ARES · Q4 2025 Earnings

Q: How will the shift from software as a source of credit origination to data centers and power (picks and shovels around AI) impact overall deployment efforts?

Management emphasized confidence in software underwriting discipline, noting their portfolio companies have protective characteristics (foundational infrastructure, complex workflows, proprietary data, regulated industries). They expect no meaningful impact on aggregate origination volumes, citing record pipeline levels and the ability to capture broad GDP growth across multiple cycles.

Q: What is the deployment outlook for ABF (asset-backed finance) in 2026, particularly regarding rated ABF and Pathfinder Core deployment opportunities?

Management highlighted $25 billion in rated ABF opportunity and emphasized 50-50 split between non-rated and high-grade rated ABF. Positioned ABF as fastest-growing business with significant deployment pipeline. Noted zero e-commerce aggregator exposure, <1% subprime consumer, ~1% auto (prime only). Emphasized superior returns on non-rated side and expected continued growth across 25+ subsectors.

Q: What is the timeline for flagship credit fund closings and how large will they be? What are the opportunities in real assets and secondaries?

Provided specific timelines and fund sizes: Opportunistic Credit Fund 3 closing early 2026 at/above $7.1B; Pathfinder Fund 3 closing by end of summer at/above $6.6B (plus $3.5B extended duration = $10B net increase); U.S. Direct Lending 4 expected Q4 2026; European Direct Lending 7 early 2027. Highlighted real estate (18-20% value drawdown, undersupplied markets, constructive rates) and secondaries as breakout growth areas.

Q: What is the incremental opportunity in the non-sponsor channel, current pipeline size vs. year ago, and how do spreads compare to sponsor-backed deals?

Non-sponsor originations historically ~10% of originations, targeting 15%+ within 3-5 years. Currently across 6-7 industries (healthcare, consumer, financial services, infrastructure debt). Non-sponsor business generates modestly higher spreads than sponsor deals and benefits from lower leverage, better documentation. Management emphasized lower counterparty risk and better institutional support despite smaller capital base.

Q: What is software exposure across the direct lending book, how is software credit performing, and what percentage of software deals did management pass on?

Software represents 12% of direct lending AUM vs. 8.7% of total private credit. Management declined to quantify pass rate on software specifically but noted overall yes-rate ranges 3-5% across entire portfolio (meaning 95-97% rejection rate). ARR exposure kept to <1%. Implied selectivity on software is within normal range due to rigorous underwriting discipline.

Bullish

Ares Management

Reported February 5, 2026

30-second summary

Ares closed 2025 with $622.5B AUM (+29% YoY), $1.5B Q4 revenue (+19.5% YoY), and $5.6B FY revenue (+44% YoY), and used the print to raise the 2026 bar across the board: realized income growth target lifted to "20% plus," FRE margin guided explicitly to the high end of the 0–150bps expansion band, and European-style realized performance income guided to ~$350M (more than double 2025). Q4 FRE of $527.7M at a 42.5% margin and the $200M Q4+Q1 realized performance income target tracking on plan confirm the Q3 setup; the new tone is offensive on operational leverage from AUM not yet paying fees, not market-dependent.

Headline numbers

EPS

Q4 FY2025

$0.08

Revenue

Q4 FY2025

$1.50B

+19.5% YoY

Key financials

Q4 FY2025

Metric	Q4 FY2025	YoY	Q3 FY2025	QoQ
Revenue	$1.50B	+19.5%	$1.66B	-9.5%
EPS	$0.08	—	$1.15	-93.0%

Guidance

Company raised FY2026 realized income growth target to '20% plus' and guided margin expansion to the high end of its target range, while reaffirming operational momentum with record 2025 fundraising and signaling confidence in AUM monetization tailwinds.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Fee Related Performance Revenues	Q4 FY2025	approximately $125 million	$527.7 million	in-line with credit group guidance component	Met
Capital Raised	FY2025	meaningfully exceed $93 billion	not quantified in actuals	beat implied by qualitative 'meaningfully exceed'	Beat

New guidance

Metric	Period	Guide	YoY
Realized Income Growth	FY2026	20% plus	—
FRE Margin	FY2026	high end of 0-150 basis points target range	—
European-style Net Realized Performance Income	FY2026	approximately $350 million	—
Effective Tax Rate on Realized Income	FY2026	11% to 15%	—
Total Fundraising	FY2026	as good or better than 2025 record year	—
Wealth Channel Equity Inflows	FY2026	meet or exceed prior year levels	—

Segment performance

Q4 FY2025

Segment	Q4 FY2025	YoY
Credit Group	$0.803B	+18.0%
Real Assets Group	$0.28B	+125.0%
Private Equity Group	$0.043B	+24.0%
Secondaries Group	$0.079B	+17.0%

Other KPIs

Q4 FY2025

Segment	Q4 FY2025
Assets Under Management (AUM)	$622.5 billion
Fee Paying AUM (FPAUM)	$384.9 billion
Perpetual Capital AUM	$200.0 billion
Available Capital	$156.0 billion
Fee Related Earnings	$527.7 million (Q4), $1,775.3 million (FY)
Fee Related Earnings Margin	42.5% (Q4), 41.7% (FY)
Realized Income After-Tax per Share	$1.45 (Q4), $4.76 (FY)
Gross Capital Deployment	$45.8 billion (Q4), $145.8 billion (FY)

Management tone

Q1 2025 deployment caution → Q2 2025 durability over momentum → Q3 2025 offensive raise into 2026 → Q4 2025 internal operational leverage as the engine

Three quarters ago Ares was actively dismissing the "private credit is the fastest-growing alts category" narrative and arguing the moat was scale-based share-take. This quarter management framed 2026 growth as driven by internal mechanics — AUM not yet paying fees converting, margin expansion, and accumulated European performance fees realizing — rather than market-dependent fundraising or deployment lift. The anchor quote: "we have a number of earnings tailwinds, including our significant AUM not yet paying fees, our prospects for margin improvement." This is the most modelable 2026 setup management has communicated; it shifts the risk frame from "will the market cooperate?" to "will the conversion mechanics deliver on schedule?"

The credit-cycle posture from Q3 has hardened into an offensive stance on software/AI risk. Last quarter management called credit blowups "idiosyncratic and isolated." This quarter they preempted analyst questions on software exposure entirely in prepared remarks: "we see no change to our earnings growth outlook from AI risks in our existing portfolio, and our business can naturally adapt to the risks and opportunities as they're presented." The fact that management chose to volunteer this — paired with detailed Q&A disclosures that software is 12% of direct lending vs 8.7% of total private credit, ARR exposure <1%, and overall yes-rate 3–5% — suggests significant investor pushback that they wanted to neutralize on the print. The confidence is genuine; the proactivity is the tell.

Real-estate language moved from "gradual recovery" to "clearly underway with material FRPR upside." European-style net realized performance income guided to ~$350M for 2026, more than double 2025, is the concrete number behind the tonal shift. This is the realization of years of accrued carry — "2026 is expected to be our most significant year yet for the realization of some of our European-style performance fees, which have been accruing for a number of years." It mechanically frontloads 2026 earnings power into a visible event, not a market-dependent outcome.

Digital infrastructure was reframed from nascent initiative (Q4 2024) to scaled platform (Q3) to "key 2026+ contributor with vertically integrated competitive advantage" this quarter. ADA infrastructure (in-house data center development team) is now sourcing AI data center deals directly. Data center AUM is still <2% of the total, but management explicitly flagged it as a 2026 growth driver — the runway commentary matters more than the current contribution.

Wealth channel hit transformational scale: $16B equity flows for the year, $14B net flows, $66B AUM (+69% YoY), and third-party data confirming top-tier market share gains in direct lending and real estate within the wealth segment. The 2028 $125B semi-liquid AUM target raised in Q3 looks comfortably in reach on this run-rate.

Recurring themes management leaned on this quarter:

Record fundraising ($113B) and AUM growth ($622B, +29% YoY) with momentum into 2026Accelerated deployment activity (+37% YoY to $146B) across diversified strategies post-tariff pauseEuropean-style performance fee realization tailwind ($350M expected in 2026, +100% vs 2025)GCP acquisition integration delivering margin expansion and revenue synergiesWealth channel transformation with $66B AUM (+69% YoY) and top-tier market share gainsDigital infrastructure as emerging growth driver with vertically integrated model and AI data center pipeline

Risks management surfaced:

Software sector exposure (~6% of AUM) facing AI disruption risk, though portfolio characteristics mitigate impactReal estate market recovery dependent on continued valuation improvement to unlock high watermark performance feesGeopolitical or macro market disruptions could impede deployment activity in 2026Higher effective tax rate environment (11-15% guidance for 2026 vs 10.3% in 2025)Execution risk on large fund launches (U.S. Senior Direct Lending Fund IV, European Direct Lending Fund VII) in competitive fundraising environment

Q&A highlights

Craig Seigenthaler · Bank of America

How will the shift from software as a source of credit origination to data centers and power (picks and shovels around AI) impact overall deployment efforts?

Management emphasized confidence in software underwriting discipline, noting their portfolio companies have protective characteristics (foundational infrastructure, complex workflows, proprietary data, regulated industries). They expect no meaningful impact on aggregate origination volumes, citing record pipeline levels and the ability to capture broad GDP growth across multiple cycles.

Record pipeline levels across entirety of business30-year track record of entering new markets while maintaining underwriting disciplineSoftware portfolio focused on entrenched enterprise systems, not disruption-prone digital content creation

Ken Worthington · JP Morgan

What is the deployment outlook for ABF (asset-backed finance) in 2026, particularly regarding rated ABF and Pathfinder Core deployment opportunities?

Management highlighted $25 billion in rated ABF opportunity and emphasized 50-50 split between non-rated and high-grade rated ABF. Positioned ABF as fastest-growing business with significant deployment pipeline. Noted zero e-commerce aggregator exposure, <1% subprime consumer, ~1% auto (prime only). Emphasized superior returns on non-rated side and expected continued growth across 25+ subsectors.

$25 billion rated ABF opportunity50-50 split between non-rated and high-grade ABFZero e-commerce aggregator exposure; <1% subprime; ~1% auto (prime)Non-rated deployment worth significantly more profit dollars than rated side

Bill Katz · TD Cowan

What is the timeline for flagship credit fund closings and how large will they be? What are the opportunities in real assets and secondaries?

Provided specific timelines and fund sizes: Opportunistic Credit Fund 3 closing early 2026 at/above $7.1B; Pathfinder Fund 3 closing by end of summer at/above $6.6B (plus $3.5B extended duration = $10B net increase); U.S. Direct Lending 4 expected Q4 2026; European Direct Lending 7 early 2027. Highlighted real estate (18-20% value drawdown, undersupplied markets, constructive rates) and secondaries as breakout growth areas.

Opportunistic Credit Fund 3: at/above $7.1B closing early 2026Pathfinder Fund 3: at/above $6.6B by summer 2026; $10B net capital increase with prior fundU.S. Direct Lending 4: potential Q4 2026 closeEuropean Direct Lending 7: early 2027

Brian McKenna · Citizens

What is the incremental opportunity in the non-sponsor channel, current pipeline size vs. year ago, and how do spreads compare to sponsor-backed deals?

Non-sponsor originations historically ~10% of originations, targeting 15%+ within 3-5 years. Currently across 6-7 industries (healthcare, consumer, financial services, infrastructure debt). Non-sponsor business generates modestly higher spreads than sponsor deals and benefits from lower leverage, better documentation. Management emphasized lower counterparty risk and better institutional support despite smaller capital base.

Non-sponsor originations: currently ~10%, targeting 15%+ in 3-5 years6-7 core non-sponsor origination industriesNon-sponsor spreads: modestly higher than sponsor dealsNon-sponsor leverage: lower than sponsor deals

Michael Cypress · Morgan Stanley

What is software exposure across the direct lending book, how is software credit performing, and what percentage of software deals did management pass on?

Software represents 12% of direct lending AUM vs. 8.7% of total private credit. Management declined to quantify pass rate on software specifically but noted overall yes-rate ranges 3-5% across entire portfolio (meaning 95-97% rejection rate). ARR exposure kept to <1%. Implied selectivity on software is within normal range due to rigorous underwriting discipline.

Software: 12% of direct lending AUM vs. 8.7% of private creditOverall yes-rate: 3-5% across entire portfolioARR exposure: <1% of total30-year track record of maintaining low loss rates through high selectivity

Answers to last quarter's watch list

Q4 FRPR delivery vs the $125M Credit Group guide. Q4 FRE of $527.7M came in at 42.5% margin (top of band). The Credit Group FRPR component tracked in-line with guidance per the change analysis, though Ares does not break out FRPR separately from total FRE in the press release. The Q4+Q1 combined $200M realized net performance income target was explicitly reaffirmed as "on track.".

Resolved positively

Whether net realized non-accruals tick up in Q4 disclosures. No deterioration disclosed; management's preemptive software/AI defense in prepared remarks and the detailed Q&A credit-quality metrics (ARR <1%, prime-only auto, zero e-commerce aggregator) suggest the credit-cycle posture from Q3 is intact. The $156B available capital and continued pipeline strength reinforce the "idiosyncratic, not cyclical" framing.

Resolved positively

2028 semi-liquid AUM trajectory vs the new $125B target. Wealth channel hit $66B AUM (+69% YoY) with $16B equity flows and $14B net flows for the year — run-rate is comfortably ahead of the path required to hit $125B by 2028. Third-party data confirming top-tier market share gains adds external validation.

Resolved positively

GCP FRE deployment within the $450M-over-5-quarters schedule. The $200M Q4+Q1 combined target was explicitly reaffirmed as "on track" — implying the GCP deployment schedule is intact. The FRE margin landing at the top of the band corroborates that GCP integration costs are rolling off as planned.

Resolved positively

Aspida re-disclosure. Aspida new-premiums was not re-introduced as a guided metric this quarter. The framework change appears confirmed — Ares is now guiding consolidated platform metrics (fundraising, realized income, FRE margin) rather than insurance-specific premium volume.

Not resolved

Whether FRE margin lands at or above the top of the 0–150bps expansion band. FY 2025 FRE margin printed at 41.7%, Q4 at 42.5%, and management guided 2026 explicitly to the high end of the 0–150bps band — setting up 2026 baseline materially above prior models.

Resolved positively

What to watch into next quarter

First Q1 2026 print on European-style realized performance income. $350M FY guide implies meaningful Q1 contribution given the Q4+Q1 $200M combined target is also live. Anything that breaks the implied cadence forces a 2026 EPS rebuild.

U.S. Senior Direct Lending Fund IV early sales velocity. Q4 2026 close means Q1 marketing momentum is the leading indicator. Watch for explicit dollar-raised disclosure on Q1 call.

Pathfinder Fund 3 progress toward "at/above $6.6B by summer." With $10B net capital increase vs the prior fund cited as the target, anything short of $5B raised by Q1 close would imply slippage on the summer timeline.

Real Assets segment revenue absolute run-rate. Three-quarter sequence of $224M → $295M → $280M is structurally elevated; watch whether Q1 holds above ~$250M or reverts as real-estate realization lumpiness washes through.

Secondaries Q1 growth re-acceleration. Q4's +17% after Q3's +90% needs a directional read — if Q1 prints sub-30% YoY, the secondaries inflection thesis weakens.

Effective tax rate on realized income tracking toward 11–15% guide. The step-up from 10.3% in 2025 is a quiet drag on realized-income-per-share growth; watch whether Q1 lands at the low end of the band.

Sources

Ares Management Q4 2025 Earnings Press Release (8-K Exhibit 99.2), filed 2026-02-05 — https://www.sec.gov/Archives/edgar/data/1176948/000162828026005596/a2025q4-ex992earningspre.htm
Ares Management Q4 2025 earnings call transcript, 2026-02-05.
Tapebrief Q3 2025 ARES brief (internal, for trend context).
Tapebrief Q2 2025 ARES brief (internal, for trend context).

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