BMO Capital Markets 2026 Financials Conference

Nov 10, 2026

Summary

Deployment is broadening across credit, infrastructure and real estate, while SDL IV and evergreen products extend fundraising options. ASIF flows are expected to return to net inflows in H2 next year; margin growth depends on deployment and scaled wealth products.

remarkable journey of global expansion, capitalizing on some of the most attractive structural trends in the alternative asset management industry. Record $174 billion of dry powder and $94 billion of AUM not yet paying fees. The firm is quite literally a coiled spring that is ready to jump. Please help me welcome Jared. Love to start about deployment. Sure. Been a big topic. You guys sit in a very unique position to provide insights there. The outlook was really encouraging from the last quarter's call. As we sit about halfway through the quarter, maybe could you update us on how that is progressing and how investors should be thinking about potential magnitude of deployment here this quarter? When we look at ARCC's completed deals and backlog as a proxy, it suggests that last year is a decent way to think about it. Is that fair? Yeah, absolutely. To me, one of the exciting things about the growth that you highlighted is that deployment is no longer solely dictated by direct lending. Our European and U.S. franchises have long been the gold standard there, and often when I have been asked questions about deployment, the question was really, "How is U.S. deployment?" or "How is U.S. and European deployment?" Today, with our broader platform, we are seeing strength in deployment within our infrastructure business, within our real estate business, within our ABF business, as well as the direct lending franchises. As we look into the fourth quarter, what we have seen over the last nine months has been a more muted backdrop in U.S. direct lending, but a lot of strength in European direct lending and a real lot of strength in ABF. Really bearing some of that out. Plus, you layer on infrastructure, where we did a significant amount, I think a record of deployment in the third quarter for our infrastructure business, and then real estate, which has continued to have a very healthy backdrop as well. All of those things are continuing into the fourth quarter, and we are starting to see some of the thawing in U.S. direct lending. What that means is where it used to be U.S. direct lending and everything else- Yeah Now we have had a bit of everything else, now U.S. direct lending with it. So excited to see that starting to happen. As Kort talked about and you mentioned, right now through this point in the fourth quarter, we are about the same level we were last year at the fourth quarter. For those of you who are not as familiar with U.S. direct lending, in U.S. direct lending, the fourth quarter is seasonally always your strongest quarter. I think maybe only one or two times in the past has it not been in 25 years. You see seasonally a pickup in the fourth quarter. We saw some deals move from the third quarter to the fourth quarter and feel just very well set up. Certainly the strength over the last several days after the elections, it seems like people are a little bit more willing to get back out there and back into activity. That has certainly been a positive, and I think that positions us very similarly to how we were last year in terms of your question, and that also benefited the beginning of the first quarter. When you have a lot of deals that are rolling into the fourth quarter, not all of them are going to close, and that sets you up really, really well to set the table for the next year. Yeah. Thanks for anticipating the follow-up. I remember last year, there was a lot of optimism coming into the end of the year and then into the beginning. It sounds like we are getting a little bit of a repeat here. I do not want to get too far ahead of myself because I feel like for five out of the last six years, I have been pretty optimistic in the first half of the quarter, only to have some sort of event derail the optimism. But maybe this year I will say that I am just balanced going into the year, and maybe that will avoid the March and April crisis. Right. Maybe a divided government reduces the risk of a March surprise. Certainly think it decreases volatility. Yeah. I think that- I just jinxed it. Fingers crossed. So one thing that is kind of interesting when we think about the credit market, spreads have not really tightened a lot, right? Widened by 50-75 basis points early in the year. Where are you seeing the most and least competition in the direct lending market? Based on what you are seeing at competitors, do you anticipate any near-term changes in that? Yeah. I would say that right now, we are seeing probably the most competition in the lower to middle market. So a lot of the participants in that space, they are less retail-oriented. Yeah in terms of where their fundraising comes from. So they have been able to be a little more active. In the upper middle market, that is where you have seen the slowdown in the wealth channel specifically for the non-traded BDCs has resulted in some capital not being there. That means that the upper middle market has been more attractive. If you unwound that, let us say 18 months, and I think we probably talked at that point, it was a less competitive environment in the core and lower middle markets. Yep. So we have seen that shift upwards a little as the retail capital has drawn back. Now, I do expect that this is not a permanent state of things in terms of the retail capital. You will see that come back, which means that it will get a little bit more competitive in the upper middle markets, and then that gives us the opportunity to go down market. One of the important things about how Ares is structured is we are the only large lender that operates in the lower middle market all the way through the upper middle market. So it gives us a lot of optionality depending on what the market is seeing. Right. You guys have a well-earned reputation of being good risk selectors, right? Leaning into the different parts of the market. You guys, it was interesting because you found the opportunity so compelling that you accelerated SDL IV. SDL IV is the flagship U.S. direct lending drawdown fund that Ares has. I would love to talk about that a little bit. First close was $8 billion, roughly 60% larger than the predecessor. Clearly an encouraging sign around how that is going. So what are your expectations as far as timing and size of SDL IV, and how large are wealth investors typically in these funds, and maybe do you think that changes with ASIF? Sure. Look, the last fund, SDL III, was a little over $15 billion, and we were in the market for 18 months with that. Sizing is always dependent on how long you want to stay in the market, but prior vintages are always good indications of right around how you are on track. The key is, again, you have something like Pathfinder III, which had one singular close, was open, hard cap, and that was all it did. It is really how fast we see the deployment opportunity, because in credit, as you know, we do not get paid management fees until deployment, so you actually stack in credit. So you have this tension between how long you want to be out in the marketplace and how fast you are going to ultimately get it deployed before you are into the next vintage. We still continue to make those decisions around that. In terms of your question on the wealth participation, as there is more opportunities for them to invest in things like ASIF and other products, we will There is a bird that just flew by. Yeah. It will throw you off. Yeah. For sure. In terms of wealth in the last vintage, it was less than 10% of the overall dollars that came in. So it is not a real significant part that comes into the commingled fund. Now, with the way we have constructed it, there is also an open-ender evergreen nature, as you mentioned, that part of it does allow for wealth to come in too. Right. And this is new, right? It is. With the SDL series, where you are going to have an evergreen. Can you talk about maybe just the mechanics of how that is going to work, and does that impact how you think about the fundraising for this vintage? I really like how it will impact the fundraising, because it is not just the fundraising for this vintage, but it is the fundraising that will be just in perpetuity. Yeah. When you think about raising a large commingled fund, it is most efficient for your sales force to be focused on the high dollar checks. So if you are out there and you know someone can do $200 million, and then you know someone can do $20 million, well, you are going to spend a lot more time with the $200 million to make sure you close that over the 20. But if you do not have a natural place for that 20, you might just miss it. By having an evergreen product, you are going to be in the marketplace always. Those $20 million checks that maybe were not ready to go, they will have a place that they can go at the pace that works for them, so you can attract more capital that way. The ability to attract that type of capital, I think, is incrementally very important to the growth of the franchise, because now we can be consistently marketing a commingled direct lending product that they are not as worried about, "Okay, well, I have to get in now or I do not have to get in." It allows us to continue to build that. If you look at what we have done at Pathfinder Core, they bring in somewhere in the neighborhood of $1 billion every six months. If we can build off of that fund is now approaching $10 billion. That is a meaningful-sized fund that will be out there. The nice thing about it being evergreen too is it is constructed in such a way that it does not create the same liquidity issues. If an investor elects to redeem out of the evergreen, which is, I believe, the risk that everyone is focused on when they hear evergreen, they actually do not get their cash back immediately. What they do is they get put into a sidecar that will have an orderly liquidation. As the investments of that sidecar monetize, they get their capital back. So it is not an immediate liquidation on the evergreen. It is an orderly liquidation, is how I would term it. I would say that it is a meaningful change in what we are doing in this structure, and it is very additive to our ability to fundraise going forward. Is that a new innovation with the idea of the sidecar as the vehicle? That's how Pathfinder Core is constructed. Pathfinder Core was really the It set the path and the tone for everybody, no pun intended. Yeah. Or maybe intended. That's okay too. I guess really, it's a feature, not a bug, because of the institutional nature of your business can allow for that type of a structure. Absolutely. Greater flexibility. Yeah, that's interesting. We got to talk about ASIF. Yeah. We'll switch back to retail. Unmet redemption requests in 3Q only increased by 3.7 percentage points. Seems like that's a sign that that's growing more slowly. Curious about whether or not you agree with that. Mike said he anticipated a rebound in the ASIF flows in 2027. Yeah. Specifically, how far do you think we are from getting below that 5% threshold? Then how long before we get back to net inflows? Sure. We've talked about it a number of times. The majority of the dollars electing to be redeemed are these institutional family offices that are international. Smaller check sizes, kind of similar to what I just talked about, where they'll have an option for something like the evergreen product with the ability to have a more orderly liquidation in the future. But they made up more than half of the redemption queue over the last several quarters. So their amount keeps coming down. If you just take our regular way U.S. wealth investor, they've made up about 2.4% of total redemptions last quarter, and that's been pretty consistent across the board. So they have never been the ones driving the limits being put in place. It has really been this small group that represents about 10% of the AUM of the fund or the assets of the fund, equity of the fund. That's been what's driven it, not the regular way investor. As we move through that part of the redemption queue, then that's when you feel like we'll be stabilized. Just mathematically, if you just follow the pattern and you say, "Okay, well, they first put it in," it would tell you by the end of this quarter or into next, we should be below those limits. We raised about $168 million of gross flows in ASIF in the third quarter, so that puts us at a nice and that had grown slightly. That puts us at the ability to continue to see that gross number increase. To Mike's point, as he just looks at the math, as we zoom out and take the math into consideration, it would tell you that you'll probably be out of the limit sometime in the next couple quarters, and you'll probably be back into the net inflows by the back half of next year. Yeah. One clarifying. The 2.4, is that a percentage for the onshore? Is that a percentage of the NAV? Yeah, total redemptions. Okay. It would tell you that if it was just those investors- You wouldn't be getting- you would hit the limits. Yeah. Got it. And international, primarily Asia? It is all over international, but yeah. Okay. That is normally the way we see these sequence. We have made certain changes too, as we have thought about bringing in bigger dollar amounts and working with those tickets to understand that they won't have as immediate liquidity. Yeah You can only really do it going forward as they bring them in. So it has opened up the door for more discussions on how you accept those dollars, whether it is a feeder that puts a similar limit in or whether it is an individualized contract if they want to put dollars in. So it makes it more protective of those high net worth investors going forward so that they won't have the same type of experience. Yep. Is it feasible to apply different There is typically an onshore sleeve and an offshore sleeve. Is it becoming normal practice to apply maybe early redemption charges or whatever based upon historical patterns, or does that become hard to do in the different sleeves? There already is a redemption- Mm-hmm. I mean, sizing it, right? Yeah. Toggling the size. I think it's more likely if they're going to bring it in that you'll negotiate upfront that, "Hey, if you bring in $50 million at any given year, don't expect to get more than 12 and a half out. Okay. So it's more about a negotiation- Yeah than a formal structure. Okay. Appreciating that the flows have been stronger for other asset classes, where are you seeing the strongest demand as far as looking across the different assets? Ares Core Infrastructure, ACI, that is where the strongest demand has been. In fact, we said on the call, but the third quarter was our second highest fundraising quarter overall ever. Yeah. That put us at number 2 in the league tables on Stanger, which is an independent source that monitors the wealth industry. So very happy with the strength of the overall portfolio. Whether you have heard Mike or Raj, our Head of Wealth, speak, or myself even, we have always been consistent that you need to have a variety of products here. Having a variety of products means that you will always have the strongest product that is in market and be a boon to the overall portfolio. But when we look across our eight major investments now, we have them all over $1 billion, all scaled, all within one major distribution partner. We love how the portfolio is situated, and we feel really good about going forward that we have the right product set to continue to grow in that space and continue to build off of our successes. Yeah. ACI has been awesome. I am going to just jump to my question on that since we touched on it. Can you update us on how many platforms ACI has? It is my understanding that it is pretty limited at this stage. It's only on one at this point, yeah. It does have the ability to go into others. Like I said, we've been very successful on fundraising, and you learn from us with ASIF that we don't want to essentially out-kick our coverage. We're able to deploy the capital that we raised, and we want to continue to build behind that and continue to always do that. We've been measured in our approach to adding, but we do feel like as we grow that team, we'll have the ability to add more going forward. Right. What is the, specifically for ACI, because it does feel like that's a vehicle that's really having a moment. Yeah. What's the pipeline look for adding more platforms to the extent you can? Yeah. It'll be measured. Obviously, I don't think you're going to go with four right at once, but I think there's one or two that you will see be added incrementally within the next year or so. Okay. Great. When we think about the structuring GP liquidity and the Ares Global Structured Solutions strategy, you just announced final close. It is an inaugural fund for you all, $4.2 billion, and it hugely exceeded its initial $1 billion target. There is obviously a lot of interest there. Such significant capital, you talked before about pacing and thinking about the deployment opportunity. What is the right way to think about that? How do the fee structure, duration, and return profile of the GP-led secondaries compare with traditional secondaries? Yep. It is really interesting how we have built out the secondaries platform. Obviously, you have your infrastructure business and your real estate business. They were more legacy, and they are still essentially on their commingled product structure that they have always been on. Then you have credit secondaries, which was new and another $4 billion first-time fund that we had closed very recently and is deploying very well. Then you have the private equity business, which was the oldest business, and when we brought it on, we really took what was in one large commingled product, and we broke it into several different products. Those products are PMF, which is the high-net-worth retail product. It is an LP-led, the GP-led that you just referenced, and a GP stakes business. The GP-led, when you think about secondaries and private equity specifically, is where you have, because it is more structured, you have more of an opportunity to generate alpha. The LP-led, that is a little bit more commoditized. Yep Now, as LPs understand where they can go to get liquidity. They can work with banks, they can work with others to market their fund, and then it becomes essentially just a bid-ask process. GP-led is you are identifying sponsors, you are working with those sponsors, solutioning for those sponsors. Sounds a little bit like direct lending that we do very well. And you are using that to create a structure that has the ability to outperform. Now, investors really like that because they are able to get that private equity structure. They are able to get later stage. They are able to get a more mature asset. They are able to get more understanding of that asset, often with guaranteed return marks. So, a lot more structuring around that and the opportunity to generate alpha over the long term. So there is a lot of popularity in what they have done there. Because of us building the business the way that we have, we look at AGSS as just a normal part of what we do. Even though it is much larger than we initially set out, we still would expect that that will deploy over the normal course of the life of a fund, which in general is anywhere from like two to three years before you find yourself at your next vintage. Understood. The secondary markets are really, really interesting. It has been a big topic of discussion today. Non-traded REITs. Performance has really improved pretty materially in your non-traded REITs, and fundraising also seems to be now moving along accordingly. What is your outlook for that product, and what are you hearing from the wealth channel regarding appetite for real estate? Appetite was certainly improving. I am very aware of how interest rates interact with real estate, and if we were to see more interest rate increases, how would that work dynamically with real estate demand in the short term? Not specific problem to us, but how real estate will deal with it in general. It is something that bears watching. However, in terms of how we have been able to construct the portfolio, we have seen, as you said, increased fundraising. In fact, some of our best fundraising quarters since 2022. We have seen excellent returns underlying the portfolio. A lot of that is driven by the quality of the portfolio, low vacancy rates, the ability to reprice your leases and increase your lease rates, so essentially passing through what inflation has done, what other changes in the economy have done. If you look at something like industrial, those are seven-year leases, so you are increasing at a rate of in the 90%-100% increase on your lease costs as they are coming due. If you have industrial properties in the right locations and you have very low vacancy, you are able to have a lot of elasticity on your lease pricing. That has allowed the portfolio to perform very well in absence of just a full-blown market recovery and up and to the right on pricing of real estate assets. I believe that that has been attractive to investors in those particular products, too, is seeing that, hey, it is not just because I am getting this giant increase in my equity value, but I am seeing improvements in the fundamentals of the assets as well. Right. And it sounds like that's really more idiosyncratic. I know one of your products, AIREIT, is industrial-focused. Industrial, yeah. And that's a feature there basically, right? Yeah, exactly. Even on multifamily, though, we've been able to have it. Now, they reprice pretty much annually. Right in terms of re-leases, but we have seen flat-type leasing. Low vacancy with flat leases is still a very good fundamental for that. Much better than where it was. Yeah. For sure. That is great. We would love to shift gears a little bit and talk about profitability. FRE margin, appreciating that you guys are confident in landing in at above, actually, the midpoint of your general framework of 0-150 basis points for the year. Can you speak to the primary factors that move Ares to the different points within that range from year to year? Yeah. We often get asked questions about our margin as you compare it across industry, and it is important to understand just the construction of our business and the fact that we are credit-focused. As we have broadened, that has been very helpful, but being credit-focused, the very first thing you talked to me about was deployment. Yep. The reason that deployment is so important, it is actually doubly important because we do not earn fees until we are deployed. It not only tells you when you are going to get to your next vintage, but it tells you what your ultimate management fees are. How that works in line with your margin is that I have to make sure that everybody is hired in order to deploy the capital once the capital is raised. That means we incur the expenses before we get the revenues. Yep. You essentially have built-in margin accretion just from the deployment of your franchise. Whether it is U.S. direct lending, European direct lending, ABF, they all work in that we have raised dry powder, now we are going to deploy it, but I need to bear the expense to deploy that first. Then as you become more successful in that, you are continually hiring behind, understanding that you believe that you will be able to raise more, and therefore you will need to deploy more going forward. That is just the general margin thesis is, you will have expansion every year, and that is where we gave that guide of 0 to 150 basis points because of the way that the business works. Now, you have certain other accelerants that may happen in there, and we have talked a little bit about our data center fund and how that will pay on committed. When that comes online, it will have an immediate margin accretive impact, and we have said that that will happen back half of this year into next year. That is something that takes you maybe into that upper end because you have those activities happening. You have had some other things on our books recently, so the acquisition of GCP. Yep Runoff on the TSA that we had with the left-behind entity, the efficiencies that we are gaining on the expense side from the combinations of the front and back offices. All of those things work in our favor. We have also hired, well, now it has been, he just had his year anniversary, a new Chief Technology Officer. He is working on building out our AI platforms and modernizing our software stack. All of that will have initial cost, but will be accretive to the margin going forward. The way I always think about our margin is not simply on what today's margin is, but the dry powder that you mentioned in your very first remarks, if that was all deployed tomorrow, it would essentially be close to margin accretive. What would our margin be at that level? It should be about 10% higher, and how does that kind of compare to the peers that have more management fees driven by committed capital as opposed to deployed capital? Got it. You just spoke to GCP, the success you guys had in that acquisition. Inorganic is something that comes up from time to time with Ares. When you consider your capital priorities, how do you stack rank them? Inorganic growth has come up, as I said, a few times. In the past, Mike's spoken to the merits of adding private equity capabilities. How important is that to your overall capital framework? First priority is organic growth. We want to take our capital and we want to invest it to grow organically. We've laid out our 16%-20% guidelines on FRE, 20% plus on RI. That's where our calls are focused. That's how do we grow more with what we have? Because we've grown very large and scaled, that makes the bar higher for an acquisition. Mike, myself, even back to 2024, if you go back to our investor day, you would have seen us talk about the areas that we believed were below scale, and we highlighted two primary areas. We highlighted infrastructure, and we highlighted private equity. Much has been made of private equity over the last year. I feel like I've got to talk about it at every meeting, but it really hasn't waned from something that would be of interest. The fact is, we have rebuilt our private equity business. It is a very much core middle market private equity business, so it is investing in small and middle market companies. We don't have a mega private equity fund there. We understand that. There would be interest in adding that to the portfolio as it would allow LPs to be invested with us in one more product. It would provide revenue synergies on things like capital markets transaction fees. It could provide revenue synergies or product synergies in terms of having a wealth-related product with that. But we are very happy to see where ACOF is on its growth trajectory, and it is back on a growth trajectory. The bar to be, we know that the strategy behind it has to be then financially and culturally, and that's the bar to reach for something like that. Neither one are slam dunks at any given time. We will just be patient and take the right approach while we continue to invest in our business and look to grow there. On infrastructure, something like ACI, you mentioned it, that gives us a lot of ability to continue to invest in our infrastructure business, to have more dry powder and capital available to infrastructure to allow us to attract talent, but it does not mean that global infrastructure is not something that is still very much at interest. If there is a way to enhance our scale or to get larger faster, organically, it is certainly something that we would be interested in and would be compelling to us. We are always looking, but we want to do it right, not right now. You touched on financially, culturally and financially. Private equity is generally, particularly large cap, is considered one of the more slower growing parts of the space. Does that represent itself in where the valuations are for those types of assets? What is the right way to think about that? It should, yeah, for sure. I mean, you are a single strategy and slower growth strategy. Yep It should not command the same multiple as a diversified growing platform. Right. Whether it's us or any of our peers. You're immediately going to have a lower multiple than that. When you look at it needs to be accretive in the very early term for it to make sense on something like that. However, I would highlight a lot of private equity firms, they don't have a broker-dealer, so they don't have the ability to participate in capital markets. They don't have a distribution sales force, so they don't have the ability to do the more wealth-related products. There are revenue synergies that you can take, and instead of having a step function in your growth dependent on every successive vintage, it allows you to have smoother upward trajectory in your growth because you're able to have those revenue synergies. Okay. Got it. When we think about the private equity opportunity with wealth, you guys do have the secondaries. It feels like secondaries is pretty well-suited for- Yeah the wealth channel. Is some of the success that some of the firms have had in launching more of a pure equity offering, making that look more compelling- Yeah versus what you have? Or what's- I think it's an option, certainly, and you need to be out there with bigger deals that have size and capacity to do that. The challenge that any retail product, whether it's a direct lending or real estate, is the dollar comes in, and if you don't deploy that dollar, it is a massive drag on the overall return. Then over several years, you will have a much worse return than others who are able to deploy. So you need to make sure that you're building your franchise so that it always has that ability to be deploying the capital that it's raising- Yeah so that you never fall behind on that return profile. Yeah. That's something that Mike has been focused on a lot with the sort of pro-cyclical nature of that channel. Is there something you can do in the sequencing and the speed at which the capital formation comes in? Yeah. You are exactly right, and it is institutional funds, institutional commingled product- Yeah as the ballast to the retail product. Right. Really, you need to have both, because institutional capital allows you to have capital that is available when the markets are dislocated- Right and it is the most attractive time to invest. The fact is that when markets are dislocated, generally your retail capital is not coming in, so you are frozen out of it being a period to invest. But if you have institutional dry powder, you are able to have some turnover within that retail portfolio, so they work symbiotically. At the same time, if you do not have the retail option, because you might say, "Well, why not just have the institutional?" For years, that was how we built the firm. There is a tremendous amount of under-penetration of the alts in the retail investor's wallet. If you do not have that retail product, you are going to miss out on a tremendous growth capability over the next 5, 10, 15 years as they rebalance their portfolios to have alternative investments be a broader part of it. Yeah. I mean, it's effectively a different way of describing where we started where you said the big retail firms sort of pulled back, mid-upper market Yeah got more attractive, and you guys are leaning in. Any questions from the audience for Jared? Okay, I got one more. All right. Wealth. We talked about it from a bunch of different ways. You guys are somewhat newer to it. How do we think about where the expenses and the team stands today? Yeah. What inning are you in that journey, and how far do you think we need to go before it's fully done? Yeah, I'd say we're probably in the first third of the build-out. As I mentioned earlier, all of our products are now billion-dollar plus- Yep products that are out there. At any given time, you may have one product that is more outsized in popularity, like we've talked about, and then that can drive essentially your distribution fees prior to scale of the fund. If you just mathematically think about a fund starting at zero and building up, in your first year, then that fund, if it pays a distribution fee to a large wirehouse, it's likely going to be probably margin negative. Right? If you raise the exact same dollars the next year, it's kind of margin flat. It really takes your first two years mathematically to build up the scale in any given product. Depending on the size and the speed at which that product is raising funds, it's basically a two-year front-end investment. If you just look at our portfolio and you say, "Okay, well, I know where most of them are at," whether it's ASIF and how old that is, with PMF, with ACI, all of these funds that we've talked about, they're at various stages in their life cycle, with ACI being kind of the newest but also the most popular. Right. It's right in the middle of that kind of two-year math. The same thing can happen if you go, like we've gone down in ASIF in terms of net flows. As that kicks back up, those dollars will have a little bit of time where it will adjust Agreed to be margin accretive. However, your base isn't zero anymore. Right. You have a base that is management fees. It is just a little bit margin dilutive with growth that is extremely accretive after that year two. Does the speed at which ACI has scaled change the two-year math? Does it accelerate it? Not really, because it is still the fee is the front end and it is all at once. It is just a cost. the way we record it. Yeah, got it. Great. Please join me in thanking Jared for his time today. Thanks, everybody. Thanks, Brennan.