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Money Management

Ares AUM inches up 1% in quarter; manager announces it will switch to C-corporation

Ares Management reported $106.4 billion in assets under management as of Dec. 31, a 1% increase from the end of the prior quarter and up 11.8% from Dec. 31, 2016, the alternative investment firm's fourth-quarter earnings released Thursday states.

Ares also announced that effective March 1 it is switching to a C-corporation from a publicly traded partnership. Ares is the first alternative investment manager to make the switch following passage of the U.S. tax reform legislation.

"This morning, we announced that we have changed our corporate tax status, which we believe will simplify our structure, broaden our potential investor base, improve our liquidity and trading volume, and provide a more attractive currency for strategic acquisitions," said Michael McFerran, chief operating officer and chief financial officer, in a news release.

Ares executives declined further comment.

"Ares' decision to convert to a C-corp from a partnership following tax reform may be the first domino to fall across the alternative (investment management) industry as other firms are expected to more strongly consider converting," said Jared Kirsch, associate director, non-bank financial institutions at Fitch Ratings, in a statement. "This type of conversion could mean higher taxes but it also expands the potential pool of equity investors, which could improve stock valuations."

Ares attributed its increase in AUM to gross new capital of $2.7 billion in the quarter and $16.7 billion for the year ended Dec. 31. Net inflows were $2.1 billion for the quarter and $13.9 billion for the 12 months ended Dec. 31.

Ares' credit business AUM was $71.7 billion as of Dec. 31, up 1.7% from Sept. 30 and an 18.5% increase from a year earlier. Private equity AUM was $24.5 billion as of Dec. 31, flat from three months earlier and down 2% from Dec. 31, 2016. Real estate AUM was $10.2 billion as of Dec. 31, a 2.9% drop from the end of the last quarter but up 4% from a year earlier.

Management fees were $186.4 million for the quarter ended Dec. 31, up 1.7% from the third quarter and an 15% increase from the year-earlier quarter. Performance fees were $156.5 million in the quarter, a 79.9% increase from $87 million in the prior quarter but a 13.1% drop from $180.2 million in the year-earlier period. Administrative and other fees were $13.4 million in the fourth quarter, down 1% from the prior quarter and an 18.8% decline from the quarter ended Dec. 31, 2016.

GAAP net income was $39.6 million in the quarter, compared to $27.8 million in the previous quarter and $34 million in the quarter ended Sept. 30, 2016.