues from eight direct lending funds, including ARCC Part II fees of $25.6 million. Realized net performance income for the year ended December 31, 2020 was also attributable to performance revenues for two alternative credit funds that crystallized during the period.

Realized net investment income for the years ended December 31, 2021 and 2020 was primarily attributable to interest income generated from our CLO investments and income recognized in connection with distributions from a commercial finance fund. Realized net investment income for the year ended December 31, 2021 also included income recognized in connection with distributions from an alternative credit fund, while the year ended December 31, 2020 included a term loan investment that generated interest income.

Credit Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Credit Group. Accrued net performance income excludes net performance income realized but not yet received as of the reporting date ($ in thousands):

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The following table presents the change in accrued performance income for the Credit Group ($ in thousands):

Credit Group—Assets Under Management

The tables below present rollforwards of AUM for the Credit Group ($ in millions):

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The components of our AUM for the Credit Group are presented below ($ in billions):

(1) Includes $11.8 billion and $9.0 billion of AUM of funds from which we indirectly earn management fees as of December 31, 2021 and 2020, respectively and includes $0.9 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021 and 2020.

Credit Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Credit Group ($ in millions):

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The charts below present FPAUM for the Credit Group by its fee basis ($ in billions):

(1)Includes $27.4 billion and $20.7 billion from funds that primarily invest in illiquid strategies as of December 31, 2021 and 2020, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

Credit Group—Fund Performance Metrics as of December 31, 2021

ARCC contributed approximately 45% of the Credit Group’s total management fees for the year ended December 31, 2021. In addition, seven other significant funds, ACE III, ACE IV, ACE V, CADC, PCS, SDL and an open-ended secured finance fund, collectively contributed approximately 21% of the Credit Group’s management fees for the year ended December 31, 2021.

The following table presents the performance data for our significant funds that are not drawdown funds in the Credit Group as of December 31, 2021 ($ in millions):

(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.

(4)Returns are shown for institutional share class. Net returns are calculated using the fund’s NAV and assume distributions are reinvested at the NAV on the date of distribution. Additional information related to CADC can be found in its financial statements filed with the SEC, which are not part of this report.

(5)Gross returns do not reflect the deduction of management fees or other expenses. Net returns are calculated by subtracting the applicable management fees and other expenses from the gross returns on a monthly basis. This fund is a master/feeder structure and its AUM and returns include activity from its' investment in an affiliated Ares fund. Returns presented in the table are expressed in U.S. Dollars and are for the master fund, excluding the share class hedges. The year-to-date and since inception returns (gross / net) for the pound sterling hedged Cayman feeder, the fund's sole feeder, are as follows: 3.3% / 2.7% and 1.9% / 1.3%.

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The following table presents the performance data of our significant drawdown funds as of December 31, 2021 ($ in millions):

(1)Realized value represents 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 is before giving effect to management fees, carried interest and other expenses, as applicable, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(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 and carried interest, other expenses and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally 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 are calculated before giving effect to management fees, carried interest and other expenses, as applicable, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Gross fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(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 and carried interest, other expenses and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally 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 IRR and MoIC presented in the table are for the Euro denominated feeder fund. The gross and net IRR for the U.S. dollar denominated feeder fund are 12.8% and 9.5%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.6x and 1.4x, 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, two denominated in Euros and two denominated in pound sterling: ACE IV (E) Unlevered, ACE IV (G) Unlevered, ACE IV (E) Levered and ACE IV (G) Levered. The gross and net IRR and MoIC presented in the table 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 IRR for ACE IV (G) Unlevered are 10.4% and 7.5%, respectively. The gross and net MoIC for ACE IV (G) Unlevered are 1.2x and 1.2x, respectively. The gross and net IRR for ACE IV (G) Levered are 14.6% and 10.6%, respectively. The gross and net MoIC for ACE IV (G) Levered 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 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.

(9)ACE V is made up of four parallel funds, two denominated in Euros and two denominated in pound sterling: ACE V (E) Unlevered, ACE V (G) Unlevered, ACE V (E) Levered, and ACE V (G) Levered. The gross and net MoIC presented in the chart are for ACE V (E) Unlevered and ACE V (E) Levered. Metrics for ACE V (E) Unlevered are inclusive of a Japanese yen denominated feeder fund, which has not been presented separately. Metrics for ACE V (E) Levered are inclusive of a U.S. dollar denominated feeder fund, which has not been presented separately. The gross and net IRR for ACE V (G) Unlevered are 13.0% and 9.8%, respectively. The gross and net MoIC for ACE V (G) Unlevered are 1.1x and 1.1x, respectively. The gross and net IRR for ACE V (G) Levered are 21.2% and 15.4%, respectively. The gross and net MoIC for ACE V (G) Levered are 1.1x and 1.1x, 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 V Unlevered and ACE V Levered are for the combined levered and unlevered parallel funds and are converted to U.S. dollars at the prevailing quarter-end exchange rate. IRRs are presented on a non-annualized basis.

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Private Equity Group—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of the Private Equity Group's FRE ($ in thousands):

NM - Not Meaningful

Management Fees. The chart below presents Private Equity Group management fees and effective management fee rates ($ in millions):

Management fees increased primarily due to additional commitments and one-time catch up fees. Excluding one-time catch up fees of $2.5 million, management fees from ACOF VI increased by $62.1 million for the year ended December 31, 2021 compared to year ended December 31, 2020, offset by a decrease in management fees of $73.9 million from ACOF V due to the step down in fee rate and change in fee base from committed capital to invested capital in the first quarter of 2021 as a result of ACOF VI beginning to pay fees in the fourth quarter of 2020. Excluding one-time catch up fees of $4.0 million, management fees from ACIP increased by $11.4 million over the comparative period. Management fees from ASOF increased by $21.0 million from the prior period, driven by increased deployment.

The decrease in effective management fee rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily driven by the step down in fee rate to 0.75% for ACOF V, partially offset by increased deployment in ASOF that has a higher fee rate than the Private Equity Group’s average effective management fee rate.

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General, Administrative and Other Expenses. General, administrative and other expenses increased by $2.9 million, or 13%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. In connection with our fundraising efforts, placement fees increased by $4.6 million for the year ended December 31, 2021 when compared to the same period in 2020. The increase was primarily associated with new commitments to ASOF, ACOF VI and ACIP. Certain expenses have also increased during the current period, including professional service fees, information services and information technology to support the expansion of our business. Collectively, these expenses increased by $1.2 million for the year ended December 31, 2021 when compared to the same period in 2020.

There continue to be positive developments in the recovery from the COVID-19 pandemic that have reduced restrictions on travel and gathering. Those operating expenses that were impacted by the pandemic, particularly marketing sponsorships and events, increased during the second half of 2021. We, however, recognized cost savings when comparing the years ended December 31, 2021 and 2020. For the three months ended March 31, 2020, our expenses reflected a pre-pandemic cost structure and are not comparable to the lower expenses incurred in our modified work environment during the three months ended March 31, 2021. Our operating expenses, most notably travel, entertainment and marketing sponsorships, and certain office services from the modified remote working environment, decreased by $0.8 million for the year ended December 31, 2021, when compared to the same period in 2020.

For the year ended December 31, 2020, we also recorded $1.6 million in costs associated with the launch of ACOF VI and ASOF.

Realized Income:

The following table presents the components of the Private Equity Group's RI ($ in thousands):

Realized net performance income and realized net investment income for the year ended December 31, 2021 was primarily attributable to realizations from monetization of ACOF IV’s investment in Farrow & Ball following the sale of the company and to realizations from partial sales of ACOF IV’s position in AZEK. Realized net investment income for the year ended December 31, 2021 was also attributable to the monetization of various assets in an infrastructure and power fund and a special opportunities fund, offset by a realized loss recognized in connection with an Asian corporate private equity fund’s sale of its investment in a dairy farm company.

Realized net performance income and realized net investment income for the year ended December 31, 2020 were primarily attributable to realizations from the sale of ACOF III's remaining position in Floor & Decor Holdings, Inc., from the partial sale of ACOF IV's position in AZEK and from the monetization of ACOF IV's investment in National Veterinary Associates, Valet Living and a healthcare services company. Realized net investment income for the year ended December 31, 2020 was also attributable to the monetization of an infrastructure and power fund's investment in a wind project. Realized net investment income for the year ended December 31, 2020 included realized losses from ACOF III and ACOF IV due to its investment in a luxury retailer undergoing a reorganization and from the corporate private equity continuation fund due to its investment in a retail portfolio company exacerbated by the impact of the COVID-19 pandemic on the sector.

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Private Equity Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Private Equity Group ($ in thousands):

The following table presents the change in accrued carried interest for the Private Equity Group ($ in thousands):

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Private Equity Group—Assets Under Management

The tables below present rollforwards of AUM for the Private Equity Group ($ in millions):

The components of our AUM for the Private Equity Group are presented below ($ in billions):

(1) Includes $1.4 billion and $1.1 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2021 and 2020, respectively.

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Private Equity Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Private Equity Group ($ in millions):

The charts below present FPAUM for the Private Equity Group by its fee basis ($ in billions):

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Private Equity Group—Fund Performance Metrics as of December 31, 2021

Three significant funds, ACOF V, ASOF and ACOF VI, collectively contributed approximately 62% of the Private Equity Group’s management fees for the year ended December 31, 2021.

The following table presents the performance data of our significant drawdown funds as of December 31, 2021($ in millions):

(1)Realized value represents the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments. Realized value excludes any proceeds related to bridge financings.

(2)Unrealized value represents the fair market value of remaining investments. Unrealized value does not take into account any bridge financings. There can be no assurance that unrealized investments will be realized at the valuations indicated.

(3)For the corporate private equity, 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, as applicable, and other expenses. For the special opportunities funds, the gross 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 is before giving effect to management fees, carried interest as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. The gross MoICs for the corporate private equity and special opportunities funds are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the gross MoIC would be 1.5x for ACOF V, 1.1x for ACOF VI, and 1.6x for ASOF.

(4)The net MoIC for ASOF is calculated at the fund-level. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. 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 and carried interest, other expenses and credit facility interest expenses, as applicable.

(5)For the corporate private equity, 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. The cash flow dates used in the gross IRR calculation are assumed to occur at month-end. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses. For the special opportunities funds 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 IRRs reflect 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 are calculated before giving effect to management fees, carried interest, as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The gross IRRs for the corporate private equity and special opportunities funds are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the gross IRRs would be 16.8% for ACOF V, "N/A" for ACOF VI, and 53.7% for ASOF.

(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 non-fee paying limited partners 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 generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

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Real Estate Group—Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Fee Related Earnings:

The following table presents the components of the Real Estate Group's FRE ($ in thousands):

NM - Not Meaningful

Management Fees. The chart below presents Real Estate Group management fees and effective management fee rates ($ in millions):

Management fees increased for the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the Black Creek Acquisition, additional commitments and one-time catch up fees. Excluding one-time catch up fees of $7.0 million, management fees from Ares European Property Enhancement Partners III, SCSp. (“EPEP III”) increased by $11.5 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Excluding one-time catch up fees of $2.9 million, management fees from AREOF III increased by $3.8 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Management fees from real estate debt funds increased by $6.9 million for the period primarily due to the continued fundraising and subsequent deployment within these open-ended funds. Management fees included $2.0 million of one-time fees for the year ended December 31, 2020, driven by our Real Estate Group completing the sale of its stake in a 40-property pan-European logistics portfolio.

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The decrease in effective management fee rate for the year ended December 31, 2021 compared to the year ended December 31, 2020 was primarily due to deployment in real estate debt funds with effective management fee rates below 0.75% and to certain funds previously managed by Black Creek with effective management fee rates below 0.75%. The decrease in effective management fee rate is partially offset by an increase in management fees from real estate equity funds. Our most recent real estate equity funds pay a fee on committed capital that increases once that capital is invested. As a result, our effective management fee rate decreases immediately following capital raising and increases as capital is subsequently deployed.

Fee Related Performance Revenues. Fee related performance revenues increased by $50.6 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase was primarily attributable to fee related performance revenues generated from the management contracts that we acquired from the Black Creek Group, including AREIT and AIREIT. In connection with the Black Creek Acquisition, we acquired the investment management contracts that entitle us to 100% of the incentive fees earned from AREIT and AIREIT. The purchase agreement stipulated that approximately 50% of the incentive fees earned from AREIT and AIREIT for the year ended December 31, 2021, representing those fees generated prior to the completion of the Black Creek Acquisition, are payable to the sellers. We presented the portion of the fees retained by us during the year ended December 31, 2021 within fee related performance revenues, which will increase to 100% in subsequent years.

Other Fees: Other fees increased by $12.0 million to $13.0 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase primarily represents fees that were generated under the investment management agreements that we acquired from Black Creek Group, including property-related fees, such as acquisition, development and property management.

Compensation and Benefits. Compensation and benefits increased by $59.8 million, or 112%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The increase in salaries and benefits was primarily driven by (i) fee related performance compensation of $30.2 million and (ii) compensation and benefit expenses of $16.8 million associated with the investment and investment support professionals hired as part of the Black Creek Acquisition. The increase in salaries and benefits was also driven by headcount growth from the U.S. real estate equity team and by higher incentive compensation attributable to improved operating performance and margin expansion from scaling our business.

Average headcount for the year-to-date period increased by 68% to 170 investment and investment support professionals for the 2021 period from 101 professionals for the same period in 2020, including 60 professionals from the Black Creek Acquisition.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $8.5 million, or 69%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The change was principally driven by an increase in expenses of $3.4 million, primarily occupancy costs and information technology to support the expanding platform following the Black Creek Acquisition and travel, entertainment and marketing sponsorships expenses from the Black Creek Group. The increase was also driven by a non-recurring integration costs of $3.1 million and by an increase in placement fees of $1.1 million, primarily associated with new commitments to AREOF III and a real estate debt fund.

Realized Income:

The following table presents the components of the Real Estate Group's RI ($ in thousands):

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Realized net performance income for the year ended December 31, 2021 was primarily attributable to performance revenues from a former Black Creek U.S. real estate equity fund generated by market appreciation of industrial assets and tax distributions from real estate equity funds driven by asset sales and operating income. Realized net performance income and realized net investment income for the year ended December 31, 2021 was also attributable to the sale of multiple properties held in U.S. real estate equity funds. Realized net investment income for the year ended December 31, 2021 also included distributions from real estate debt vehicles, driven by operating income during the period.

Realized net performance income and realized net investment income for the year ended December 31, 2020 was primarily attributable to the sale of a 40-property pan-European logistics portfolio held within multiple European real estate funds and to tax distributions from real estate equity funds. Realized net investment income for the year ended December 31, 2020 was also attributable to interest income generated in U.S. real estate equity and real estate debt funds.

Real Estate Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Real Estate Group. Accrued net performance income excludes net performance income realized but not yet received as of the reporting date ($ in thousands):