Ares Management Corp (ARES) stock intrinsic value fair value estimate & owner earnings analysis

Ares Management is a global alternative asset manager. It raises capital from institutions (pension funds, insurers, sovereign wealth funds) and high-net-worth investors into funds across private credit, real estate and infrastructure, secondaries, and private equity, and earns fees for managing that capital plus a share of investment gains once funds perform well. About three-quarters of its $622 billion of managed capital comes through direct institutional relationships, and the firm still has $156 billion of capital already committed by investors but not yet invested -- money that will convert into fee-earning assets as it is deployed over the next several years. The business is capital-light: it does not need much in the way of equipment or physical plant to grow, so most of the cash it generates after covering real operating costs belongs to shareholders. In arriving at that cash figure, we treated stock-based compensation as a real cost (it is not free just because it does not use cash), added back non-cash charges like depreciation and amortization (which relate to sunk acquisition costs rather than ongoing spending), and set aside a modest allowance for the furniture, equipment, and leasehold improvements the firm actually needs to keep operating. One accounting wrinkle specific to a business like this: Ares' financial statements consolidate certain investment vehicles it manages but does not own (including its CLOs), because it is deemed to control them. The cash flowing through those vehicles' own buying and selling of loans and securities shows up in Ares' reported cash flow statement but has nothing to do with what belongs to Ares shareholders, so we removed it and rebuilt the cash flow attributable to Ares' own economics -- including the portion of earnings that belongs to pre-IPO owners and employee-partners who hold their stake through a different class of unit than the publicly traded shares, since those units carry the same economic claim on the business and are exchangeable into it. On that basis, owner earnings have grown from roughly $1.24 per share in 2019 to about $4.12 per share in 2025, though not in a straight line -- 2022 was a weak year for realizing gains on fund investments (a pattern common across the industry that year), and stock-based compensation has nearly tripled since 2023, a real and growing cost to existing shareholders that we built into the numbers rather than setting aside. We used the median of the last five years, spanning both the weak 2022 stretch and the recent recovery, as the starting point for our estimate, which we think better reflects a full cycle than extrapolating from the most recent, unusually strong year alone. In March 2025, Ares closed its purchase of GLP Capital Partners' international business (excluding its operations in Greater China), adding roughly $45 billion of real estate, logistics and digital infrastructure assets under management and expanding the firm's presence in Asia-Pacific and Europe. Our bear case assumes owner earnings stall and modestly contract over the next few years, repeating something close to the weak 2022 pattern for an extended stretch, while stock-based compensation keeps growing faster than earnings -- a real risk given the recent trend. It is also worth noting that Ares discloses that a significant share of its management fees comes from a single relationship: its publicly traded business development company, whose fees to Ares are tied to that vehicle's own asset base and investment income. If that income were to decline meaningfully, Ares' fees from it would decline too. The firm also carries roughly $4 billion of debt and $1.5 billion of preferred stock at the parent level, both of which have to be serviced before anything is left for common shareholders. Even so, we still see the underlying fee franchise continuing at a slow pace rather than shrinking away, given how diversified and long-established the client base is. Our base case assumes owner earnings grow next year at roughly the same pace they actually did this past year (about 12%), supported by the committed-but-uninvested capital still to be deployed and a full year of the newly acquired businesses, then gradually decelerate over the following decade as the asset base gets larger. Beyond the explicit forecast, we think the fee-generating engine -- built on a long record of repeat institutional relationships and diversified across credit, real assets, secondaries and private equity -- continues at a pace roughly in line with the broader economy. Our bull case assumes Ares keeps raising and deploying capital at something close to its recent pace for longer, with continued success expanding the platform added in the GLP transaction, moderating only gradually over the decade. Putting these cases through a standard discounting framework, we estimate the shares are worth roughly $55 in the bear case, $128 in the base case, and $189 in the bull case. Given the real cyclicality in how this business earns money (performance-based fees can swing sharply with markets), the leverage and preferred stock ahead of common shareholders at the parent level, and the recent acceleration in share-based dilution, the margin-of-safety price is set at a meaningful discount to the base-case estimate -- around $87 per share, which also sits a reasonable distance above the bear case. A handful of small non-cash reconciling items in the earliest years of this history (2016-2018) could not be perfectly allocated between adjacent fiscal years from how the filings present them; the amounts involved are immaterial to the estimates above.