Ares Management Corp

Ares is an alternative asset manager widely considered to be the leading private credit provider globally. Its value has compounded at double digit rates while we have owned it. Despite a stock price decline of 31.6% during the first quarter due to AI-related fears, we believe these concerns are unfounded. Ares' exposure to software is small and primarily in credit, providing a senior position in case of struggles. Default rates are close to zero, and even with a hypothetical 15% default rate, growth would only be reduced by 3-4% for one year. Ares has a strong track record of minimizing credit losses and its assets under management continue to grow, making the current stock price decline a compelling buying opportunity.

Ares Management is a leading player in private credit, a large and growing market supported by secular tailwinds such as increased bank regulation and rising retail penetration. Scaled players like Ares are expected to capture outsize shares of industry asset growth and drive fee-related earnings margin expansion over time. The company employs a balance sheet light strategy, ensuring more predictable cash flows, with most realized income coming from fee-related earnings. Ares's high underwriting standards and strong performance in past downturns position it well to manage through future credit cycles and emerge stronger than peers.

Ares is a fast-growing alternative asset manager with a leading private credit franchise. The company's long-term capital commitments, significant dry powder, and fee-based earnings model provide the potential for high earnings growth over the next few years. We believe these factors position Ares Management well for future success in the competitive asset management landscape.