# Ares Management Corp (ARES) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Ares Management Corp's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1176948/000162828023005081/ares-20221231.htm
Accession: 0001628280-23-005081
Filing date: 2023-02-24
Report date: 2022-12-31
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/ARES/
All MD&A years: /company/ARES/mda/
Previous year: /company/ARES/mda/fy2021/ (FY 2021)
Next year: /company/ARES/mda/fy2023/ (FY 2023)

Results of Operations

Consolidated Results of Operations

We consolidate funds and entities where we are deemed to hold a controlling financial interest. The Consolidated Funds are not necessarily the same entities in each year presented due to changes in ownership, changes in limited partners’ or investor rights, and the creation and termination of funds and entities. The consolidation of these funds and entities had no effect on net income attributable to us for the periods presented. Although the consolidated results presented below include the results of our operations together with those of the Consolidated Funds and other joint ventures, we separate our analysis of those items primarily impacting the Company from those of the Consolidated Funds.

The following table presents our summarized consolidated results of operations ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Total revenues","","","","","","","","","$","3,055,443","","","$","4,212,091","","","$","(1,156,648)","","","(27)%"],["Total expenses","","","","","","","","","2,749,085","","","3,410,083","","","660,998","","","19"],["Total other income, net","","","","","","","","","204,448","","","263,682","","","(59,234)","","","(22)"],["Income tax expense","","","","","","","","","71,891","","","147,385","","","75,494","","","51"],["Net income","","","","","","","","","438,915","","","918,305","","","(479,390)","","","(52)"],["Less: Net income attributable to non-controlling interests in Consolidated Funds","","","","","","","","","119,333","","","120,369","","","(1,036)","","","(1)"],["Net income attributable to Ares Operating Group entities","","","","","","","","","319,582","","","797,936","","","(478,354)","","","(60)"],["Less: Net loss attributable to redeemable interest in Ares Operating Group entities","","","","","","","","","(851)","","","(1,341)","","","490","","","37"],["Less: Net income attributable to non-controlling interests in Ares Operating Group entities","","","","","","","","","152,892","","","390,440","","","(237,548)","","","(61)"],["Net income attributable to Ares Management Corporation","","","","","","","","","167,541","","","408,837","","","(241,296)","","","(59)"],["Less: Series A Preferred Stock dividends paid","","","","","","","","","\u2014","","","10,850","","","10,850","","","100"],["Less: Series A Preferred Stock redemption premium","","","","","","","","","\u2014","","","11,239","","","11,239","","","100"],["Net income attributable to Ares Management Corporation Class A and non-voting common stockholders","","","","","","","","","$","167,541","","","$","386,748","","","(219,207)","","","(57)"]]
[[/GREPCENT_TABLE]]

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 

Consolidated Results of Operations of the Company

The following discussion sets forth information regarding our consolidated results of operations:

Revenues.

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Revenues"],["Management fees","","","","","","","","","$","2,136,433","","","$","1,611,047","","","$","525,386","","","33%"],["Carried interest allocation","","","","","","","","","458,012","","","2,073,551","","","(1,615,539)","","","(78)"],["Incentive fees","","","","","","","","","301,187","","","332,876","","","(31,689)","","","(10)"],["Principal investment income","","","","","","","","","12,279","","","99,433","","","(87,154)","","","(88)"],["Administrative, transaction and other fees","","","","","","","","","147,532","","","95,184","","","52,348","","","55"],["Total revenues","","","","","","","","","$","3,055,443","","","$","4,212,091","","","(1,156,648)","","","(27)"]]
[[/GREPCENT_TABLE]]

Management Fees. Capital deployment in direct lending funds within the Credit Group led to a rise in FPAUM and additional management fees of $239.0 million over the comparative periods. The Landmark Acquisition, which was completed on June 2, 2021, contributed additional fees of $77.4 million for the year ended December 31, 2022 compared to the partial year ended December 31, 2021 within the Secondaries Group. Within the Real Assets Group, funds from the Black Creek Acquisition, which was completed on July 1, 2021, contributed additional fees of $92.4 million for the year ended December 31, 2022 when compared to the partial year ended December 31, 2021. Lastly, the Infrastructure Debt Acquisition, which was completed on February 10, 2022, contributed additional fees of $36.4 million for the year ended December 31, 2022. For detail regarding the fluctuations of management fees within each of our segments see “—Results of Operations by Segment.”

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Carried Interest Allocation. The activity was principally composed of the following ($ in millions):

[[GREPCENT_TABLE]]
[["","Year ended December 31, 2022","Primary Drivers","Year ended December 31, 2021","Primary Drivers"],["Credit funds","$","195.1","","Primarily from four direct lending funds and one alternative credit fund with $22.4 billion of IGAUM generating returns in excess of their hurdle rates. Ares Capital Europe V, L.P. (\u201cACE V\u201d) generated carried interest allocation of $80.9 million driven by net investment income on an increasing invested capital base. Ares Capital Europe IV, L.P. (\u201cACE IV\u201d), Pathfinder, Ares Capital Europe III, L.P. (\u201cACE III\u201d) and Ares Private Credit Solutions, L.P. (\u201cPCS\u201d) generated carried interest allocation of $60.0 million, and $25.7 million, $18.7 million and $6.5 million, respectively, primarily driven by net investment income during the period.","$","336.1","","Primarily from four direct lending funds and one alternative credit fund with $17.3 billion of IGAUM generating returns in excess of their hurdle rates. PCS, ACE IV and ACE V generated carried interest allocation of $57.9 million, $99.8 million and $49.0 million, respectively. The carried interest allocation generated by these funds was driven by net investment income on an increasing invested capital base. ACE III generated carried interest allocation of $42.7 million primarily driven by net investment income during the period. In addition, Pathfinder generated carried interest allocation of $47.1 million that was driven by market appreciation of various investments."],["Private equity funds","187.4","","Appreciation across several portfolio company investments, driven by improving operating performance metrics from portfolio companies that primarily operate in industries such as services, technology, retail, healthcare and energy, generated carried interest allocation of $76.9 million from Ares Corporate Opportunities Fund V, L.P. (\u201cACOF V\u201d), $73.9 million from Ares Corporate Opportunities Fund VI, L.P. (\u201cACOF VI\u201d), $68.5 million from Ares Special Opportunities Fund, L.P. (\u201cASOF\u201d) and $42.6 million from Ares Special Situations Fund IV, L.P. (\u201cSSF IV\u201d). The appreciation was partially offset by the reversal of unrealized carried interest allocation of $62.4 million and $27.0 million from Ares Corporate Opportunities Fund IV, L.P. (\u201cACOF IV\u201d) and Ares Corporate Opportunities Fund III, L.P. (\u201cACOF III\u201d), respectively, primarily driven by lower stock prices for certain publicly-traded investments.","1,197.5","","ACOF IV generated carried interest allocation of $207.6 million primarily due to market appreciation of its investment in The AZEK Company (\u201cAZEK\u201d) driven by its higher stock price. In addition, market appreciation across several portfolio company investments, primarily operating in the services and technology, retail and healthcare industries, generated carried interest allocation of $666.1 million from ACOF V, $225.5 million from ASOF and $70.6 million from ACOF VI."],["Real assets funds","49.6","","Ares Climate Infrastructure Partners, L.P. (\u201cACIP\u201d) and related vehicles and Ares Energy Investors Fund V, L.P. (\u201cEIF V\u201d) generated carried interest allocation of $38.1 million and $31.8 million, respectively, due to market appreciation of certain investments. Appreciation from properties within real estate equity funds, driven by increasing operating income primarily from industrial and multifamily investments, generated carried interest allocation of $15.0 million from U.S. Real Estate Fund VIII, L.P. (\u201cUS VIII\u201d), $7.4 million from U.S. Real Estate Fund IX, L.P. (\u201cUS IX\u201d) and $4.2 million from Ares U.S. Real Estate Fund X, L.P. (\u201cUS X\u201d). In addition, realized gains from the sale of properties generated carried interest allocation of $17.3 million from Ares U.S. Real Estate Opportunity Fund III, L.P. (\u201cAREOF III\u201d). The activity was partially offset by the reversal of unrealized carried interest of $64.4 million from Ares European Real Estate Fund V SCSp. (\u201cEF V\u201d), driven by a lower stock price for one of its publicly-traded investments.","309.5","","Market appreciation from properties within real estate equity funds, primarily driven by gains generated across several industrial and multifamily assets, generated carried interest allocation of $24.2 million from AREOF III, $40.5 million from US VIII, $83.4 million from US IX, $14.8 million from Ares European Real Estate Fund IV, L.P. (\u201cEF IV\u201d) and $69.9 million from EF V."],["Secondaries funds","21.0","","Market appreciation of certain investments held in Landmark Real Estate Partners VIII, L.P. (\u201cLREP VIII\u201d) generated carried interest allocation of $32.8 million. The activity was partially offset by the reversal of unrealized carried interest of $18.4 million from Landmark Equity Partners XVI, L.P. (\u201cLEP XVI\u201d), driven primarily by losses from the revaluation of limited partnership interests denominated in foreign currencies.","230.5","","Market appreciation of certain investments held in LEP XVI and LREP VIII that generated carried interest allocation of $122.2 million and $56.4 million, respectively."],["Strategic initiatives funds","5.1","","Our sixth Asian special situations fund generated carried interest allocation of $4.1 million primarily driven by higher net investment income from improved operating performance of certain investments financed by the fund\u2019s credit facility.","\u2014","","N/A"],["Carried interest allocation","$","458.2","","","$","2,073.6"]]
[[/GREPCENT_TABLE]]

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Incentive Fees. The activity was principally composed of the following ($ in millions):

[[GREPCENT_TABLE]]
[["","Year ended December 31, 2022","Primary Drivers","Year ended December 31, 2021","Primary Drivers"],["Credit funds","$","101.2","","Incentive fees generated from 28 direct lending funds and two alternative credit funds.","$","168.2","","Incentive fees generated from 22 direct lending funds, including $25.6 million from ARCC Part II Fees, from one alternative credit fund and from one CLO as a result of restructuring activity."],["Real assets funds","199.4","","Incentive fees generated from U.S. real estate equity funds, including $140.5 million from AIREIT, $31.6 million from an industrial real estate fund and $23.7 million from AREIT.","164.7","","Incentive fees generated from U.S. real estate equity funds, including $63.3 million from an industrial real estate fund, $15.3 million from AREIT and $81.2 million from AIREIT. We recognized 100% of the incentive fees earned from AREIT and AIREIT, of which 50% was paid to the sellers during the year ended December 31, 2021 in connection with the terms of the Black Creek Acquisition. We retained 100% of these fees during the year ended December 31, 2022."],["Secondaries funds","0.6","","Incentive fees generated from a private equity secondaries fund and APMF.","\u2014","","N/A"],["Incentive fees","$","301.2","","","$","332.9"]]
[[/GREPCENT_TABLE]]

Principal Investment Income. The activity for the year ended December 31, 2022 was primarily composed of market appreciation of certain infrastructure opportunities investments, dividend income from various investments in a funds within our U.S. direct lending strategy and realized gains from the sale of underlying properties held by funds in our U.S. real estate equity strategy.

The activity for the year ended December 31, 2021 was primarily composed of market appreciation of various investments within ACOF IV and ACOF VI and within various funds in our U.S. real estate equity, private equity secondaries, real estate secondaries and special opportunities strategies. The global equity and credit markets experienced significant downturns due to the COVID-19 pandemic in 2020 and rebounded in 2021.

Administrative, Transaction and Other Fees. The increase in administrative, transaction and other fees primarily resulted from the full-year impact of fees generated under the investment management agreements of the funds that were acquired in the Black Creek Acquisition on July 1, 2021. These fees include (i) property-related fees, such as development and property management, which increased by $16.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, and (ii) administrative fees that increased by $18.0 million for the year ended December 31, 2022 compared to 2021. In addition, there was an increase in fees generated from the distribution of fund shares in our non-traded REITs and exchange program fees that are generated when investors contribute real property through a like-kind 1031 exchange for fund shares. These fees collectively contributed $20.9 million for the year ended December 31, 2022 when compared to 2021.

Certain private funds pay administrative fees on invested capital and deployment will result in a higher fee base. Administrative fees from these private funds increased by $4.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Expenses.

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Expenses"],["Compensation and benefits","","","","","","","","","$","1,498,590","","","$","1,162,633","","","$","(335,957)","","","(29)%"],["Performance related compensation","","","","","","","","","518,829","","","1,740,786","","","1,221,957","","","70"],["General, administrative and other expenses","","","","","","","","","695,256","","","444,178","","","(251,078)","","","(57)"],["Expenses of Consolidated Funds","","","","","","","","","36,410","","","62,486","","","26,076","","","42"],["Total expenses","","","","","","","","","$","2,749,085","","","$","3,410,083","","","660,998","","","19"]]
[[/GREPCENT_TABLE]]

Compensation and Benefits. The increase in compensation and benefits was primarily driven by (i) headcount growth from strategic initiatives and acquisitions to support the expansion of our business, (ii) higher incentive compensation attributable to improved operating performance and (iii) higher employee commission expense in connection with the sale and distribution of fund shares in our non-traded REITs and private placements of our exchange programs in connection with the

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full-year results following the Black Creek Acquisition. Average headcount for the year-to-date period increased by 30% to 2,305 professionals for the 2022 period from 1,771 professionals in 2021.

Headcount growth attributable to the Infrastructure Debt Acquisition that closed in the first quarter of 2022 has contributed $16.0 million in recurring employment related costs for the year ended December 31, 2022. The increase in salaries and benefits for the year ending December 31, 2022 also included $89.9 million from the first two quarters of 2022 related to the Landmark Acquisition and Black Creek Acquisition which did not have comparable results as the transactions closed in June 2021 and July 2021, respectively.

The performance-based, acquisition-related compensation arrangements (“earnouts”) that were established in connection with the Landmark Acquisition, Black Creek Acquisition and Infrastructure Debt Acquisition are based on the achievement of revenue targets for certain funds. As all earnouts are subject to the continued and future services of senior professionals and advisors, they are required to be recorded as compensation expense and recognized ratably over the respective service periods. The revenue targets for the Black Creek Acquisition earnout were achieved and the maximum contingent payment was recorded during the year ended December 31, 2022. Compensation expense related to the Black Creek earnout was $218.1 million for the year ended December 31, 2022 and $45.9 million for the year ended December 31, 2021. Compensation expense related to the Infrastructure Debt earnout was $9.1 million for the year ended December 31, 2022. In connection with the fundraising for an acquired Landmark private equity secondaries fund, the revenue targets on which the Landmark earnout were contingent were not achieved. This resulted in a reversal of all previously recorded expenses of $21.0 million during the year ended December 31, 2022. See “Note 9. Commitments and Contingencies” for a further description of the contingent liabilities related to these arrangements.

The following table presents equity-based compensation expense based on the different types of restricted unit awards ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","","","Favorable (Unfavorable)"],["","","","","","","","","","","2022","","2021","","","","$ Change","","% Change"],["Awards that do not recur annually:"],["Multi-year future grants","","","","","","","","","","$","43,370","","","$","34,331","","","","","$","(9,039)","","","(26)%"],["Performance-based awards","","","","","","","","","","\u2014","","","22,785","","","","","22,785","","","100"],["Performance-based awards - accelerated","","","","","","","","","","\u2014","","","43,426","","","","","43,426","","","100"],["Other awards that do not recur annually","","","","","","","","","","7,425","","","24,585","","","","","17,160","","","70"],["Total awards that do not recur annually","","","","","","","","","","50,795","","","125,127","","","","","74,332","","","59"],["Recurring annual awards:"],["Discretionary awards","","","","","","","","","","93,881","","","65,055","","","","","(28,826)","","","(44)"],["Bonus awards","","","","","","","","","","55,716","","","47,010","","","","","(8,706)","","","(19)"],["Total recurring annual awards","","","","","","","","","","149,597","","","112,065","","","","","(37,532)","","","(33)"],["Equity-based compensation expense","","","","","","","","","","$","200,392","","","$","237,192","","","","","36,800","","","16"]]
[[/GREPCENT_TABLE]]

The decrease in equity-based compensation expense was primarily attributable to awards that do not recur annually, specifically performance-based awards with market conditions that were granted to certain executive officers in the first quarter of 2021. The decrease in equity compensation expense was partially offset by the increase in awards granted as part of the recurring annual award programs.

For detail regarding the fluctuations of compensation and benefits within each of our segments see “—Results of Operations by Segment.”

Performance Related Compensation. Changes in performance related compensation are directly associated with the changes in carried interest allocation and incentive fees described above and include associated payroll-related tax expenses and performance allocations to charitable organizations as part of our philanthropic initiatives.

General, Administrative and Other Expenses. During the year ended December 31, 2022, we recognized non-cash impairment charges of $181.6 million to certain intangible assets comprised of (i) $86.2 million to the carrying value of the Landmark trade name following our decision to rebrand our secondaries group as Ares Secondaries and to discontinue the ongoing use of the Landmark trade name, (ii) $88.4 million to the fair value of a management contract in connection with lower than expected FPAUM resulting from missed fundraising targets for an acquired Landmark private equity secondaries fund and (iii) $7.0 million of accelerated amortization expense in connection with the impairment of certain acquired management contracts as a result of returning capital to fund investors sooner than initially planned. See “Note 4. Goodwill and Intangible Assets” for a further description of the impairment of intangible assets.

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The Infrastructure Debt Acquisition, which was completed on February 10, 2022, has contributed $23.2 million in general, administrative and other expenses to the year ended December 31, 2022. These expenses increased primarily due to (i) amortization expense of $16.8 million related to the intangible assets recorded in connection with the acquisition and (ii) certain professional services of $2.3 million for the year ended December 31, 2022. In addition, the Landmark Acquisition and Black Creek Acquisition have collectively contributed to an increase in general, administrative and other expenses of $54.4 million during the first two quarters of 2022 which did not have comparable results as the transactions closed in June 2021 and July 2021, respectively. These expenses primarily consisted of (i) amortization expense of $33.8 million related to the intangible assets recorded in connection with the acquisitions and (ii) certain recurring operating expenses, including occupancy costs, information services, information technology and office services of $7.1 million.

Excluding the impact from the Black Creek Acquisition, Landmark Acquisition and Infrastructure Debt Acquisition, certain expenses have also increased during the current period, including occupancy costs to support our growing headcount, as well as information services and information technology costs to support the expansion of our business. Collectively, these expenses increased by $15.1 million for the year ended December 31, 2022 compared to 2021. Other operating expenses, most notably travel, marketing sponsorships and certain fringe benefits, collectively increased by $29.9 million for the year ended December 31, 2022, compared to 2021, as travel, marketing and company events have returned to pre-pandemic levels.

Separately, placement fees were $37.2 million for the year ended December 31, 2022, a decrease of $64.8 million compared to the year ended December 31, 2021. The activity for the year ended December 31, 2022 was primarily attributable to new commitments to US X and LEP XVI and related vehicles. The activity for the year ended December 31, 2021 was primarily attributable to new commitments to Ares Special Opportunities Fund II, L.P. (“ASOF II”), PCS II and SDL II.

Other income, net.

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Other income (expense)"],["Net realized and unrealized gains on investments","","","","","","","","","$","4,732","","","$","19,102","","","$","(14,370)","","","(75)%"],["Interest and dividend income","","","","","","","","","9,399","","","9,865","","","(466)","","","(5)"],["Interest expense","","","","","","","","","(71,356)","","","(36,760)","","","(34,596)","","","(94)"],["Other income, net","","","","","","","","","13,119","","","14,402","","","(1,283)","","","(9)"],["Net realized and unrealized gains on investments of Consolidated Funds","","","","","","","","","73,386","","","77,303","","","(3,917)","","","(5)"],["Interest and other income of Consolidated Funds","","","","","","","","","586,529","","","437,818","","","148,711","","","34"],["Interest expense of Consolidated Funds","","","","","","","","","(411,361)","","","(258,048)","","","(153,313)","","","(59)"],["Total other income, net","","","","","","","","","$","204,448","","","$","263,682","","","(59,234)","","","(22)"]]
[[/GREPCENT_TABLE]]

Net Realized and Unrealized Gains on Investments. The activity for the years ended December 31, 2022 and 2021 was primarily attributable to unrealized gains from certain strategic initiative investments made in connection with our acquisition of SSG. The activity for the year ended December 31, 2022 also included unrealized losses on our investments in the subordinated notes of U.S. CLOs while the year ended December 31, 2021 included unrealized gains on our investments in the subordinated notes of U.S. CLOs. The CSLLI declined 1.1% in 2022 as compared to a 5.4% increase for the prior year.

Interest Expense. The issuance of the 2052 Senior Notes in January 2022 increased interest expense by $17.6 million for the year ended December 31, 2022 compared to 2021. Higher average interest rates, driven by rising SOFR rates, and a higher average outstanding balance of the Credit Facility in 2022 also contributed to an increase in interest expense of $7.5 million for the year ended December 31, 2022 compared to the prior year. The issuance of the 2051 Subordinated Notes on the last day of the second quarter of 2021 has also increased interest expense by $9.3 million for the year ended December 31, 2022 compared to 2021.

Other Income, Net. The activity for the years ended December 31, 2022 and 2021 included transaction gains (losses) associated with currency fluctuations impacting the revaluation of assets and liabilities denominated in foreign currencies other than an entity’s functional currency. Transaction gains of $13.5 million for the year ended December 31, 2022 were primarily attributable to the British pound weakening against the Euro. Transaction losses of $4.8 million during the year ended December 31, 2021 were primarily attributable to the British pound strengthening against Euro.

Other income, net also includes the change in fair value of a contingent obligation recognized in connection with the Black Creek Acquisition. The purchase agreement with Black Creek contains provisions that required us to record separate contingent consideration liabilities that are dependent on the achievement of revenue targets for certain funds that were acquired in the Black Creek Acquisition. The revenue targets for the Black Creek earnout were fully achieved and the maximum contingent payment was recorded during the year ended December 31, 2022. For the year ended December 31, 2022, we

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recorded $1.4 million, in expense for the revaluation of the contingent obligation related to the achievement of revenue targets compared to $4.0 million for the year ended December 31, 2021. The year ended December 31, 2021 also included $19.2 million in expense for the revaluation of the contingent obligation related to 50% of the incentive fees realized for the non-traded REITs, which were payable to the sellers pursuant to the purchase agreement with Black Creek. See “Note 9. Commitments and Contingencies” for a further description of the contingency.

Finally, other income, net included a $42.3 million bargain purchase gain from the Black Creek Acquisition for the year ended December 31, 2021. The bargain purchase gain resulted from the fair value of the identifiable tangible and intangible assets that we acquired exceeding the purchase consideration.

Income Tax Expense.

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Income before taxes","","","","","","","","","$","510,806","","","$","1,065,690","","","$","(554,884)","","","(52)%"],["Income tax expense","","","","","","","","","71,891","","","147,385","","","75,494","","","51"],["Net income","","","","","","","","","$","438,915","","","$","918,305","","","(479,390)","","","(52)"]]
[[/GREPCENT_TABLE]]

Income Tax Expense The decrease in income tax expense was attributable to lower net income allocable to AMC for the year ended December 31, 2022 compared to the year ended December 31, 2021. The calculation of income taxes is sensitive to any changes in weighted average daily ownership. The weighted average daily ownership for AMC common stockholders increased from 58.5% for the year ended December 31, 2021 to 59.8% for the year ended December 31, 2022. The changes in ownership were primarily driven by the issuance of Class A common stock in connection with stock option exercises and vesting of restricted stock awards. The increase in the weighted average daily ownership for the AMC common stockholders was partially offset by the issuance of AOG Units in connection with the Landmark Acquisition and the Black Creek Acquisition that increased the ownership of AOG Units not held by AMC.

Redeemable and Non-Controlling Interests.

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Net income","","","","","","","","","$","438,915","","","$","918,305","","","$","(479,390)","","","(52)%"],["Less: Net income attributable to non-controlling interests in Consolidated Funds","","","","","","","","","119,333","","","120,369","","","(1,036)","","","(1)"],["Net income attributable to Ares Operating Group entities","","","","","","","","","319,582","","","797,936","","","(478,354)","","","(60)"],["Less: Net loss attributable to redeemable interest in Ares Operating Group entities","","","","","","","","","(851)","","","(1,341)","","","490","","","37"],["Less: Net income attributable to non-controlling interests in Ares Operating Group entities","","","","","","","","","152,892","","","390,440","","","(237,548)","","","(61)"],["Net income attributable to Ares Management Corporation","","","","","","","","","167,541","","","408,837","","","(241,296)","","","(59)"],["Less: Series A Preferred Stock dividends paid","","","","","","","","","\u2014","","","10,850","","","10,850","","","100"],["Less: Series A Preferred Stock redemption premium","","","","","","","","","\u2014","","","11,239","","","11,239","","","100"],["Net income attributable to Ares Management Corporation Class A and non-voting common stockholders","","","","","","","","","$","167,541","","","$","386,748","","","(219,207)","","","(57)"]]
[[/GREPCENT_TABLE]]

Redeemable and Non-Controlling Interests. Net income (loss) attributable to redeemable and non-controlling interests in AOG entities represents results attributable to the holders of AOG Units and other ownership interests that are not held by AMC. In connection with the SSG Acquisition, the former owners of SSG retained an ownership interest in a subsidiary of an AOG entity that is reflected as redeemable interest in AOG entities. Net loss attributable to redeemable interest in AOG entities is allocated based on the ownership percentage for periods presented.

Net income attributable to non-controlling interests in AOG entities is generally allocated based on the weighted average daily ownership of the other AOG unitholders, except for income (loss) generated from certain joint venture partnerships. Net income (loss) is allocated to other strategic distribution partners with whom we have established joint ventures based on the respective ownership percentages and based on the activity of certain membership interests. Net income of $0.4 million and $23.8 million for the years ended December 31, 2022 and 2021, respectively, was allocated based on ownership percentages of the strategic distribution partners and the activity of those membership interests.

The change over the comparative period is a result of the respective change in income before taxes and weighted average daily ownership. The weighted average daily ownership for the non-controlling AOG unitholders decreased from 41.5% for the year ended December 31, 2021 to 40.2% for the year ended December 31, 2022.

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Consolidated Results of Operations of the Consolidated Funds

The following table presents the results of operations of the Consolidated Funds ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","","","","","Favorable (Unfavorable)"],["","","","","","","","","","","2022","","2021","","","","","","","","$ Change","","% Change"],["Expenses of the Consolidated Funds","","","","","","","","","","$","(36,410)","","","$","(62,486)","","","","","","","","","$","26,076","","","42%"],["Net realized and unrealized gains on investments of Consolidated Funds","","","","","","","","","","73,386","","","77,303","","","","","","","","","(3,917)","","","(5)"],["Interest and other income of Consolidated Funds","","","","","","","","","","586,529","","","437,818","","","","","","","","","148,711","","","34"],["Interest expense of Consolidated Funds","","","","","","","","","","(411,361)","","","(258,048)","","","","","","","","","(153,313)","","","(59)"],["Income before taxes","","","","","","","","","","212,144","","","194,587","","","","","","","","","17,557","","","9"],["Income tax expense of Consolidated Funds","","","","","","","","","","(331)","","","(88)","","","","","","","","","(243)","","","(276)"],["Net income","","","","","","","","","","211,813","","","194,499","","","","","","","","","17,314","","","9"],["Less: Revenues attributable to Ares Management Corporation eliminated upon consolidation","","","","","","","","","","110,809","","","76,300","","","","","","","","","34,509","","","45"],["Less: Other expense, net attributable to Ares Management Corporation eliminated upon consolidation","","","","","","","","","","(18,074)","","","(2,170)","","","","","","","","","(15,904)","","","NM"],["Add: General, administrative and other expense attributable to Ares Management Corporation eliminated upon consolidation","","","","","","","","","","255","","","\u2014","","","","","","","","","(255)","","","NM"],["Net income attributable to non-controlling interests in Consolidated Funds","","","","","","","","","","$","119,333","","","$","120,369","","","","","","","","","(1,036)","","","(1)"]]
[[/GREPCENT_TABLE]]

The results of operations of the Consolidated Funds primarily represents activity from certain CLOs that we are deemed to control. Expenses primarily reflect professional fees that were incurred as a result of debt issuance costs related to the issuance of new, refinanced or restructured CLOs. These fees were expensed in the period incurred, as CLO debt is recorded at fair value on our Consolidated Statements of Financial Condition. As of December 31, 2022 and December 31, 2021, we consolidated 25 and 23 CLOs, respectively. For the year ended December 31, 2022, expenses were primarily driven by professional fees incurred from the issuance of two new U.S. CLOs during 2022. For the year ended December 31, 2021, expenses were primarily driven by professional fees incurred from the issuance of three new U.S. CLOs and the restructure of the European CLO legal entities. The CSLLI declined 1.1% in 2022 as compared to a 5.4% increase for the prior year. The increases in interest and other income and interest expense were attributable to the consolidation of four CLOs subsequent to the first half of 2021.

Revenues, other income, net and general, administrative and other expense attributable to AMC represents management fees, incentive fees, principal investment income, administrative, transaction and other fees and general, administrative and other expense that are attributable to AMC’s proportional share in the activity of the Consolidated Funds and is eliminated from the respective components of AMC’s results upon consolidation. The increase in revenues attributable to AMC for the year ended December 31, 2022 compared to 2021 was primarily attributable to higher principal investment income from a fund invested in insurance companies and an Asian corporate private equity fund.

Other expense, net attributable to AMC for the years ended December 31, 2022 and 2021 was primarily attributable to unrealized losses on our investments in the subordinated notes of U.S. CLOs. Other expense, net attributable to AMC for the years ended December 31, 2022 and 2021 also included unrealized losses on investments from our SPAC.

Segment Analysis

For segment reporting purposes, revenues and expenses are presented before giving effect to the results of our Consolidated Funds and the results attributable to non-controlling interests of joint ventures that we consolidate. As a result, segment revenues from management fees, fee related performance revenues, performance income and investment income are different than those presented on a consolidated basis in accordance with GAAP. Revenues recognized from Consolidated Funds are eliminated in consolidation and results attributable to the non-controlling interests of joint ventures have been excluded by us. Furthermore, expenses and the effects of other income (expense) are different than related amounts presented on a consolidated basis in accordance with GAAP due to the exclusion of the results of Consolidated Funds and the non-controlling interests of joint ventures.

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Non-GAAP Financial Measures

We use the following non-GAAP measures to make operating decisions, assess performance and allocate resources:

•Fee Related Earnings (“FRE”)

•Realized Income (“RI”)

These non-GAAP financial measures supplement and should be considered in addition to and not in lieu of, the results of operations, which are discussed further under “—Components of Consolidated Results of Operations” and are prepared in accordance with GAAP. On January 1, 2022, we changed our segment composition and established the Real Assets Group. The Real Assets Group consists of the activities of the former Real Estate Group and the infrastructure and power strategy, now referred to as infrastructure opportunities, that was formerly presented within the Private Equity Group. The Real Assets Group also includes infrastructure debt following the Infrastructure Debt Acquisition. We reclassified activities from the infrastructure opportunities strategy in the Private Equity Group and from the former Real Estate Group to the Real Assets Group to better align the segment presentation with how the asset classes within the investment strategies are managed. Historical periods have been modified to conform to the current period presentation. During the third quarter of 2022, we renamed the Secondary Solutions Group segment to the Secondaries Group. The segment name change did not result in any change to the composition of our segments and therefore did not result in any change to historical results. The following table sets forth FRE and RI by reportable segment and OMG ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Fee Related Earnings:"],["Credit Group","","","","","","","","","","$","943,694","","","$","719,111","","","$","224,583","","","31%"],["Private Equity Group","","","","","","","","","","84,467","","","83,207","","","1,260","","","2"],["Real Assets Group","","","","","","","","","","271,626","","","130,779","","","140,847","","","108"],["Secondaries Group","","","","","","","","","","110,501","","","65,868","","","44,633","","","68"],["Strategic Initiatives","","","","","","","","","","31,946","","","32,235","","","(289)","","","(1)"],["Operations Management Group","","","","","","","","","","(447,884)","","","(318,892)","","","(128,992)","","","(40)"],["Fee Related Earnings","","","","","","","","","","$","994,350","","","$","712,308","","","282,042","","","40"],["Realized Income:"],["Credit Group","","","","","","","","","","$","1,021,157","","","$","808,985","","","$","212,172","","","26%"],["Private Equity Group","","","","","","","","","","107,998","","","117,103","","","(9,105)","","","(8)"],["Real Assets Group","","","","","","","","","","322,465","","","185,551","","","136,914","","","74"],["Secondaries Group","","","","","","","","","","109,165","","","67,333","","","41,832","","","62"],["Strategic Initiatives","","","","","","","","","","20,435","","","23,167","","","(2,732)","","","(12)"],["Operations Management Group","","","","","","","","","","(450,193)","","","(319,202)","","","(130,991)","","","(41)"],["Realized Income","","","","","","","","","","$","1,131,027","","","$","882,937","","","248,090","","","28"]]
[[/GREPCENT_TABLE]]

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Income before provision for income taxes is the GAAP financial measure most comparable to RI and FRE. The following table presents the reconciliation of income before taxes as reported within the Consolidated Statements of Operations to RI and FRE of the reportable segments and OMG ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","Year ended December 31,"],["","","","","","2022","","2021"],["Income before taxes","","","","","$","510,806","","","$","1,065,690"],["Adjustments:"],["Depreciation and amortization expense","","","","","335,083","","","106,705"],["Equity compensation expense","","","","","198,948","","","237,191"],["Acquisition-related compensation expense(1)","","","","","206,252","","","66,893"],["Acquisition-related incentive fees(2)","","","","","\u2014","","","(47,873)"],["Acquisition and merger-related expense","","","","","15,197","","","21,162"],["Placement fee adjustment","","","","","2,088","","","78,883"],["Other (income) expense, net","","","","","1,874","","","(19,886)"],["Net income of non-controlling interests in consolidated subsidiaries","","","","","(357)","","","(23,397)"],["Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations","","","","","(119,664)","","","(120,457)"],["Total performance income\u2014unrealized","","","","","(106,978)","","","(1,744,056)"],["Total performance related compensation\u2014unrealized","","","","","88,502","","","1,316,205"],["Total net investment income\u2014unrealized","","","","","(724)","","","(54,123)"],["Realized Income","","","","","1,131,027","","","882,937"],["Total performance income\u2014realized","","","","","(418,021)","","","(474,427)"],["Total performance related compensation\u2014realized","","","","","274,541","","","328,583"],["Total investment (income) loss\u2014realized","","","","","6,803","","","(24,785)"],["Fee Related Earnings","","","","","$","994,350","","","$","712,308"]]
[[/GREPCENT_TABLE]]

(1)Represents earnouts in connection with the Landmark Acquisition, the Black Creek Acquisition and the Infrastructure Debt Acquisition that are recorded as compensation expense and are presented within compensation and benefits within the Company’s Consolidated Statements of Operations.

(2)Represents a component of the purchase price from incentive fees associated with one-time contingent consideration recorded in connection with the Black Creek Acquisition. 100% of the fees recognized in 2021 is presented within incentive fees within the Company’s Consolidated Statements of Operations of which 50% is included on an unconsolidated basis for segment reporting purposes.

For the specific components and calculations of these non-GAAP measures, as well as additional reconciliations to the most comparable measures in accordance with GAAP, see “Note 15. Segment Reporting” within our consolidated financial statements included in this Annual Report on Form 10-K. Discussed below are our results of operations for our reportable segments and OMG.

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Results of Operations by Segment

Credit Group—Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Fee Related Earnings:

The following table presents the components of the Credit Group’s FRE ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Management fees","","","","","","","","","$","1,355,975","","","$","1,070,608","","","$","285,367","","","27%"],["Fee related performance revenues","","","","","","","","","71,497","","","86,480","","","(14,983)","","","(17)"],["Other fees","","","","","","","","","31,945","","","27,103","","","4,842","","","18"],["Compensation and benefits","","","","","","","","","(441,778)","","","(410,394)","","","(31,384)","","","(8)"],["General, administrative and other expenses","","","","","","","","","(73,945)","","","(54,686)","","","(19,259)","","","(35)"],["Fee Related Earnings","","","","","","","","","$","943,694","","","$","719,111","","","224,583","","","31"]]
[[/GREPCENT_TABLE]]

Management Fees. The chart below presents Credit Group management fees and effective management fee rates ($ in millions):

Management fees on existing funds increased primarily from deployment of capital with Pathfinder, ACE V and PCS II collectively generating additional fees of $87.8 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. Management fees from SDL II, which launched at the end of the second quarter of 2021, increased by $35.8 million for the year ended December 31, 2022, compared to the year ended December 31, 2021. The launch of our open-end core alternative credit fund in the third quarter of 2021 also contributed to the increase in management fees, generating

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additional fees of $14.6 million for the year ended December 31, 2022, compared to 2021. Management fees from ARCC, excluding Part I Fees described below, increased by $51.5 million for the year ended December 31, 2022, primarily due to an increase in the average size of ARCC’s portfolio. The remaining increases in management fees from funds in existence in both periods was primarily driven by deployment of capital in other direct lending funds and SMAs. Management fees from CLOs also increased primarily due to the net addition of six CLOs for the year ended December 31, 2022, compared to 2021.

Part I Fees increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in pre-incentive fee net investment income generated by ARCC and CADC, driven by an increase in the average size of their portfolios as well as the impact of rising interest rates, given their primarily floating-rate loan portfolios.

The decrease in effective management fee rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by growth in lower fee generating strategies such as CLOs, as well as deployment in SDL II that have fee rates below 1.00%.

Fee Related Performance Revenues. During the year ended December 31, 2022, U.S. and European direct lending funds generating fee related performance revenues were adversely impacted by net unrealized losses on investments largely due to declining prices in the credit and equity markets as market participants expected higher returns on similar investments in the rising interest rate environment. The recovery from the impact of COVID-19 led to unrealized gains that generated higher fee related performance revenues for the year ended December 31, 2021.

Other Fees. The increase in other fees was primarily driven by higher administrative fees from private funds. Certain private funds pay administrative fees on invested capital and an increase in deployment resulted in an increase to the fee basis for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Compensation and Benefits. The increase in compensation and benefits was primarily driven by (i) higher incentive compensation attributable to increased fee revenues, improved operating performance and headcount, and (ii) increase in payroll related taxes of $5.9 million for the year ended December 31, 2022 compared to 2021, primarily attributable to the increase in restricted unit awards that vested in the first quarter of 2022. The increase in compensation and benefits for the year ended December 31, 2022 compared to 2021 was partially offset by the decrease in fee related performance compensation of $11.6 million from direct lending funds.

Average headcount for the year-to-date period increased by 5% to 455 investment and investment support professionals for 2022 from 433 professionals in 2021 as we continued to add professionals to support our growing U.S. and European direct lending and alternative credit platforms.

General, Administrative and Other Expenses. Travel, marketing and certain fringe benefits collectively increased by $8.8 million for the year ended December 31, 2022 compared to 2021, as marketing and company events returned to pre-pandemic levels. In connection with our fundraising efforts, amortization of placement fees has increased by $4.5 million for the year ended December 31, 2022 compared to 2021, primarily driven by the full year impact of amortization of new commitments to PCS II and SDL II during the second half of 2021.

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Realized Income:

The following table presents the components of the Credit Group’s RI ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Fee Related Earnings","","","","","","","","","$","943,694","","","$","719,111","","","$","224,583","","","31%"],["Performance income\u2014realized","","","","","","","","","156,784","","","207,446","","","(50,662)","","","(24)"],["Performance related compensation\u2014realized","","","","","","","","","(97,564)","","","(131,900)","","","34,336","","","26"],["Realized net performance income","","","","","","","","","59,220","","","75,546","","","(16,326)","","","(22)"],["Investment income\u2014realized","","","","","","","","","7,071","","","1,989","","","5,082","","","256"],["Interest and other investment income\u2014realized","","","","","","","","","26,567","","","20,377","","","6,190","","","30"],["Interest expense","","","","","","","","","(15,395)","","","(8,038)","","","(7,357)","","","(92)"],["Realized net investment income","","","","","","","","","18,243","","","14,328","","","3,915","","","27"],["Realized Income","","","","","","","","","$","1,021,157","","","$","808,985","","","212,172","","","26"]]
[[/GREPCENT_TABLE]]

Realized net performance income included aggregate tax distributions of $45.1 million for the year ended December 31, 2022 that were received from ACE III, ACE IV, ACE V and PCS. Realized net performance income for the year ended December 31, 2022 also included net performance revenues primarily from nine direct lending funds and two alternative credit funds. Realized net performance income for the year ended December 31, 2021 included net performance revenues from eight direct lending funds, including ARCC Part II Fees of $10.3 million. Realized net performance income for the year ended December 31, 2021 also included aggregate tax distributions of $38.8 million from ACE III, ACE IV and PCS.

Realized net investment income for the years ended December 31, 2022 and 2021 was primarily attributable to interest income generated from our CLO investments and income recognized in connection with distributions from a commercial finance fund. Realized net investment income for the year ended December 31, 2022 also included realized gains from the settlement of forward contracts entered into to hedge our exposure to foreign currency fluctuations, primarily from the Euro, and included distributions from a U.S. direct lending fund and a European direct lending fund. Interest expense, which is allocated based on the cost basis of balance sheet investments, increased over the comparative periods primarily due to the issuance of the 2051 Subordinated Notes and the 2052 Senior Notes in June 2021 and January 2022, respectively.

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Credit Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Credit Group. Accrued net performance income excludes net performance income that has been realized but not yet received as of the reporting date ($ in thousands):

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","2022","","2021"],["","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income","","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income"],["ACE III","$","100,774","","","$","60,465","","","$","40,309","","","$","99,551","","","$","59,731","","","$","39,820"],["ACE IV","168,204","","","104,286","","","63,918","","","146,580","","","90,879","","","55,701"],["ACE V","115,969","","","69,581","","","46,388","","","51,482","","","30,889","","","20,593"],["PCS","98,143","","","57,994","","","40,149","","","132,050","","","77,780","","","54,270"],["PCS II","\u2014","","","\u2014","","","\u2014","","","9,053","","","5,345","","","3,708"],["Other credit funds","177,546","","","127,675","","","49,871","","","156,717","","","105,064","","","51,653"],["Total Credit Group","$","660,636","","","$","420,001","","","$","240,635","","","$","595,433","","","$","369,688","","","$","225,745"]]
[[/GREPCENT_TABLE]]

The following table presents the change in accrued performance income for the Credit Group ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","As of December 31, 2021","","Activity during the period","","As of December 31, 2022"],["","","Waterfall Type","","Accrued Performance Income","","Change in Unrealized","","Realized","","Foreign Exchange and Other Adjustments","","Accrued Performance Income"],["Accrued Carried Interest"],["ACE III","","European","","$","99,551","","","$","18,660","","","$","(17,355)","","","$","(82)","","","$","100,774"],["ACE IV","","European","","146,580","","","60,015","","","(38,642)","","","251","","","168,204"],["ACE V","","European","","51,482","","","80,908","","","(16,421)","","","\u2014","","","115,969"],["PCS","","European","","132,050","","","6,527","","","(39,505)","","","(929)","","","98,143"],["PCS II","","European","","9,053","","","(8,908)","","","\u2014","","","(145)","","","\u2014"],["Other credit funds","","European","","156,454","","","37,793","","","(11,178)","","","(5,787)","","","177,282"],["Other credit funds","","American","","263","","","1","","","\u2014","","","\u2014","","","264"],["Total accrued carried interest","","","","595,433","","","194,996","","","(123,101)","","","(6,692)","","","660,636"],["Other credit funds","","Incentive","","\u2014","","","33,683","","","(33,683)","","","\u2014","","","\u2014"],["Total Credit Group","","","","$","595,433","","","$","228,679","","","$","(156,784)","","","$","(6,692)","","","$","660,636"]]
[[/GREPCENT_TABLE]]

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Credit Group—Assets Under Management

The tables below present rollforwards of AUM for the Credit Group ($ in millions):

[[GREPCENT_TABLE]]
[["","","Syndicated Loans","","High Yield","","Multi-Asset Credit","","Alternative Credit","","U.S. Direct Lending","","European Direct Lending","","Total Credit Group"],["Balance at 12/31/2021","","$","31,491","","","$","3,632","","","$","5,212","","","$","17,424","","","$","85,849","","","$","49,102","","","$","192,710"],["Net new par/equity commitments","","1,377","","","311","","","1,438","","","6,658","","","7,137","","","1,476","","","18,397"],["Net new debt commitments","","3,777","","","\u2014","","","\u2014","","","\u2014","","","7,310","","","1,901","","","12,988"],["Capital reductions","","(237)","","","\u2014","","","\u2014","","","(45)","","","(991)","","","(2)","","","(1,275)"],["Distributions","","(125)","","","(15)","","","15","","","(1,799)","","","(2,269)","","","(1,182)","","","(5,375)"],["Redemptions","","(504)","","","(470)","","","(725)","","","(456)","","","(260)","","","\u2014","","","(2,415)"],["Change in fund value","","(453)","","","(400)","","","(460)","","","(419)","","","1,551","","","(653)","","","(834)"],["Balance at 12/31/2022","","$","35,326","","","$","3,058","","","$","5,480","","","$","21,363","","","$","98,327","","","$","50,642","","","$","214,196"],["","","Syndicated Loans","","High Yield","","Multi-Asset Credit","","Alternative Credit","","U.S. Direct Lending","","European Direct Lending","","Total Credit Group"],["Balance at 12/31/2020","","$","27,967","","","$","2,863","","","$","2,953","","","$","12,897","","","$","56,516","","","$","42,276","","","$","145,472"],["Net new par/equity commitments","","1,179","","","858","","","2,090","","","5,788","","","14,891","","","5,155","","","29,961"],["Net new debt commitments","","3,647","","","\u2014","","","100","","","\u2014","","","15,021","","","3,381","","","22,149"],["Capital reductions","","(632)","","","\u2014","","","\u2014","","","\u2014","","","(1,935)","","","(148)","","","(2,715)"],["Distributions","","(98)","","","\u2014","","","16","","","(633)","","","(1,832)","","","(1,452)","","","(3,999)"],["Redemptions","","(295)","","","(270)","","","(211)","","","(1,221)","","","(168)","","","(300)","","","(2,465)"],["Change in fund value","","(277)","","","181","","","264","","","593","","","3,356","","","190","","","4,307"],["Balance at 12/31/2021","","$","31,491","","","$","3,632","","","$","5,212","","","$","17,424","","","$","85,849","","","$","49,102","","","$","192,710"]]
[[/GREPCENT_TABLE]]

The components of our AUM for the Credit Group are presented below ($ in billions):

[[GREPCENT_TABLE]]
[["","AUM: $214.2","","AUM: $192.7"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","FPAUM","","Non-fee paying(1)","","AUM not yet paying fees"]]
[[/GREPCENT_TABLE]]

(1) Includes $14.4 billion and $11.8 billion of AUM of funds from which we indirectly earn management fees as of December 31, 2022 and 2021, respectively, and includes $1.0 billion and $0.9 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2022 and 2021, respectively.

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Credit Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Credit Group ($ in millions):

[[GREPCENT_TABLE]]
[["","Syndicated Loans","","High Yield","","Multi-Asset Credit","","Alternative Credit","","U.S. Direct Lending","","European Direct Lending","","Total Credit Group"],["Balance at 12/31/2021","$","30,327","","","$","3,632","","","$","4,714","","","$","8,742","","","$","46,128","","","$","23,847","","","$","117,390"],["Commitments","5,136","","","311","","","1,292","","","2,552","","","2,291","","","\u2014","","","11,582"],["Deployment/subscriptions/increase in leverage","2","","","\u2014","","","19","","","7,128","","","14,137","","","9,194","","","30,480"],["Capital reductions","(237)","","","\u2014","","","(52)","","","(25)","","","(1,645)","","","(1,563)","","","(3,522)"],["Distributions","(77)","","","(15)","","","(54)","","","(1,682)","","","(3,501)","","","(764)","","","(6,093)"],["Redemptions","(504)","","","(470)","","","(739)","","","(400)","","","(260)","","","(311)","","","(2,684)"],["Change in fund value","(237)","","","(400)","","","(457)","","","(410)","","","418","","","(842)","","","(1,928)"],["Change in fee basis","\u2014","","","\u2014","","","\u2014","","","(1)","","","\u2014","","","\u2014","","","(1)"],["Balance at 12/31/2022","$","34,410","","","$","3,058","","","$","4,723","","","$","15,904","","","$","57,568","","","$","29,561","","","$","145,224"],["","Syndicated Loans","","High Yield","","Multi-Asset Credit","","Alternative Credit","","U.S. Direct Lending","","European Direct Lending","","Total Credit Group"],["Balance at 12/31/2020","$","27,171","","","$","2,861","","","$","2,457","","","$","6,331","","","$","32,337","","","$","16,860","","","$","88,017"],["Commitments","3,961","","","858","","","1,916","","","1,659","","","2,103","","","\u2014","","","10,497"],["Deployment/subscriptions/increase in leverage","715","","","\u2014","","","398","","","2,641","","","14,342","","","9,400","","","27,496"],["Capital reductions","(583)","","","\u2014","","","(18)","","","\u2014","","","(790)","","","(256)","","","(1,647)"],["Distributions","(51)","","","\u2014","","","(83)","","","(646)","","","(3,469)","","","(1,381)","","","(5,630)"],["Redemptions","(295)","","","(267)","","","(206)","","","(1,092)","","","(143)","","","(721)","","","(2,724)"],["Change in fund value","(591)","","","180","","","250","","","(151)","","","1,748","","","(55)","","","1,381"],["Balance at 12/31/2021","$","30,327","","","$","3,632","","","$","4,714","","","$","8,742","","","$","46,128","","","$","23,847","","","$","117,390"]]
[[/GREPCENT_TABLE]]

The charts below present FPAUM for the Credit Group by its fee bases ($ in billions):

[[GREPCENT_TABLE]]
[["","FPAUM: $145.2","","FPAUM: $117.4"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Invested capital","","Market value(1)","","Collateral balances (at par)"]]
[[/GREPCENT_TABLE]]

(1)Includes $31.1 billion and $27.4 billion from funds that primarily invest in illiquid strategies as of December 31, 2022 and 2021, respectively. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

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Credit Group—Fund Performance Metrics as of December 31, 2022

ARCC contributed approximately 41% of the Credit Group’s total management fees for the year ended December 31, 2022. In addition, eight other significant funds, ACE III, CADC, PCS, SDL, ACE IV, ACE V, PCS II and SDL II, collectively contributed approximately 27% of the Credit Group’s management fees for the year ended December 31, 2022.

    The following table presents the performance data for our significant funds that are not drawdown funds in the Credit Group as of December 31, 2022 ($ in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","","Returns(%)"],["","Year of Inception","","AUM","","","","Year-To-Date","","Since Inception(1)","","Primary Investment Strategy"],["Fund","","","","","","","Gross","","Net","","Gross","","Net"],["ARCC(2)","2004","","$","25,774","","","","","","","N/A","","7.1","","N/A","","11.8","","U.S. Direct Lending"],["CADC(3)","2017","","4,138","","","","","","","N/A","","(1.6)","","N/A","","5.1","","U.S. Direct Lending"]]
[[/GREPCENT_TABLE]]

(1)Since inception returns are annualized.

(2)Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses. Net returns are calculated using the fund’s NAV and assume dividends are reinvested at the closest quarter-end NAV to the relevant quarterly ex-dividend dates. Additional information related to ARCC can be found in its filings with the SEC, which are not part of this report.

(3)Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses. Returns are shown for institutional share class. Shares of other classes may have lower returns due to higher selling commissions and fees. Net returns are calculated using the fund’s NAV and assume distributions are reinvested at the NAV on the date of distribution. Additional information related to CADC can be found in its filings with the SEC, which are not part of this report.

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The following table presents the performance data of our significant drawdown funds as of December 31, 2022 ($ in millions):

[[GREPCENT_TABLE]]
[["","Year of Inception","","AUM","","Original Capital Commitments","","Capital Invested to Date","","Realized Value(1)","","Unrealized Value(2)","","Total Value","","MoIC","","IRR(%)","","Primary Investment Strategy"],["Fund","","","","","","","","Gross(3)","","Net(4)","","Gross(5)","","Net(6)"],["Funds Harvesting Investments"],["ACE III(7)","2015","","$","4,823","","","$","2,822","","","$","2,395","","","$","1,181","","","$","2,307","","","$","3,488","","","1.6x","","1.5x","","11.4","","8.2","","European Direct Lending"],["PCS","2017","","3,472","","","3,365","","","2,653","","","1,623","","","1,873","","","3,496","","","1.4x","","1.3x","","11.4","","8.0","","U.S. Direct Lending"],["SDL Unlevered","2018","","5,307","","","922","","","872","","","181","","","806","","","987","","","1.2x","","1.1x","","8.4","","6.2","","U.S. Direct Lending"],["SDL Levered","","","2,045","","","2,022","","","637","","","1,827","","","2,464","","","1.3x","","1.2x","","15.3","","11.2"],["Funds Deploying Capital"],["ACE IV Unlevered(8)","2018","","10,020","","","2,851","","","2,228","","","523","","","2,132","","","2,655","","","1.3x","","1.2x","","8.4","","6.0","","European Direct Lending"],["ACE IV Levered(8)","","","4,819","","","3,802","","","1,138","","","3,787","","","4,925","","","1.4x","","1.3x","","12.4","","9.1"],["ACE V Unlevered(9)","2020","","16,511","","","7,026","","","4,459","","","149","","","4,642","","","4,791","","","1.1x","","1.1x","","11.9","","8.7","","European Direct Lending"],["ACE V Levered(9)","","","6,376","","","4,062","","","220","","","4,322","","","4,542","","","1.2x","","1.1x","","19.8","","14.3"],["PCS II","2020","","5,187","","","5,114","","","3,006","","","44","","","2,880","","","2,924","","","1.0x","","1.0x","","(1.5)","","(3.9)","","U.S. Direct Lending"],["SDL II Unlevered(10)","2021","","13,619","","","1,989","","","795","","","29","","","800","","","829","","","1.1x","","1.0x","","8.5","","6.0","","U.S. Direct Lending"],["SDL II Levered(10)","","","6,047","","","2,170","","","156","","","2,175","","","2,331","","","1.1x","","1.1x","","15.4","","10.4"]]
[[/GREPCENT_TABLE]]

(1)Realized value represents the sum of all cash distributions to all partners and if applicable, exclude tax and incentive distributions made to the general partner.

(2)Unrealized value represents the fund’s NAV reduced by the accrued incentive allocation, if applicable. There can be no assurance that unrealized values will be realized at the valuations indicated.

(3)The gross multiple of invested capital (“MoIC”) is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC is before giving effect to management fees, carried interest and other expenses, as applicable, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(4)The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes those interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The net MoIC is after giving effect to management fees and carried interest, other expenses and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest and other expenses, as applicable, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Gross fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and, if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees and carried interest, other expenses and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)ACE III is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and MoIC presented in the table are for the Euro denominated feeder fund. The gross and net IRR for the U.S. dollar denominated feeder fund are 11.9% and 8.7%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.7x and 1.5x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund’s closing. All other values for ACE III are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(8)ACE IV is made up of four parallel funds, two denominated in Euros and two denominated in pound sterling: ACE IV (E) Unlevered, ACE IV (G) Unlevered, ACE IV (E) Levered and ACE IV (G) Levered. The gross and net IRR and MoIC presented in the table are for ACE IV (E) Unlevered and ACE IV (E) Levered. Metrics for ACE IV (E) Levered are inclusive of a U.S. dollar denominated feeder fund, which has not been presented separately The gross and net IRR for ACE IV (G) Unlevered are 9.9% and 7.1%, respectively. The gross and net MoIC for ACE IV (G) Unlevered are 1.3x and 1.2x, respectively. The gross and net IRR for ACE IV (G) Levered are 13.6% and 9.9%, respectively. The gross and net MoIC for ACE IV (G) Levered are 1.4x and 1.3x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund’s closing. All other values for ACE IV Unlevered and ACE IV Levered are for the combined levered and unlevered parallel funds and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(9)ACE V is made up of four parallel funds, two denominated in Euros and two denominated in pound sterling: ACE V (E) Unlevered, ACE V (G) Unlevered, ACE V (E) Levered, and ACE V (G) Levered. The gross and net MoIC presented in the table are for ACE V (E) Unlevered and ACE V (E) Levered. Metrics for ACE V (E) Unlevered are inclusive of a Japanese yen denominated feeder fund, which has not been presented separately. Metrics for ACE V (E) Levered are inclusive of a U.S. dollar denominated feeder fund, which has not been presented separately. The gross and net IRR for ACE V (G) Unlevered are 14.2% and 10.4%, respectively. The gross and net MoIC for ACE V (G) Unlevered are 1.1x and 1.1x, respectively. The gross and net IRR for ACE V (G) Levered are 20.7% and 14.7%, respectively. The gross and net MoIC for ACE V (G) Levered are 1.2x and 1.1x, respectively. Original capital commitments are converted to U.S. dollars at the prevailing exchange rate at the time of the fund’s closing. All other values for ACE V Unlevered and ACE V Levered are for the combined levered and unlevered parallel funds and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(10)Gross and net fund-level IRRs for SDL II Unlevered and SDL II Levered are shown on a non-annualized basis as the time elapsed from the date of the first capital call is less than one year.

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Private Equity Group—Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Fee Related Earnings:

The following table presents the components of the Private Equity Group’s FRE ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Management fees","","","","","","","","","$","199,837","","","$","181,918","","","$","17,919","","","10%"],["Other fees","","","","","","","","","1,888","","","1,070","","","818","","","76"],["Compensation and benefits","","","","","","","","","(86,561)","","","(78,156)","","","(8,405)","","","(11)"],["General, administrative and other expenses","","","","","","","","","(30,697)","","","(21,625)","","","(9,072)","","","(42)"],["Fee Related Earnings","","","","","","","","","$","84,467","","","$","83,207","","","1,260","","","2"]]
[[/GREPCENT_TABLE]]

Management Fees. The chart below presents Private Equity Group management fees and effective management fee rates ($ in millions):

Management fees increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily driven by deployment in ASOF, contributing an increase of $10.4 million. ASOF II, which launched during the fourth quarter of 2021, contributed additional management fees of $20.6 million in for the year ended December 31, 2022 when compared to the prior year. Management fees from ACOF IV, ACOF V and SSF IV collectively decreased by $9.6 million for the year ended December 31, 2022 compared to 2021 due to various asset realizations and distributions that reduced the fee bases. The year ended December 31, 2021 included one-time catch up fees of $2.5 million generated from ACOF VI.

The increase in effective management fee rate for the for the year ended December 31, 2022 compared to 2021 was primarily driven by deployment of capital in ASOF and ASOF II, each of which have a higher effective management fee rate than the Private Equity Group’s average effective management fee rate.

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Compensation and Benefits. The increase in compensation and benefits was primarily driven by higher incentive compensation.

General, Administrative and Other Expenses. In connection with our fundraising efforts, amortization of placement fees increased by $4.3 million for the year ended December 31, 2022 compared to 2021, primarily driven by the full year impact of amortization of new commitments to ASOF II subsequent to the third quarter of 2021. Travel and marketing collectively increased by $3.1 million for the year ended December 31, 2022 compared to 2021, as marketing and company events returned to pre-pandemic levels.

Realized Income:

The following table presents the components of the Private Equity Group’s RI ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Fee Related Earnings","","","","","","","","","$","84,467","","","$","83,207","","","$","1,260","","","2%"],["Performance income\u2014realized","","","","","","","","","123,806","","","171,637","","","(47,831)","","","(28)"],["Performance related compensation\u2014realized","","","","","","","","","(90,300)","","","(137,576)","","","47,276","","","34"],["Realized net performance income","","","","","","","","","33,506","","","34,061","","","(555)","","","(2)"],["Investment income (loss)\u2014realized","","","","","","","","","3,432","","","(3,754)","","","7,186","","","NM"],["Interest and other investment income\u2014realized","","","","","","","","","2,546","","","11,514","","","(8,968)","","","(78)"],["Interest expense","","","","","","","","","(15,953)","","","(7,925)","","","(8,028)","","","(101)"],["Realized net investment loss","","","","","","","","","(9,975)","","","(165)","","","(9,810)","","","NM"],["Realized Income","","","","","","","","","$","107,998","","","$","117,103","","","(9,105)","","","(8)"]]
[[/GREPCENT_TABLE]]

Realized net performance income for the year ended December 31, 2022 was primarily attributable to tax distributions from ASOF of $25.0 million and realized gains from the partial sale and recapitalization of ACOF IV’s investment in an energy company of $8.1 million. Realized net investment loss for the years ended December 31, 2022 largely represents interest expense exceeding net gains during these periods. Interest expense, which is allocated based on the cost basis of balance sheet investments, increased over the comparative periods primarily due to the issuance of the 2051 Subordinated Notes and the 2052 Senior Notes in June 2021 and January 2022, respectively.

The activity for the year ended December 31, 2021 included realized net performance income and realized net investment income attributable to a realized gain from ACOF IV’s investment in Farrow & Ball following the sale of the company and to realized gains from partial sales of ACOF IV’s position in AZEK. Realized net investment loss for the year ended December 31, 2021 also included a realized loss recognized in connection with an Asian corporate private equity fund’s sale of its investment in a dairy farm company, partially offset by realized gains from the sale of various assets in a fund within our special opportunities strategy.

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Private Equity Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Private Equity Group ($ in thousands):

[[GREPCENT_TABLE]]
[["","As of December 31, 2022","","As of December 31, 2021"],["","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income","","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income"],["ACOF III","$","16,488","","","$","13,190","","","$","3,298","","","$","43,510","","","$","34,808","","","$","8,702"],["ACOF IV","282,624","","","226,099","","","56,525","","","387,901","","","310,321","","","77,580"],["ACOF V","742,962","","","594,369","","","148,593","","","666,074","","","532,859","","","133,215"],["ACOF VI","147,185","","","117,748","","","29,437","","","73,261","","","58,608","","","14,653"],["ASOF","326,471","","","228,529","","","97,942","","","338,857","","","237,200","","","101,657"],["Other funds","92,509","","","62,393","","","30,116","","","33,526","","","21,787","","","11,739"],["Total Private Equity Group","$","1,608,239","","","$","1,242,328","","","$","365,911","","","$","1,543,129","","","$","1,195,583","","","$","347,546"]]
[[/GREPCENT_TABLE]]

The following table presents the change in accrued carried interest for the Private Equity Group ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","As of December 31, 2021","","Activity during the period","","As of December 31, 2022"],["","","Waterfall Type","","Accrued Carried Interest","","Change in Unrealized","","Realized","","Other Adjustments","","Accrued Carried Interest"],["ACOF III","","American","","$","43,510","","","$","(27,022)","","","$","\u2014","","","$","\u2014","","","$","16,488"],["ACOF IV","","American","","387,901","","","(62,380)","","","(42,897)","","","\u2014","","","282,624"],["ACOF V","","American","","666,074","","","76,888","","","\u2014","","","\u2014","","","742,962"],["ACOF VI","","American","","73,261","","","73,924","","","\u2014","","","\u2014","","","147,185"],["ASOF","","European","","338,857","","","68,523","","","(80,909)","","","\u2014","","","326,471"],["Other funds","","European","","30,784","","","62,973","","","\u2014","","","(1,248)","","","92,509"],["Other funds","","American","","2,742","","","(5,463)","","","\u2014","","","2,721","","","\u2014"],["Total Private Equity Group","","","","$","1,543,129","","","$","187,443","","","$","(123,806)","","","$","1,473","","","$","1,608,239"]]
[[/GREPCENT_TABLE]]

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Private Equity Group—Assets Under Management

The tables below present rollforwards of AUM for the Private Equity Group ($ in millions):

[[GREPCENT_TABLE]]
[["","","Corporate Private Equity","","Special Opportunities","","Total Private Equity Group"],["Balance at 12/31/2021","$","21,639","","","$","11,765","","","$","33,404"],["Net new par/equity commitments","\u2014","","","2,202","","","2,202"],["Capital reductions","(8)","","","(200)","","","(208)"],["Distributions","(1,065)","","","(268)","","","(1,333)"],["Change in fund value","463","","","221","","","684"],["Balance at 12/31/2022","$","21,029","","","$","13,720","","","$","34,749"],["","","Corporate Private Equity","","Special Opportunities","","Total Private Equity Group"],["Balance at 12/31/2020","$","18,233","","","$","5,721","","","$","23,954"],["Net new par/equity commitments","1,554","","","4,876","","","6,430"],["Net new debt commitments","\u2014","","","200","","","200"],["Capital reductions","(9)","","","\u2014","","","(9)"],["Distributions","(3,613)","","","(670)","","","(4,283)"],["Change in fund value","5,474","","","1,638","","","7,112"],["Balance at 12/31/2021","$","21,639","","","$","11,765","","","$","33,404"]]
[[/GREPCENT_TABLE]]

The components of our AUM for the Private Equity Group are presented below ($ in billions):

[[GREPCENT_TABLE]]
[["","AUM: $34.7","","AUM: $33.4"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","FPAUM","","Non-fee paying(1)","","AUM not yet paying fees"]]
[[/GREPCENT_TABLE]]

(1) Includes $1.3 billion and $1.4 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2022 and 2021, respectively.

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Private Equity Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Private Equity Group ($ in millions):

[[GREPCENT_TABLE]]
[["","","Corporate Private Equity","","Special Opportunities","","Total Private Equity Group"],["Balance at 12/31/2021","$","12,473","","","$","4,216","","","$","16,689"],["Deployment/subscriptions/increase in leverage","36","","","4,453","","","4,489"],["Distributions","(399)","","","(1,503)","","","(1,902)"],["Change in fund value","(4)","","","\u2014","","","(4)"],["Change in fee basis","(825)","","","\u2014","","","(825)"],["Balance at 12/31/2022","$","11,281","","","$","7,166","","","$","18,447"],["","","Corporate Private Equity","","Special Opportunities","","Total Private Equity Group"],["Balance at 12/31/2020","$","14,770","","","$","2,723","","","$","17,493"],["Commitments","1,579","","","\u2014","","","1,579"],["Deployment/subscriptions/increase in leverage","556","","","1,849","","","2,405"],["Distributions","(1,623)","","","(356)","","","(1,979)"],["Change in fund value","6","","","\u2014","","","6"],["Change in fee basis","(2,815)","","","\u2014","","","(2,815)"],["Balance at 12/31/2021","$","12,473","","","$","4,216","","","$","16,689"]]
[[/GREPCENT_TABLE]]

The charts below present FPAUM for the Private Equity Group by its fee bases ($ in billions):

[[GREPCENT_TABLE]]
[["","FPAUM: $18.5","","FPAUM: $16.7"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","","Invested capital","","","Capital commitments"]]
[[/GREPCENT_TABLE]]

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Private Equity Group—Fund Performance Metrics as of December 31, 2022

Four significant funds, ACOF V, ASOF, ACOF VI and ASOF II, collectively contributed approximately 84% of the Private Equity Group’s management fees for the year ended December 31, 2022.

The following table presents the performance data of our significant drawdown funds as of December 31, 2022 ($ in millions):

[[GREPCENT_TABLE]]
[["","Year of Inception","","AUM","","Original Capital Commitments","","Capital Invested to Date","","Realized Value(1)","","Unrealized Value(2)","","Total Value","","MoIC","","IRR(%)","","Primary Investment Strategy"],["Fund","","","","","","","","Gross(3)","","Net(4)","","Gross(5)","","Net(6)"],["Funds Deploying Capital"],["ACOF V","2017","","$","9,341","","","$","7,850","","","$","7,415","","","$","3,281","","","$","8,633","","","$","11,914","","","1.6x","","1.4x","","15.0","","10.3","","Corporate Private Equity"],["ASOF","2019","","5,501","","","3,518","","","5,405","","","3,349","","","4,321","","","7,670","","","1.7x","","1.5x","","31.8","","24.6","","Special Opportunities"],["ACOF VI","2020","","6,454","","","5,743","","","3,844","","","330","","","4,547","","","4,877","","","1.3x","","1.2x","","27.5","","19.1","","Corporate Private Equity"],["ASOF II","2021","","6,866","","","7,128","","","3,441","","","314","","","2,930","","","3,244","","","0.9x","","0.9x","","NM","","NM","","Special Opportunities"]]
[[/GREPCENT_TABLE]]

(1)Realized value represents the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments. Realized value excludes any proceeds related to bridge financings.

(2)Unrealized value represents the fair market value of remaining investments. Unrealized value does not take into account any bridge financings. There can be no assurance that unrealized investments will be realized at the valuations indicated.

(3)The gross MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC is before giving effect to management fees, carried interest as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The gross MoICs are also calculated before giving effect to any bridge financings. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(4)The net MoIC is calculated at the fund-level. The net MoIC is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or performance fees. The net MoIC is after giving effect to management fees, carried interest, as applicable, and other expenses. The net MoICs are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the net MoIC would be 1.4x for ACOF V and 1.1x for ACOF VI. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund’s residual value at the end of the measurement period. Gross IRRs reflect returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The gross IRRs are also calculated before giving effect to any bridge financings. The funds may utilize a credit facility during the investment period and for general cash management purposes. Gross fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the net IRR calculation are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees, carried interest as applicable, and other expenses and exclude commitments by the general partner and Schedule I investors who do not pay either management fees or carried interest. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. The net IRRs are also calculated before giving effect to any bridge financings. Inclusive of bridge financings, the net IRRs would be 10.4% for ACOF V and 16.7% for ACOF VI.

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Real Assets Group—Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Fee Related Earnings:

The following table presents the components of the Real Assets Group’s FRE ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Management fees","","","","","","","","","$","347,808","","","$","218,202","","","$","129,606","","","59%"],["Fee related performance revenues","","","","","","","","","167,693","","","51,399","","","116,294","","","226"],["Other fees","","","","","","","","","35,879","","","13,038","","","22,841","","","175"],["Compensation and benefits","","","","","","","","","(240,015)","","","(127,679)","","","(112,336)","","","(88)"],["General, administrative and other expenses","","","","","","","","","(39,739)","","","(24,181)","","","(15,558)","","","(64)"],["Fee Related Earnings","","","","","","","","","$","271,626","","","$","130,779","","","140,847","","","108"]]
[[/GREPCENT_TABLE]]

Management Fees. The chart below presents Real Assets Group management fees and effective management fee rates ($ in millions):

Funds from the Black Creek Acquisition which was completed in the third quarter of 2021 and from the Infrastructure Debt Acquisition which was completed in the first quarter of 2022 collectively contributed $128.6 million to the increase in management fees for the year ended December 31, 2022 compared to the prior year.

Excluding one-time catch-up fees of $4.8 million for the year ended December 31, 2022, management fees from US X increased by $12.0 million for the year ended December 31, 2022, compared to 2021. Management fees also increased by $14.4 million for the year ended December 31, 2022 due to new commitments to our sixth European real estate equity fund. Management fees from open-ended real estate debt funds increased by $7.9 million for the year ended December 31, 2022 compared to 2021, primarily due to the continued fundraising and subsequent deployment within these funds. The year ended December 31, 2021 included one-time catch-up fees generated by Ares European Property Enhancement Partners III, SCSp and

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ACIP. In addition, management fees from US IX, EF V and an infrastructure opportunities fund collectively decreased by $20.9 million for the year ended December 31, 2022, compared to 2021. The fee base for US IX and the infrastructure opportunities fund have been reduced due to various asset realizations and distributions and the fee base for EF V changed from committed capital to invested capital following the launch of our sixth European real estate equity fund.

The decrease in effective management fee rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily due to recently acquired funds with effective management fees rates of 0.75% and below, including funds within our infrastructure debt strategy and certain newly managed core/core-plus and industrial U.S. real estate equity funds. The decrease was also attributable to deployment in our real estate debt funds that have effective management fee rates below 0.75%.

Fee Related Performance Revenues. The increase in fee related performance revenues was primarily attributable to higher incentive fees from AREIT and AIREIT. In addition, in connection with the Black Creek Acquisition, the purchase agreement stipulated that approximately 50% of the incentive fees earned from AREIT and AIREIT for the year ended December 31, 2021, representing those fees generated prior to the completion of the Black Creek Acquisition, were payable to the sellers. The portion of the fees retained by us increased to 100% in 2022. Fees in future periods are dependent on continued appreciation and income growth within the underlying portfolios of AREIT and AIREIT, which may not recur at the same levels as the current and prior years.

Other Fees. The increase in other fees primarily resulted from the full-year impact of fees generated under the investment management agreements of the funds that were acquired in the Black Creek Acquisition. Property-related fees, such as development and property management, increased by $16.3 million during the year ended December 31, 2022 when compared to 2021, of which $8.2 million of this increase related to development fees from AIREIT. In addition, there was an increase in program administration fees, which are generated when investors enter into a like-kind 1031 exchange of real property for fund shares, of $4.0 million for the year ended December 31, 2022 when compared to 2021.

Compensation and Benefits. The increase in compensation and benefits was primarily driven by (i) an increase in fee related performance compensation and associated taxes of $70.7 million for the year ended December 31, 2022 compared to 2021, where the change is directly correlated to change in fee related performance revenues and (ii) headcount growth from acquisitions and to support the expansion of our business as we continued to add professionals to support our growing U.S. real estate equity and infrastructure opportunities platforms. Headcount growth attributable to the Infrastructure Debt Acquisition contributed $12.0 million in recurring employment related costs for the year ended December 31, 2022. The increase in salaries and benefits for the year ending December 31, 2022 also included $19.2 million from the first two quarters of 2022 related to the Black Creek Acquisition which did not have comparable results as the transaction closed at the beginning of the third quarter of 2021.

Average headcount for the year-to-date period increased by 63% to 314 investment and investment support professionals for 2022 from 193 professionals in 2021, including 70 professionals from the Black Creek Acquisition and 22 professionals from the Infrastructure Debt Acquisition.

General, Administrative and Other Expenses. The increase in general, administrative and other expenses for the year ended December 31, 2022 compared to 2021 was primarily attributable to our strategic acquisitions. The Infrastructure Debt Acquisition that closed in the first quarter of 2022 has contributed $4.2 million in general, administrative and other expenses for the year ended December 31, 2022. The increase in general, administrative and other expenses for the year ending December 31, 2022 included $4.5 million from the first two quarters of 2022 related to the Black Creek Acquisition which did not have comparable results as the transaction closed at the beginning of the third quarter of 2021.

Excluding the impact from the acquisitions, other operating expenses, most notably travel and marketing which collectively increased by $3.9 million for the year ended December 31, 2022 compared to 2021, as travel, marketing and company events have returned to pre-pandemic levels. Certain expenses, primarily the occupancy costs, information technology and information services, have also increased by $2.1 million for the year ended December 31, 2022 compared to 2021, to support the expanding platform.

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Realized Income:

The following table presents the components of the Real Assets Group’s RI ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Fee Related Earnings","","","","","","","","","$","271,626","","","$","130,779","","","$","140,847","","","108%"],["Performance income\u2014realized","","","","","","","","","133,130","","","95,270","","","37,860","","","40"],["Performance related compensation\u2014realized","","","","","","","","","(83,105)","","","(59,056)","","","(24,049)","","","(41)"],["Realized net performance income","","","","","","","","","50,025","","","36,214","","","13,811","","","38"],["Investment income\u2014realized","","","","","","","","","3,115","","","17,700","","","(14,585)","","","(82)"],["Interest and other investment income\u2014realized","","","","","","","","","9,045","","","7,252","","","1,793","","","25"],["Interest expense","","","","","","","","","(11,346)","","","(6,394)","","","(4,952)","","","(77)"],["Realized net investment income","","","","","","","","","814","","","18,558","","","(17,744)","","","(96)"],["Realized Income","","","","","","","","","$","322,465","","","$","185,551","","","136,914","","","74"]]
[[/GREPCENT_TABLE]]

US VIII generated realized net performance income of $23.8 million and realized net investment income of $5.7 million for the year ended December 31, 2022, primarily attributable to realized gains upon the sale of multifamily and industrial properties. Realized net performance income for the year ended December 31, 2022 also included tax distributions of $11.8 million from US IX and net performance revenues of $12.3 million generated from an industrial real estate fund. Realized net investment income for the year ended December 31, 2022 also included dividend income generated from an infrastructure opportunities fund.

Realized net performance income for the year ended December 31, 2021 was primarily attributable to performance revenues from a U.S. real estate equity fund generated by market appreciation of industrial assets and tax distributions from real estate equity funds driven by asset sales and operating income. Realized net performance income and realized net investment income for the year ended December 31, 2021 were also attributable to realized gains from the sale of multiple properties held in U.S. real estate equity funds. Realized net investment income for the year ended December 31, 2021 was also attributable to realized gains from the sale of various assets in EIF V and to distributions from real estate debt vehicles, driven by operating income during the period.

Interest expense, which is allocated based on the cost basis of balance sheet investments, increased over the comparative periods primarily due to the issuance of the 2051 Subordinated Notes and the 2052 Senior Notes in June 2021 and January 2022, respectively.

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Real Assets Group—Performance Income

The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Real Assets Group. Accrued net performance income excludes net performance income that has been realized but not yet received as of the reporting date ($ in thousands):

[[GREPCENT_TABLE]]
[["","As of December 31, 2022","","As of December 31, 2021"],["","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income","","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income"],["US VIII","$","36,822","","","$","23,566","","","$","13,256","","","$","88,112","","","$","56,391","","","$","31,721"],["US IX","86,905","","","53,881","","","33,024","","","110,074","","","68,246","","","41,828"],["EF IV","61,791","","","37,075","","","24,716","","","70,600","","","42,361","","","28,239"],["EF V","5,517","","","3,862","","","1,655","","","69,946","","","48,962","","","20,984"],["AREOF III","41,463","","","24,878","","","16,585","","","24,204","","","14,523","","","9,681"],["EIF V","94,398","","","70,562","","","23,836","","","62,592","","","46,787","","","15,805"],["Other real assets funds","165,972","","","104,140","","","61,832","","","113,932","","","68,599","","","45,333"],["Total Real Assets Group","$","492,868","","","$","317,964","","","$","174,904","","","$","539,460","","","$","345,869","","","$","193,591"]]
[[/GREPCENT_TABLE]]

The following table presents the change in accrued performance income for the Real Assets Group ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","As of December 31, 2021","","Activity during the period","","As of December 31, 2022"],["","","Waterfall Type","","Accrued Performance Income","","Change in Unrealized","","Realized","","Foreign Exchange and Other Adjustments","","Accrued Performance Income"],["Accrued Carried Interest"],["US VIII","","European","","$","88,112","","","$","15,049","","","$","(66,339)","","","$","\u2014","","","$","36,822"],["US IX","","European","","110,074","","","7,363","","","(30,532)","","","\u2014","","","86,905"],["EF IV","","American","","70,600","","","(8,809)","","","\u2014","","","\u2014","","","61,791"],["EF V","","American","","69,946","","","(64,429)","","","\u2014","","","\u2014","","","5,517"],["AREOF III","","European","","24,204","","","17,259","","","\u2014","","","\u2014","","","41,463"],["EIF V","","European","","62,592","","","31,806","","","\u2014","","","\u2014","","","94,398"],["Other real assets funds","","European","","52,262","","","57,956","","","(709)","","","5,273","","","114,782"],["Other real assets funds","","American","","61,670","","","(6,676)","","","(3,893)","","","89","","","51,190"],["Total accrued carried interest","","","","539,460","","","49,519","","","(101,473)","","","5,362","","","492,868"],["Other real assets funds","","Incentive","","\u2014","","","31,657","","","(31,657)","","","\u2014","","","\u2014"],["Total Real Assets Group","","","","$","539,460","","","$","81,176","","","$","(133,130)","","","$","5,362","","","$","492,868"]]
[[/GREPCENT_TABLE]]

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Real Assets Group—Assets Under Management

The tables below present rollforwards of AUM for the Real Assets Group ($ in millions):

[[GREPCENT_TABLE]]
[["","","U.S. Real Estate Equity","","European Real Estate Equity","","Real Estate Debt","","Infrastructure Opportunities","","Infrastructure Debt","","Total Real Assets Group"],["Balance at 12/31/2021","$","24,677","","","$","6,827","","","$","9,659","","","$","4,756","","","$","\u2014","","","$","45,919"],["Acquisitions","\u2014","","","\u2014","","","\u2014","","","\u2014","","","8,184","","","8,184"],["Net new par/equity commitments","5,811","","","2,038","","","1,012","","","431","","","1,346","","","10,638"],["Net new debt commitments","1,305","","","719","","","1,229","","","\u2014","","","\u2014","","","3,253"],["Capital reductions","(234)","","","\u2014","","","(282)","","","\u2014","","","\u2014","","","(516)"],["Distributions","(1,539)","","","(538)","","","(196)","","","(514)","","","(396)","","","(3,183)"],["Redemptions","(516)","","","\u2014","","","(435)","","","\u2014","","","\u2014","","","(951)"],["Change in fund value","1,956","","","(485)","","","174","","","521","","","551","","","2,717"],["Balance at 12/31/2022","$","31,460","","","$","8,561","","","$","11,161","","","$","5,194","","","$","9,685","","","$","66,061"],["","","U.S. Real Estate Equity","","European Real Estate Equity","","Real Estate Debt","","Infrastructure Opportunities","","Infrastructure Debt","","Total Real Assets Group"],["Balance at 12/31/2020","$","4,404","","","$","4,811","","","$","5,593","","","$","3,485","","","$","\u2014","","","$","18,293"],["Acquisitions","13,719","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","13,719"],["Net new par/equity commitments","3,180","","","1,974","","","1,020","","","1,769","","","\u2014","","","7,943"],["Net new debt commitments","1,134","","","203","","","3,334","","","\u2014","","","\u2014","","","4,671"],["Capital reductions","\u2014","","","\u2014","","","(311)","","","\u2014","","","\u2014","","","(311)"],["Distributions","(1,216)","","","(612)","","","(146)","","","(933)","","","\u2014","","","(2,907)"],["Redemptions","(63)","","","\u2014","","","(7)","","","\u2014","","","\u2014","","","(70)"],["Change in fund value","3,519","","","451","","","176","","","435","","","\u2014","","","4,581"],["Balance at 12/31/2021","$","24,677","","","$","6,827","","","$","9,659","","","$","4,756","","","$","\u2014","","","$","45,919"]]
[[/GREPCENT_TABLE]]

The components of our AUM for the Real Assets Group are presented below ($ in billions):

[[GREPCENT_TABLE]]
[["","AUM: $66.1","","AUM: $46.0"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","FPAUM","","Non-fee paying(1)","","AUM not yet paying fees"]]
[[/GREPCENT_TABLE]]

(1) Includes $0.6 billion and $0.4 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2022 and 2021, respectively.

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Real Assets Group—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for the Real Assets Group ($ in millions):

[[GREPCENT_TABLE]]
[["","","U.S. Real Estate Equity","","European Real Estate Equity","","Real Estate Debt","","Infrastructure Opportunities","","Infrastructure Debt","","Total Real Assets Group"],["Balance at 12/31/2021","$","15,687","","","$","4,916","","","$","3,516","","","$","4,496","","","$","\u2014","","","$","28,615"],["Acquisitions","\u2014","","","\u2014","","","\u2014","","","\u2014","","","4,855","","","4,855"],["Commitments","4,947","","","1,627","","","106","","","\u2014","","","\u2014","","","6,680"],["Deployment/subscriptions/increase in leverage","871","","","433","","","740","","","363","","","1,595","","","4,002"],["Capital reductions","\u2014","","","(17)","","","(183)","","","\u2014","","","\u2014","","","(200)"],["Distributions","(865)","","","(252)","","","(237)","","","(360)","","","(387)","","","(2,101)"],["Redemptions","(516)","","","\u2014","","","(449)","","","\u2014","","","\u2014","","","(965)"],["Change in fund value","1,696","","","(254)","","","198","","","25","","","(93)","","","1,572"],["Change in fee basis","(32)","","","(819)","","","\u2014","","","\u2014","","","\u2014","","","(851)"],["Balance at 12/31/2022","$","21,788","","","$","5,634","","","$","3,691","","","$","4,524","","","$","5,970","","","$","41,607"],["","","U.S. Real Estate Equity","","European Real Estate Equity","","Real Estate Debt","","Infrastructure Opportunities","","Infrastructure Debt","","Total Real Assets Group"],["Balance at 12/31/2020","$","3,659","","","$","4,088","","","$","2,505","","","$","3,679","","","$","\u2014","","","$","13,931"],["Acquisitions","7,155","","","\u2014","","","\u2014","","","\u2014","","","\u2014","","","7,155"],["Commitments","2,463","","","1,053","","","204","","","1,424","","","\u2014","","","5,144"],["Deployment/subscriptions/increase in leverage","1,555","","","346","","","1,149","","","219","","","\u2014","","","3,269"],["Capital reductions","\u2014","","","\u2014","","","(162)","","","\u2014","","","\u2014","","","(162)"],["Distributions","(484)","","","(332)","","","(319)","","","(650)","","","\u2014","","","(1,785)"],["Redemptions","(63)","","","\u2014","","","(23)","","","\u2014","","","\u2014","","","(86)"],["Change in fund value","1,539","","","(234)","","","162","","","(1)","","","\u2014","","","1,466"],["Change in fee basis","(137)","","","(5)","","","\u2014","","","(175)","","","\u2014","","","(317)"],["Balance at 12/31/2021","$","15,687","","","$","4,916","","","$","3,516","","","$","4,496","","","$","\u2014","","","$","28,615"]]
[[/GREPCENT_TABLE]]

The charts below present FPAUM for the Real Assets Group by its fee bases ($ in billions):

[[GREPCENT_TABLE]]
[["","FPAUM: $41.6","","FPAUM: $28.6"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Market value(1)","","Invested capital/other(2)","","Capital commitments"]]
[[/GREPCENT_TABLE]]

(1)Amounts represent FPAUM from funds that primarily invest in illiquid strategies. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

(2)Other consists of ACRE’s FPAUM, which is based on ACRE’s stockholders’ equity.

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Real Assets Group—Fund Performance Metrics as of December 31, 2022

Four significant funds, AIREIT, AREIT, Infrastructure Debt Fund IV (“IDF IV”) and an open-ended industrial real estate fund, collectively contributed approximately 41% of the Real Assets Group’s management fees for the year ended December 31, 2022.

The following table presents the performance data for our significant funds that are not drawdown funds in the Real Assets Group as of December 31, 2022 ($ in millions):

[[GREPCENT_TABLE]]
[["","","","","","","","","","Returns(%)"],["","Year of Inception","","AUM","","","","Year-To-Date","","Since Inception(1)","","Primary Investment Strategy"],["Fund","","","","","","","Gross","","Net","","Gross","","Net"],["AREIT(2)","2012","","$","5,132","","","","","","","N/A","","12.7","","N/A","","7.9","","U.S. Real Estate Equity"],["AIREIT(3)","2017","","8,253","","","","","","","N/A","","26.8","","N/A","","14.1","","U.S. Real Estate Equity"],["Open-ended industrial real estate fund(4)","2017","","5,556","","","","","","","17.2","","14.1","","26.3","","21.7","","U.S. Real Estate Equity"]]
[[/GREPCENT_TABLE]]

(1)Since inception returns are annualized.

(2)Performance is measured by total return, which includes income and appreciation and reinvestment of all distributions for the respective time period. Returns are shown for institutional share class. Shares of other classes may have lower returns due to higher selling commissions and fees. Actual individual stockholder returns will vary. Net returns are calculated using the fund’s NAV and assume distributions are reinvested at the NAV on the date of distribution. The inception date used in the calculation of the since inception return is the date in which the first shares of common stock were sold after converting to a NAV-based REIT. Additional information related to AREIT can be found in its filings with the SEC, which are not part of this report.

(3)Performance is measured by total return, which includes income and appreciation and reinvestment of all distributions for the respective time period. Returns are shown for institutional share class. Shares of other classes may have lower returns due to higher selling commissions and fees. Actual individual stockholder returns will vary. Net returns are calculated using the fund’s NAV and assume distributions are reinvested at the NAV on the date of distribution. Additional information related to AIREIT can be found in its filings with the SEC, which are not part of this report.

(4)Returns are time-weighted rates of return and include the reinvestment of income and other earnings from securities or other investments and reflect the deduction of all trading expenses. Gross returns do not reflect the deduction of management fees, incentive fees, as applicable, or other expenses. Net returns are calculated by subtracting the applicable management fees, incentive fees, as applicable and other expenses from the gross returns on a quarterly basis.

The following table presents the performance data of our significant drawdown fund as of December 31, 2022 ($ in millions):

[[GREPCENT_TABLE]]
[["","Year of Inception","","AUM","","Original Capital Commitments","","Capital Invested to Date","","Realized Value(1)","","Unrealized Value(2)","","Total Value","","MoIC","","IRR(%)","","Primary Investment Strategy"],["Fund","","","","","","","","Gross(3)","","Net(4)","","Gross(5)","","Net(6)"],["Fund Harvesting Investments"],["IDF IV(7)","2018","","$","3,547","","","$","4,012","","","$","4,416","","","$","1,666","","","$","3,279","","","$","4,945","","","1.2x","","1.1x","","8.4","","","6.1","","","Infrastructure Debt"]]
[[/GREPCENT_TABLE]]

(1)Realized value includes distributions of operating income, sales and financing proceeds received.

(2)Unrealized value represents the fair market value of remaining investments. Unrealized value does not take into account any bridge financings. There can be no assurance that unrealized investments will be realized at the valuations indicated.

(3)The gross MoIC is calculated at the fund level and is based on the interests of the fee-paying limited partners and if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The gross MoIC is before giving effect to management fees, carried interest as applicable and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the gross fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(4)The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and, if applicable, excludes interests attributable to the non fee-paying limited partners and/or the general partner which does not pay management fees or carried interest. The net MoIC is after giving effect to management fees, carried interest, as applicable, credit facility interest expense, as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. Early in the life of a fund, the net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to the fee-paying limited partners and, if applicable, excludes interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest and other expenses, but after giving effect to credit facility interest expenses, as applicable, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Gross fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and, if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees and carried interest, other expenses and credit facility interest expenses, as applicable. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)IDF IV is made up of U.S. Dollar hedged, U.S. Dollar unhedged, Euro unhedged, Yen hedged parallel funds and a single investor U.S. Dollar parallel fund. The gross and net IRR and MoIC presented in the table are for the U.S. Dollar hedged parallel fund. The gross and net IRR for the U.S. Dollar unhedged parallel fund are 7.5% and 5.2%, respectively. The gross and net MoIC for the U.S. Dollar unhedged parallel fund are 1.1x and 1.1x, respectively. The gross and net IRR for the Euro unhedged parallel fund are 8.6% and 6.3%, respectively. The gross and net MoIC for the Euro unhedged parallel fund are 1.2x and 1.1x, respectively. The gross and net IRR for the Yen hedged parallel fund are 7.1% and 4.9%, respectively. The gross and net MoIC for the Yen hedged parallel fund are 1.2x and 1.1x, respectively. The gross and net IRR for the single investor U.S. Dollar parallel fund are 6.6% and 4.6%, respectively. The gross and net MoIC for the single investor U.S. Dollar parallel fund are 1.1x and 1.1x, respectively. Original capital commitments are converted to U.S. Dollars at the prevailing exchange rate at the time of fund’s closing. All other values for IDF IV are for the combined fund and are converted to U.S. Dollars at the prevailing quarter-end exchange rate.

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Secondaries Group—Year Ended December 31, 2022 Compared to the Period June 2, 2021 through December 31, 2021

The activity for the year ended December 31, 2021 represents results subsequent to the Landmark Acquisition that closed on June 2, 2021 and is not comparable to the results for the year ended December 31, 2022.

Fee Related Earnings:

The following table presents the components of the Secondaries Group’s FRE ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","For the period June 2 through December 31,"],["($ in thousands)","","","","","","","","","2022","","2021"],["Management fees","","","","","","","","","$","176,694","","","$","97,945"],["Fee related performance revenues","","","","","","","","","235","","","\u2014"],["Compensation and benefits","","","","","","","","","(53,743)","","","(25,215)"],["General, administrative and other expenses","","","","","","","","","(12,685)","","","(6,862)"],["Fee Related Earnings","","","","","","","","","$","110,501","","","$","65,868"]]
[[/GREPCENT_TABLE]]

Management Fees. The chart below presents Secondaries Group management fees and effective management fee rates ($ in millions):

Management fees for the periods presented primarily consisted of fees from Landmark Equity Partners XV, L.P. (“LEP XV”), LEP XVI and LREP VIII. For the year ended December 31, 2022, LEP XV and LEP XVI collectively contributed $68.2 million to private equity secondaries, and LREP VIII contributed $24.7 million to real estate secondaries. For the period

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from June 2, 2021 through December 31, 2021, LEP XV and LEP XVI collectively contributed $43.8 million to private equity secondaries, and LREP VIII contributed $18.4 million to real estate secondaries.

For the year ended December 31, 2022, LEP XVII and related vehicles, excluding one-time catch-up fees of $9.2 million, generated management fees of $13.8 million. Our ninth real estate secondaries fund, excluding one-time catch up fees of $0.2 million, generated management fees of $14.2 million for the year ended December 31, 2022.

Fee Related Performance Revenues. Fee related performance revenues was attributable to APMF for the year ended December 31, 2022.

Compensation and Benefits. Compensation and benefits generally includes salaries, benefits and incentive compensation. Average headcount for the year-to-date period was 94 investment and investment support professionals for 2022.

General, Administrative and Other Expenses. General, administrative and other expense for the year ended December 31, 2022 primarily included (i) occupancy costs, information technology and information services of $4.2 million, (ii) amortization of placement fees of $3.2 million primarily in relation to LEP XVI and related vehicles, and (iii) travel expenses of $1.5 million.

Realized Income:

The following table presents the components of the Secondaries Group’s RI ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","For the period June 2 through December 31,"],["($ in thousands)","","","","","","","","","2022","","2021"],["Fee Related Earnings","","","","","","","","","$","110,501","","","$","65,868"],["Performance income\u2014realized","","","","","","","","","4,156","","","70"],["Performance related compensation\u2014realized","","","","","","","","","(3,515)","","","(49)"],["Realized net performance income","","","","","","","","","641","","","21"],["Investment income\u2014realized","","","","","","","","","\u2014","","","19"],["Interest and other investment income\u2014realized","","","","","","","","","3,683","","","2,261"],["Interest expense","","","","","","","","","(5,660)","","","(836)"],["Realized net investment income (loss)","","","","","","","","","(1,977)","","","1,444"],["Realized Income","","","","","","","","","$","109,165","","","$","67,333"]]
[[/GREPCENT_TABLE]]

Realized net performance income for the year ended December 31, 2022 was primarily attributable to tax distributions from LREP VIII.

Realized net investment loss for the year ended December 31, 2022 largely represents interest expense exceeding realization activity during the period. Interest expense, which is allocated based on the cost basis of balance sheet investments, increased over the comparative periods primarily due to the issuance of the 2051 Subordinated Notes and the 2052 Senior Notes in June 2021 and January 2022, respectively. Interest and other investment income also included dividend income received from a real estate secondaries fund and an infrastructure secondaries fund for the year ended December 31, 2022.

Realized net investment income for the year ended December 31, 2021 included dividend income received from a private equity secondaries fund.

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Secondaries Group—Performance Income

In the Secondaries Group, we are entitled to carried interest from the funds with closings subsequent to the completion of the Landmark Acquisition and to carried interest we acquired through the purchase of ownership interests in certain Landmark GP entities. The following table presents the accrued carried interest, also referred to as accrued performance income, and related performance compensation for the Secondaries Group. Accrued net performance income excludes net performance income that has been realized but not yet received as of the reporting date ($ in thousands):

[[GREPCENT_TABLE]]
[["","As of December 31, 2022","","As of December 31, 2021"],["","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income","","Accrued Performance Income","","Accrued Performance Compensation","","Accrued Net Performance Income"],["LEP XVI","$","141,122","","","$","120,659","","","$","20,463","","","$","159,490","","","$","135,566","","","$","23,924"],["LREP VIII","109,928","","","94,538","","","15,390","","","80,772","","","68,656","","","12,116"],["Other secondaries funds","58,135","","","49,726","","","8,409","","","58,013","","","49,108","","","8,905"],["Total Secondaries Group","$","309,185","","","$","264,923","","","$","44,262","","","$","298,275","","","$","253,330","","","$","44,945"]]
[[/GREPCENT_TABLE]]

The following table presents the change in accrued performance income for the Secondaries Group ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","As of December 31, 2021","","Activity during the period","","","","As of December 31, 2022"],["","","Waterfall Type","","Accrued Carried Interest","","Change in Unrealized","","Realized","","","","Accrued Carried Interest"],["Accrued Carried Interest"],["LEP XVI","","European","","$","159,490","","","$","(18,368)","","","$","\u2014","","","","","$","141,122"],["LREP VIII","","European","","80,772","","","32,806","","","(3,650)","","","","","109,928"],["Other secondaries funds","","European","","58,013","","","232","","","(110)","","","","","58,135"],["Total accrued carried interest","","","","298,275","","","14,670","","","(3,760)","","","","","309,185"],["Other secondaries funds","","Incentive","","\u2014","","","396","","","(396)","","","","","\u2014"],["Total Secondaries Group","","","","$","298,275","","","$","15,066","","","$","(4,156)","","","","","$","309,185"]]
[[/GREPCENT_TABLE]]

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Secondaries Group—Assets Under Management

The table below presents the rollforwards of AUM for the Secondaries Group ($ in millions):

[[GREPCENT_TABLE]]
[["","Private Equity Secondaries","","Real Estate Secondaries","","Infrastructure Secondaries","","Total Secondaries Group"],["Balance at 12/31/2021","$","13,833","","","$","6,662","","","$","1,624","","","$","22,119"],["Acquisitions","199","","","\u2014","","","\u2014","","","199"],["Net new par/equity commitments","1,011","","","1,425","","","74","","","2,510"],["Distributions","(1,632)","","","(932)","","","(223)","","","(2,787)"],["Change in fund value","(642)","","","397","","","165","","","(80)"],["Balance at 12/31/2022","$","12,769","","","$","7,552","","","$","1,640","","","$","21,961"],["","Private Equity Secondaries","","Real Estate Secondaries","","Infrastructure Secondaries","","Total Secondaries Group"],["Balance at 12/31/2020","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Acquisitions","12,275","","","5,641","","","1,597","","","19,513"],["Net new par/equity commitments","1,571","","","760","","","\u2014","","","2,331"],["Distributions","(1,860)","","","(421)","","","(25)","","","(2,306)"],["Change in fund value","1,847","","","682","","","52","","","2,581"],["Balance at 12/31/2021","$","13,833","","","$","6,662","","","$","1,624","","","$","22,119"]]
[[/GREPCENT_TABLE]]

The components of our AUM for the Secondaries Group are presented below ($ in billions):

[[GREPCENT_TABLE]]
[["AUM: $22.0","","AUM: $22.1"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","FPAUM","","AUM not yet paying fees","","Non-fee paying(1)"]]
[[/GREPCENT_TABLE]]

(1) Includes $0.3 billion and $0.5 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2022 and 2021, respectively.

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Secondaries Group—Fee Paying AUM

The table below presents the rollforwards of fee paying AUM for the Secondaries Group ($ in millions):

[[GREPCENT_TABLE]]
[["","","Private Equity Secondaries","","Real Estate Secondaries","","Infrastructure Secondaries","","Total Secondaries Group"],["Balance at 12/31/2021","$","11,787","","","$","5,389","","","$","1,188","","","$","18,364"],["Acquisitions","131","","","\u2014","","","\u2014","","","131"],["Commitments","929","","","1,039","","","74","","","2,042"],["Deployment/subscriptions/increase in leverage","58","","","473","","","29","","","560"],["Distributions","(229)","","","(906)","","","(184)","","","(1,319)"],["Change in fund value","(130)","","","716","","","186","","","772"],["Change in fee basis","(1,484)","","","(1,398)","","","\u2014","","","(2,882)"],["Balance at 12/31/2022","$","11,062","","","$","5,313","","","$","1,293","","","$","17,668"],["","","Private Equity Secondaries","","Real Estate Secondaries","","Infrastructure Secondaries","","Total Secondaries Group"],["Balance at 12/31/2020","$","\u2014","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Acquisitions","10,740","","","4,928","","","1,171","","","16,839"],["Commitments","813","","","539","","","\u2014","","","1,352"],["Deployment/subscriptions/increase in leverage","95","","","11","","","10","","","116"],["Distributions","(142)","","","(114)","","","(8)","","","(264)"],["Change in fund value","191","","","56","","","15","","","262"],["Change in fee basis","90","","","(31)","","","\u2014","","","59"],["Balance at 12/31/2021","$","11,787","","","$","5,389","","","$","1,188","","","$","18,364"]]
[[/GREPCENT_TABLE]]

The chart below presents FPAUM for the Secondaries Group by its fee bases ($ in billions):

[[GREPCENT_TABLE]]
[["FPAUM: $17.7","","FPAUM: $18.3"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Market value(1)","","Capital commitments","","Invested capital/other"]]
[[/GREPCENT_TABLE]]

(1)Amounts represent FPAUM from funds that primarily invest in illiquid strategies. The underlying investments held in these funds are generally subject to less market volatility than investments held in liquid strategies.

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Secondaries Group—Fund Performance Metrics as of December 31, 2022

Two significant funds, LEP XVI and LREP VIII, collectively contributed approximately 40% of the Secondaries Group’s management fees for the year ended December 31, 2022.

The following table presents the performance data of our significant drawdown funds as of December 31, 2022 ($ in millions):

[[GREPCENT_TABLE]]
[["","Year of Inception","","AUM","","Original Capital Commitments","","Capital Invested to Date","","Realized Value(1)","","Unrealized Value(2)","","Total Value","","MoIC","","IRR(%)","","Primary Investment Strategy"],["Fund","","","","","","","","Gross(3)","","Net(4)","","Gross(5)","","Net(6)"],["Funds Harvesting Investments"],["LEP XVI(7)","2016","","$","4,954","","","$","4,896","","","$","2,962","","","$","1,808","","","$","2,607","","","$","4,415","","","1.6x","","1.5x","","38.3","","25.9","","Private Equity Secondaries"],["LREP VIII(7)","2016","","3,483","","","3,300","","","2,053","","","1,306","","","1,623","","","2,929","","","1.6x","","1.4x","","28.0","","19.7","","Real Estate Secondaries"]]
[[/GREPCENT_TABLE]]

For all funds in the Secondaries Group, returns are calculated from results of the underlying portfolio that are generally reported on a three month lag and may not include the impact of economic and market activities occurring in the current reporting period.

(1)Realized value represents the sum of all cash distributions to all limited partners and if applicable, exclude tax and incentive distributions made to the general partner.

(2)Unrealized value represents the limited partners’ share of fund’s NAV reduced by the accrued incentive allocation, if applicable. There can be no assurance that unrealized values will be realized at the valuations indicated.

(3)The gross MoIC is calculated at the fund-level and is based on the interests of all partners. If applicable, limiting the gross MoIC to exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or carried interest would have no material impact on the result. The gross MoIC is before giving effect to management fees, carried interest as applicable and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund’s governing documentation. The gross fund-level MoIC would have generally been lower had such fund called capital from its partners instead of utilizing the credit facility.

(4)The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying limited partners and if applicable, excludes those interests attributable to the non-fee paying limited partners and/or the general partner which does not pay management fees or carried interest. The net MoIC is after giving effect to management fees and other expenses, carried interest and credit facility interest expense, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund’s governing documentation. The net fund-level MoICs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(5)The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Gross IRR reflects returns to all partners. If applicable, limiting the gross IRR to exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or carried interest would have no material impact on the result. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. The gross IRRs are calculated before giving effect to management fees, carried interest, as applicable, and other expenses, but after giving effect to credit facility interest expenses, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund’s governing documents. The gross fund-level IRR would generally have been lower had such fund called capital from its partners instead of utilizing the credit facility.

(6)The net IRR is an annualized since inception net internal rate of return of cash flows to and from the fund and the fund’s residual value at the end of the measurement period. Net IRRs reflect returns to the fee-paying limited partners and, if applicable, exclude interests attributable to the non-fee paying limited partners and/or the general partner who does not pay management fees or carried interest. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRRs are calculated after giving effect to management fees and other expenses, carried interest and credit facility interest expenses, as applicable. The funds may utilize a short-term credit facility for general cash management purposes, as well as a long-term credit facility as permitted by the respective fund’s governing documents. Net fund-level IRRs would generally have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)The results of each fund is presented on a combined basis with the affiliated parallel funds or accounts, given that the investments are substantially the same.

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Strategic Initiatives—Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Fee Related Earnings:

The following table presents the components of Strategic Initiatives’ FRE ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","Year ended December 31,","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Management fees","","","","","","","","","$","72,214","","","$","66,604","","","$","5,610","","","8%"],["Other fees","","","","","","","","","321","","","82","","","239","","","291"],["Compensation and benefits","","","","","","","","","(33,011)","","","(26,673)","","","(6,338)","","","(24)"],["General, administrative and other expenses","","","","","","","","","(7,578)","","","(7,778)","","","200","","","3"],["Fee Related Earnings","","","","","","","","","$","31,946","","","$","32,235","","","(289)","","","(1)"]]
[[/GREPCENT_TABLE]]

Management Fees. The chart below presents Strategic Initiatives management fees and effective management fee rates ($ in millions):

Management fees increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily driven by new commitments to our sixth Asian special situations fund and by additional managed assets in our insurance strategy. SLO III also contributed to the increase in Asian secured lending management fees for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to deployment of capital. Following the launch of our sixth Asian special situations fund in the first quarter of 2022, SSG Capital Partners V, L.P. (“SSG Fund V”) had a reduction in fee base that partially offset the increase in management fees over the comparative periods.

The decrease in effective management fee rate for the year ended December 31, 2022 compared to the year ended December 31, 2021 was primarily driven by the growing fee base of our insurance strategy, which has an effective management

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fee rate of 0.30%. The effective management fee rate also decreased due to the launch of our sixth Asian special situations fund in the first quarter of 2022. Our sixth Asian special situations fund pays a fee on both committed and invested capital. As a result, our effective management fee rate decreases immediately following capital raising and increases as capital is subsequently deployed.

Compensation and Benefits. The increase in salaries and benefits for the year ended December 31, 2022 when compared to 2021 was primarily driven by (i) our acquisition of a team that was dedicated to supporting Ares SSG deal sourcing in India, leading to a corresponding decrease in general, administrative and other expenses, the impact of which will continue in future periods, and (ii) headcount growth across our insurance and other strategic endeavors. Average headcount for the year-to-date period increased by 42% to 68 investment and investment support professionals from 48 professionals in 2021, primarily associated to the expansion of our deal-sourcing team in India and our insurance platform.

General, Administrative and Other Expenses. General, administrative and other expenses remained relatively flat for the year ended December 31, 2022 compared to 2021. As described previously, the decision to acquire the deal sourcing team in India contributed to a reduction in professional fees for the year ended December 31, 2022 compared to 2021, and was offset by increasing occupancy and information services costs to support our expanding workforce and higher travel and marketing as marketing and company events returned to pre-pandemic levels.

Realized Income:

The following table presents the components of Strategic Initiatives’ RI ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Fee Related Earnings","","","","","","","","","$","31,946","","","$","32,235","","","$","(289)","","","(1)%"],["Performance income\u2014realized","","","","","","","","","145","","","4","","","141","","","NM"],["Performance related compensation\u2014realized","","","","","","","","","(57)","","","(2)","","","(55)","","","NM"],["Realized net performance income","","","","","","","","","88","","","2","","","86","","","NM"],["Investment income-realized","","","","","","","","","868","","","13","","","855","","","NM"],["Interest and other investment income-realized","","","","","","","","","9,851","","","3,948","","","5,903","","","150"],["Interest expense","","","","","","","","","(22,318)","","","(13,031)","","","(9,287)","","","(71)"],["Realized net investment loss","","","","","","","","","(11,599)","","","(9,070)","","","(2,529)","","","(28)"],["Realized Income","","","","","","","","","$","20,435","","","$","23,167","","","(2,732)","","","(12)"]]
[[/GREPCENT_TABLE]]

Realized net investment loss for the years ended December 31, 2022 and 2021 largely represents interest expense exceeding realization activity during these periods. Interest expense, which is allocated based on the cost basis of balance sheet investments, increased over the comparative periods primarily due to the issuance of the 2051 Subordinated Notes and the 2052 Senior Notes in June 2021 and January 2022, respectively. Interest expense is primarily allocated to our balance sheet investment in a fund invested in insurance companies.

For the years ended December 31, 2022 and 2021, we received distributions from an investment vehicle consisting of a portfolio of non-performing loans. For the year ended December 31, 2022, we also earned interest income from a fund invested in insurance companies.

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Strategic Initiatives—Assets Under Management

The tables below present rollforwards of AUM for Strategic Initiatives ($ in millions):

[[GREPCENT_TABLE]]
[["","","","Asian Special Situations","","Asian Secured Lending","","APAC Direct Lending","","Insurance","","SPACs","","Total Strategic Initiatives"],["Balance at 12/31/2021","","$","6,239","","","$","2,456","","","$","\u2014","","","$","1,928","","","$","1,000","","","$","11,623"],["Net new par/equity commitments","","1,300","","","20","","","462","","","2,818","","","\u2014","","","4,600"],["Net new debt commitments","","\u2014","","","6","","","1,468","","","\u2014","","","\u2014","","","1,474"],["Capital reductions","","\u2014","","","(5)","","","\u2014","","","\u2014","","","\u2014","","","(5)"],["Distributions","","(631)","","","(106)","","","\u2014","","","(1,733)","","","\u2014","","","(2,470)"],["Change in fund value","","111","","","28","","","35","","","(379)","","","13","","","(192)"],["Balance at 12/31/2022","","$","7,019","","","$","2,399","","","$","1,965","","","$","2,634","","","$","1,013","","","$","15,030"],["","","","Asian Special Situations","","Asian Secured Lending","","APAC Direct Lending","","Insurance","","SPACs","","Total Strategic Initiatives"],["Balance at 12/31/2020","","$","5,154","","","$","1,864","","","$","\u2014","","","$","2,243","","","$","\u2014","","","$","9,261"],["Net new par/equity commitments(1)","","818","","","620","","","\u2014","","","(295)","","","1,000","","","2,143"],["Net new debt commitments","","\u2014","","","29","","","\u2014","","","\u2014","","","\u2014","","","29"],["Capital reductions","","\u2014","","","(29)","","","\u2014","","","\u2014","","","\u2014","","","(29)"],["Distributions","","(93)","","","(12)","","","\u2014","","","(130)","","","\u2014","","","(235)"],["Change in fund value","","360","","","(16)","","","\u2014","","","110","","","\u2014","","","454"],["Balance at 12/31/2021","","$","6,239","","","$","2,456","","","$","\u2014","","","$","1,928","","","$","1,000","","","$","11,623"],["(1) Reallocation of capital among the segments may occur for pools of capital with investment mandates in more than one investment strategy. This reallocation activity is presented within net new par/equity commitments and may result in balances presented to be negative."]]
[[/GREPCENT_TABLE]]

The components of our AUM for Strategic Initiatives are presented below ($ in billions):

[[GREPCENT_TABLE]]
[["","AUM: $15.0","","AUM: $11.6"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","FPAUM","","Non-fee paying(1)","","AUM not yet paying fees"]]
[[/GREPCENT_TABLE]]

(1) Includes $0.2 billion of non-fee paying AUM based on our general partner commitment as of December 31, 2022 and 2021.

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Strategic Initiatives—Fee Paying AUM

The tables below present rollforwards of fee paying AUM for Strategic Initiatives ($ in millions):

[[GREPCENT_TABLE]]
[["","","","Asian Special Situations","","Asian Secured Lending","","APAC Direct Lending","","Insurance","","","","Total Strategic Initiatives"],["Balance at 12/31/2021","","$","3,605","","","$","1,115","","","$","\u2014","","","$","2,067","","","","","$","6,787"],["Commitments","","1,912","","","16","","","\u2014","","","1,424","","","","","3,352"],["Deployment/subscriptions/increase in leverage","","634","","","1,443","","","223","","","(38)","","","","","2,262"],["Capital reductions","","(41)","","","(350)","","","\u2014","","","\u2014","","","","","(391)"],["Distributions","","(877)","","","(561)","","","(82)","","","(486)","","","","","(2,006)"],["Change in fund value","","(31)","","","(119)","","","7","","","(665)","","","","","(808)"],["Change in fee basis","","(843)","","","\u2014","","","\u2014","","","(238)","","","","","(1,081)"],["Balance at 12/31/2022","","$","4,359","","","$","1,544","","","$","148","","","$","2,064","","","","","$","8,115"],["","","","Asian Special Situations","","Asian Secured Lending","","APAC Direct Lending","","Insurance","","","","Total Strategic Initiatives"],["Balance at 12/31/2020","","$","3,614","","","$","739","","","$","\u2014","","","$","2,243","","","","","$","6,596"],["Commitments(1)","","\u2014","","","\u2014","","","\u2014","","","(130)","","","","","(130)"],["Deployment/subscriptions/increase in leverage","","1,070","","","697","","","\u2014","","","(90)","","","","","1,677"],["Capital reductions","","(259)","","","(121)","","","\u2014","","","\u2014","","","","","(380)"],["Distributions","","(820)","","","(181)","","","\u2014","","","(150)","","","","","(1,151)"],["Change in fund value","","\u2014","","","(19)","","","\u2014","","","194","","","","","175"],["Balance at 12/31/2021","","$","3,605","","","$","1,115","","","$","\u2014","","","$","2,067","","","","","$","6,787"],["(1) Reallocation of capital among the segments may occur for pools of capital with investment mandates in more than one investment strategy. This reallocation activity is presented within commitments and may result in balances presented to be negative."]]
[[/GREPCENT_TABLE]]

The charts below present FPAUM for Strategic Initiatives by its fee bases ($ in billions):

[[GREPCENT_TABLE]]
[["","FPAUM: $8.1","","FPAUM: $6.8"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","Market value","","Capital commitments","","Invested capital/other"]]
[[/GREPCENT_TABLE]]

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Operations Management Group—Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Fee Related Earnings:

The following table presents the components of the Operations Management Group’s FRE ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Other fees","","","","","","","","","$","24,529","","","$","8,478","","","$","16,051","","","189%"],["Compensation and benefits","","","","","","","","","(317,396)","","","(226,725)","","","(90,671)","","","(40)"],["General, administrative and other expenses","","","","","","","","","(155,017)","","","(100,645)","","","(54,372)","","","(54)"],["Fee Related Earnings","","","","","","","","","$","(447,884)","","","$","(318,892)","","","(128,992)","","","(40)"]]
[[/GREPCENT_TABLE]]

Other Fees. The increase in other fees was driven by (i) facilitation fees of $10.8 million for the year ended December 31, 2022 compared to 2021 that are generated when investors contribute real property through a like-kind 1031 exchange for fund shares, and (ii) trade-based fees from the sale and distribution of our non-traded REITs, net of amounts reallowed to participating broker-dealers of $5.3 million for the year ended December 31, 2022 compared to 2021.

Compensation and Benefits. The increase in salaries and benefits was primarily driven by (i) the expansion of our strategy and relationship management teams to support global fundraising, (ii) the expansion of our business operations teams to support the growth of our business and other strategic initiatives and (iii) higher incentive compensation. Average headcount for the year-to-date period increased by 35% to 1,252 operations management professionals from 925 professionals in 2021, including 137 professionals from the Black Creek Acquisition, including Ares Wealth Management Solutions, LLC (“AWMS”), the Landmark Acquisition and the Infrastructure Debt Acquisition.

The Infrastructure Debt Acquisition that closed in the first quarter of 2022 has contributed $1.6 million in recurring employment related costs for the year ended December 31, 2022. The increase in salaries and benefits for the year ending December 31, 2022 included $31.0 million from the first two quarters of 2022 related to the Landmark Acquisition and Black Creek Acquisition which did not have comparable results as the transactions closed in June 2021 and July 2021, respectively.

The increase in salaries and benefits was further driven by higher employee commission expense in connection with the sale and distribution of fund shares in our non-traded REITs and private placements of our exchange programs. In connection with the full-year impact following the Black Creek Acquisition, employee commission expense contributed to an increase of $13.1 million for the year ended December 31, 2022 when compared to 2021. The increase was partially offset by our engagement of a third party subject matter expert to support the reorganization of our income tax compliance function, which reduced salaries and benefits by $4.9 million for the year ended December 31, 2022, leading to a corresponding increase in general, administrative and other expenses. The impact of this reorganization is expected to continue in future periods.

General, Administrative and Other Expenses. The increase in general, administrative and other expenses for the year ended December 31, 2022 compared to 2021 was primarily attributable to our strategic acquisitions and activity from AWMS. The Infrastructure Debt Acquisition that closed in the first quarter of 2022 has contributed general, administrative and other expenses of $0.3 million for the year ended December 31, 2022. The increase in general, administrative and other expenses for the year ending December 31, 2022 included $7.6 million from the first two quarters of 2022 related to the Landmark Acquisition and Black Creek Acquisition which did not have comparable results as the transactions closed in June 2021 and July 2021, respectively. AWMS facilitates product development, distribution, marketing and client management activities to support investment offerings in the global wealth management channel. As we build out our retail distribution infrastructure and capabilities to support prospective sales and AUM growth, we expect marketing and distribution expenses, including travel, to increase in future periods.

Excluding the impact from the acquisitions, certain expenses have also increased during the current year to support the growing headcount. Occupancy costs, information services and information technology costs increased by $9.0 million for the year ended December 31, 2022 compared to 2021. Additionally, professional service fees have increased by $19.1 million for the year ended December 31, 2022, primarily due to recruiting fees to support the expanding platform and to the reorganization of our income tax compliance function.

Other operating expenses, most notably travel, marketing sponsorships and certain fringe benefits, collectively increased by $15.2 million for the year ended December 31, 2022 compared to 2021 as travel, marketing and company events have returned to pre-pandemic levels.

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Realized Income:

The following table presents the components of the OMG’s RI ($ in thousands):

[[GREPCENT_TABLE]]
[["","","","","","Year ended December 31,","","Favorable (Unfavorable)"],["","","","","","","","","","2022","","2021","","$ Change","","% Change"],["Fee Related Earnings","","","","","","","","","$","(447,884)","","","$","(318,892)","","","$","(128,992)","","","(40)%"],["Investment loss\u2014realized","","","","","","","","","(37)","","","\u2014","","","(37)","","","NM"],["Interest and other investment income (loss)\u2014realized","","","","","","","","","(1,588)","","","226","","","(1,814)","","","NM"],["Interest expense","","","","","","","","","(684)","","","(536)","","","(148)","","","(28)"],["Realized net investment loss","","","","","","","","","(2,309)","","","(310)","","","(1,999)","","","NM"],["Realized Income","","","","","","","","","$","(450,193)","","","$","(319,202)","","","(130,991)","","","(41)"]]
[[/GREPCENT_TABLE]]

Liquidity and Capital Resources

Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. Management believes that the Company is well-positioned and its liquidity will continue to be sufficient for its foreseeable working capital needs, contractual obligations, dividend payments, pending acquisitions and strategic initiatives.

Sources and Uses of Liquidity

Our sources of liquidity are (1) cash on hand, (2) net working capital, (3) cash from operations, including management fees and fee related performance revenues, which are collected monthly, quarterly or semi-annually, and net realized performance income, which may be unpredictable as to amount and timing, (4) fund distributions related to our investments that are unpredictable as to amount and timing and (5) net borrowing from the Credit Facility. As of December 31, 2022, our cash and cash equivalents were $390.0 million, and we had $700.0 million borrowings outstanding under our Credit Facility. Our ability to draw from the Credit Facility is subject to a leverage and other covenants. We remain in compliance with all covenants as of December 31, 2022. We believe that these sources of liquidity will be sufficient to fund our working capital requirements and to meet our commitments in the ordinary course of business and under the current market conditions for the foreseeable future. Cash flows from management fees may be impacted by a slowdown or declines in deployment, declines or write downs in valuations, or a slowdown or negatively impacted fundraising. In addition, management fees may be subject to deferral and fee related performance revenues may be subject to hold backs. Declines or delays and transaction activity may impact our fund distributions and net realized performance income which could adversely impact our cash flows and liquidity. Market conditions may make it difficult to extend the maturity or refinance our existing indebtedness or obtain new indebtedness with similar terms.

We expect that our primary liquidity needs will continue to be to (1) provide capital to facilitate the growth of our existing investment management businesses, (2) fund our investment commitments, (3) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management businesses as well as other strategic growth initiatives, (4) pay operating expenses, including cash compensation to our employees, and make payments under the tax receivable agreement (“TRA”), (5) fund capital expenditures, (6) service our debt, (7) pay income taxes, (8) make dividend payments to our Class A and non-voting common stockholders in accordance with our dividend policy and (9) pay distributions to AOG unitholders.

In the normal course of business, we expect to pay dividends to our Class A and non-voting common stockholders that are aligned with our expected fee related earnings after an allocation of current taxes paid. For the purposes of determining this amount, we allocate the current taxes paid to FRE and to realized incentive and investment income in a manner that may be disproportionate to earnings generated by these metrics, and the actual taxes paid on these metrics should they be considered separately. Additionally, our methodology uses the tax benefits from certain expenses that are not included in these non-GAAP metrics, such as equity-based compensation from the vesting of restricted units and the exercise of stock options and from the amortization of intangible assets, among others. We allocate the taxes by multiplying the statutory tax rate currently in effect by our realized performance and net investment income and removing this amount from total current taxes. The remaining current tax paid is the amount that we allocate to FRE. We use this method to allocate the current provision for income taxes to approximate the amount of cash that is available to pay dividends to our stockholders. If cash flows from operations were insufficient to fund dividends over a sustained period of time, we expect that we would suspend or reduce paying such dividends. In addition, there is no assurance that dividends would continue at the current levels or at all.

Our ability to obtain debt financing and complete stock offerings provides us with additional sources of liquidity. For

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further discussion of financing transactions occurring in the current period, see “Cash Flows” within this section and “Note 7. Debt” and “Note 14. Equity and Redeemable Interest” within our consolidated financial statements included in this Annual Report on Form 10-K.

Our consolidated financial statements reflect the cash flows of our operating businesses as well as those of our Consolidated Funds. The assets of our Consolidated Funds, on a gross basis, are significantly larger than the assets of our operating businesses and therefore have a substantial effect on our reported cash flows. The primary cash flow activities of our Consolidated Funds include: (1) raising capital from third-party investors, which is reflected as non-controlling interests of our Consolidated Funds, (2) financing certain investments by issuing debt, (3) purchasing and selling investment securities, (4) generating cash through the realization of certain investments, (5) collecting interest and dividend income and (6) distributing cash to investors. Our Consolidated Funds are generally accounted for as investment companies under GAAP; therefore, the character and classification of all Consolidated Fund transactions are presented as cash flows from operations. Liquidity available at our Consolidated Funds is not available for corporate liquidity needs, and debt of the Consolidated Funds is non–recourse to the Company except to the extent of the Company’s investment in the fund.

Cash Flows

We consolidate funds where we are deemed to hold a controlling interest. The Consolidated Funds are not necessarily the same entities in each year presented due to changes in ownership, changes in limited partners’ rights and the creation or termination of funds. The consolidation of these funds had no effect on cash flows attributable to us for the periods presented. As such, we evaluate the activity of the Consolidated Funds and the eliminations resulting from consolidation separately. The following tables and discussion summarize our consolidated statements of cash flows by activities attributable to the Company and to our Consolidated Funds. For more details on the activity of the Company and Consolidated Funds, refer to “Note 16. Consolidation” within our consolidated financial statements included in this Annual Report on Form 10-K.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["($ in thousands)","2022","","2021"],["Net cash provided by operating activities","$","632,968","","","$","300,755"],["Net cash used in the Consolidated Funds\u2019 operating activities, net of eliminations","(1,367,080)","","","(2,896,800)"],["Net cash used in operating activities","(734,112)","","","(2,596,045)"],["Net cash used in the Company\u2019s investing activities","(337,379)","","","(1,084,633)"],["Net cash provided by (used in) the Company\u2019s financing activities","(238,500)","","","600,698"],["Net cash provided by the Consolidated Funds\u2019 financing activities, net of eliminations","1,366,563","","","2,902,927"],["Net cash provided by financing activities","1,128,063","","","3,503,625"],["Effect of exchange rate changes","(10,240)","","","(19,104)"],["Net change in cash and cash equivalents","$","46,332","","","$","(196,157)"]]
[[/GREPCENT_TABLE]]

Operating Activities

In the table below cash flows from operations have been summarized to present (i) cash generated from our core operating activities, primarily consisting of profits generated principally from management fees and fee related performance revenues after covering for operating expenses and fee related performance compensation, (ii) net realized performance income and (iii) net cash from investment related activities including purchases, sales and net realized investment income. We generated meaningful cash flow from operations in each period presented.

[[GREPCENT_TABLE]]
[["","Year ended December 31,","","Favorable (Unfavorable)"],["","2022","","2021","","$ Change","","% Change"],["Core operating activities","$","708,039","","","$","537,141","","","$","170,898","","","32%"],["Net realized performance income","161,141","","","19,421","","","141,720","","","NM"],["Net cash used in investment related activities","(236,212)","","","(255,807)","","","19,595","","","(8)"],["Net cash provided by operating activities","$","632,968","","","$","300,755","","","332,213","","","110"]]
[[/GREPCENT_TABLE]]

Cash generated from our core operating activities continues to increase as a result of growing fee revenues and sustained profitability. Cash generated from our core operating activities for the year ended December 31, 2022 was partially reduced by settlement of certain contingent obligations pursuant to the purchase agreement with Black Creek. Such contingent obligations included (i) 50% of the incentive fees realized for the non-traded REITs during the year ended December 31, 2021 that were paid to the sellers and (ii) contingent payment to certain senior professionals and advisors upon the achievement certain revenue targets during the year. Net realized performance income represents a source of cash and includes incentive fees

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that are realized annually at the end of the measurement period, which is typically at the end of the calendar year. Cash from these realizations are generally received in the period subsequent to the measurement period. Our incentive fee realizations were higher in the fourth quarter of 2021 compared to the fourth quarter of 2020, which resulted in an increase in cash payments received over the comparative period. Net cash used in investment related activities primarily represents net purchases associated with funding capital commitments in our investment portfolio, which represent a use of cash. Our capital commitments continue to increase with our growing assets under management. Our investment related activities may fluctuate depending on timing of capital investments and distributions of each fund year to year. For further discussion of our capital commitments, see “Note 9. Commitments and Contingencies,” within our consolidated financial statements included in this Annual Report on Form 10-K.

Net cash used in the Consolidated Funds’ operating activities continues to be principally attributable to net purchases of investment securities by recently launched funds during both periods. Net cash used in the Consolidated Funds’ operating activities for the year ended December 31, 2021 included the purchase of U.S. treasury securities following the initial public offering of our SPAC.

Our working capital needs are generally rising to support the growth of our business, while the capital requirements needed to support fund-related activities vary based upon the specific investment activities being conducted during such period.

Investing Activities

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021"],["Purchase of furniture, equipment and leasehold improvements, net of disposals","$","(35,796)","","","$","(27,226)"],["Acquisitions, net of cash acquired","(301,583)","","","(1,057,407)"],["Net cash used in investing activities","$","(337,379)","","","$","(1,084,633)"]]
[[/GREPCENT_TABLE]]

Net cash used in the Company’s investing activities was principally composed of cash used to complete the Infrastructure Debt Acquisition in the current year and cash used to complete the Black Creek Acquisition and Landmark Acquisition in the prior year. We also used cash to purchase furniture, fixtures, equipment and leasehold improvements during both years to support the growth in our staffing levels and to expand our global presence.

Financing Activities

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021"],["Net proceeds from issuance of Class A and non-voting common stock","$","\u2014","","","$","827,430"],["Net borrowings of Credit Facility","285,000","","","415,000"],["Proceeds from issuance of senior and subordinated notes","488,915","","","450,000"],["Class A and non-voting common stock dividends","(447,634)","","","(324,306)"],["AOG unitholder distributions","(388,730)","","","(269,200)"],["Series A Preferred Stock dividends","\u2014","","","(10,850)"],["Redemption of Series A Preferred Stock","\u2014","","","(310,000)"],["Stock option exercises","21,205","","","37,216"],["Taxes paid related to net share settlement of equity awards","(201,311)","","","(226,101)"],["Other financing activities","4,055","","","11,509"],["Net cash provided by (used in) the Company\u2019s financing activities","$","(238,500)","","","$","600,698"]]
[[/GREPCENT_TABLE]]

As a result of generating higher fee related earnings, we increased the level of dividends paid to a growing shareholder base of Class A and non-voting common stockholders and distributions paid to AOG unitholders, resulting in net cash used in the Company’s financing activities for the year ended December 31, 2022. During the year ended December 31, 2022, we raised cash through the issuance of the 2052 Senior Notes primarily to fund the Infrastructure Debt Acquisition.

In connection with the vesting of restricted units that are granted to our employees under the Equity Incentive Plan, we withhold shares equal to the fair value of our employee’s withholding tax liabilities and pay the taxes on their behalf. This use of cash decreased from the prior year primarily as a result of a lower number of restricted units that vested in the current year, partially offset by our higher stock price, which is the basis on which employee compensation is recognized. The net settlement of shares minimizes the dilutive impact of our Equity Incentive Plan as fewer shares are issued upon vesting. For the years ended December 31, 2022 and 2021, we retained and did not issue 2.4 million shares and 3.8 million shares, respectively.

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Net cash provided by the Company’s financing activities for the year ended December 31, 2021 was principally composed of net proceeds from the public offering of Class A common stock, the private offering of Class A common stock and non-voting common stock to SMBC and the issuance of the 2051 Subordinated Notes. These proceeds were used primarily to fund the Black Creek Acquisition, the Landmark Acquisition and redeem the Series A Preferred Stock.

[[GREPCENT_TABLE]]
[["","Year ended December 31,"],["","2022","","2021"],["Contributions from redeemable and non-controlling interests in Consolidated Funds, net of eliminations","$","549,396","","","$","1,033,644"],["Distributions to non-controlling interests in Consolidated Funds, net of eliminations","(178,291)","","","(98,897)"],["Borrowings under loan obligations by Consolidated Funds","1,140,680","","","2,048,932"],["Repayments under loan obligations by Consolidated Funds","(145,222)","","","(80,752)"],["Net cash provided by the Consolidated Funds\u2019 financing activities","$","1,366,563","","","$","2,902,927"]]
[[/GREPCENT_TABLE]]

Net cash provided by the Consolidated Funds’ financing activities for the year ended December 31, 2022 was primarily attributable to the borrowings of two newly issued CLOs.

Net cash provided by the Consolidated Funds’ financing activities for the year ended December 31, 2021 was principally attributable to contributions from shareholders in the initial public offering of our SPAC and to the borrowings of three newly issued CLOs.

Capital Resources

We intend to use a portion of our available liquidity to pay cash dividends to our Class A and non-voting common stockholders on a quarterly basis in accordance with our dividend policy. Our ability to make cash dividends is dependent on a myriad of factors, including among others: general economic and business conditions; our strategic plans and prospects; our business and investment opportunities; timing of capital calls by our funds in support of our commitments; our financial condition and operating results; working capital requirements and other anticipated cash needs; contractual restrictions and obligations; legal, tax and regulatory restrictions; restrictions on the payment of distributions by our subsidiaries to us and other relevant factors.

We are required to maintain minimum net capital balances for regulatory purposes for our broker-dealer entities. These net capital requirements are met in part by retaining cash, cash equivalents and investment securities. Additionally, certain of our subsidiaries operating outside the U.S. are also subject to capital adequacy requirements in each of the applicable jurisdictions. As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions. As of December 31, 2022, we were required to maintain approximately $51.9 million in net assets within these subsidiaries to meet regulatory net capital and capital adequacy requirements. We remain in compliance with all regulatory requirements.

Holders of AOG Units, subject to the terms of the exchange agreement, may exchange their AOG Units for shares of our Class A common stock on a one-for-one basis. These exchanges are expected to result in increases in the tax basis of the tangible and intangible assets of AMC that otherwise would not have been available. These increases in tax basis may increase depreciation and amortization for U.S. income tax purposes and thereby reduce the amount of tax that we would otherwise be required to pay in the future. We entered into the TRA that provides payment to the TRA recipients of 85% of the amount of actual cash savings, if any, in U.S. federal, state, local and foreign income tax or franchise tax that we actually realize as a result of these increases in tax basis and of certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA and interest accrued thereon. Future payments under the TRA in respect of subsequent exchanges are expected to be substantial. The TRA liability balance was $118.5 million and $100.5 million as of December 31, 2022 and December 31, 2021, respectively. In 2022, there were exchanges of approximately 1.4 million of AOG Units for shares of our Class A common stock, and we recognized deferred tax benefits of $22.8 million, which increased additional paid in capital by $3.5 million and our TRA liability by $19.3 million.

For a discussion of our debt obligations, including the debt obligations of our consolidated funds, see “Note 7. Debt,” within our consolidated financial statements included in this Annual Report on Form 10-K.

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Series A Preferred Stock

The Series A Preferred Stock was redeemed in full on June 30, 2021. For a discussion of our equity, including the redemption of our Series A Preferred Stock, see “Note 14. Equity and Redeemable Interest” within our consolidated financial statements included in this Annual Report on Form 10-K.

Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with GAAP. In applying many of these accounting principles, we need to make assumptions, estimates or judgments that affect the reported amounts of assets, liabilities, revenues and expenses in our consolidated financial statements. We base our estimates and judgments on historical experience and other assumptions that we believe are reasonable under the circumstances. These assumptions, estimates or judgments, however, are both subjective and subject to change, and actual results may differ from our assumptions and estimates. If actual amounts are ultimately different from our estimates, the revisions are included in our results of operations for the period in which the actual amounts become known. We believe the following critical accounting policies could potentially produce materially different results if we were to change the underlying assumptions, estimates or judgments. See “—Components of Consolidated Results of Operations” and “Note 2. Summary of Significant Accounting Policies,” within our consolidated financial statements included in this Annual Report on Form 10-K for a summary of our significant accounting policies.

Principles of Consolidation

We consolidate entities based on either a variable interest model or voting interest model. As such, for entities that are determined to be variable interest entities (“VIEs”), we consolidate those entities where we have both significant economics and the power to direct the activities of the entity that impact economic performance. For limited partnerships and similar entities evaluated under the voting interest model, we do not consolidate those entities for which we act as the general partner unless we hold a majority voting interest.

The consolidation guidance requires qualitative and quantitative analysis to determine whether our involvement, through holding interests directly or indirectly in the entity or contractually through other variable interests (e.g., management and performance related income), would give us a controlling financial interest. This analysis requires judgment. These judgments include: (1) determining whether the equity investment at risk is sufficient to permit the entity to finance its activities without additional subordinated financial support, (2) evaluating whether the equity holders, as a group, can make decisions that have a significant effect on the success of the entity, (3) determining whether two or more parties’ equity interests should be aggregated, (4) determining whether the equity investors have proportionate voting rights to their obligations to absorb losses or rights to receive returns from an entity and (5) evaluating the nature of relationships and activities of the parties involved in determining which party within a related-party group is most closely associated with a VIE and hence would be deemed the primary beneficiary.

The creditors of the consolidated VIEs do not have recourse to us other than to the assets of the respective consolidated VIEs. The assets and liabilities of the consolidated VIEs are comprised primarily of investments and loans payable, respectively.

Fair Value Measurement

GAAP establishes a hierarchical disclosure framework prioritizing the inputs used in measuring financial instruments at fair value into three levels based on their market observability. Market price observability is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Financial instruments with readily available quoted prices from an active market or where fair value can be measured based on actively quoted prices generally have a higher degree of market price observability and a lesser degree of judgment inherent in measuring fair value.

Financial assets and liabilities measured and reported at fair value are classified as follows:

•Level I—Quoted prices in active markets for identical instruments.

•Level II—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in inactive markets; and model-derived valuations with directly or indirectly observable significant inputs. Level II inputs include prices in markets with few transactions, non-current prices, prices for which little public information exists or prices that vary substantially over time or among brokered market makers. Other inputs include interest rate, yield curve, volatility, prepayment risk, loss severity, credit risk and default rate.

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•Level III—Valuations that rely on one or more significant unobservable inputs. These inputs reflect the Company’s assessment of the assumptions that market participants would use to value the instrument based on the best information available.

In some instances, an instrument may fall into multiple levels of the fair value hierarchy. In such instances, the instrument’s level within the fair value hierarchy is based on the lowest of the three levels (with Level III being the lowest) that is significant to the fair value measurement. Our assessment of the significance of an input requires judgment and considers factors specific to the instrument. See “Note 6. Fair Value,” within our consolidated financial statements included in this Annual Report on Form 10-K for a summary of our valuation of investments and other financial instruments by fair value hierarchy levels.

Acquisitions

Management’s determination of fair value of assets acquired and liabilities assumed at the acquisition date is based on the best information available in the circumstances and may incorporate management’s own assumptions and involve a significant degree of judgment. We use our best estimates and assumptions to accurately assign fair value to the tangible and identifiable intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. For business combinations accounted for under the acquisition method, the purchase consideration, including the fair value of certain elements of contingent consideration as of the acquisition date, in excess of the fair value of net assets acquired is recorded as goodwill. Conversely, any excess of the fair value of the net assets acquired over the purchase consideration is recognized as a bargain purchase gain. Examples of critical estimates in valuing certain of the intangible assets we have acquired include, but are not limited to, future expected cash inflows and outflows, future fundraising assumptions, expected useful lives, discount rates and income tax rates. Our estimates for future cash flows are based on historical data, various internal estimates and certain external sources, and are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying assets acquired. We estimate the useful lives of the intangible assets based on the expected period over which we anticipate generating economic benefit from the asset. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Unanticipated events and circumstances may occur that could affect the accuracy or validity of such assumptions, estimates or actual results.

Impairment of Intangible Assets

We evaluate intangible assets for impairment annually, or if certain events occur or circumstances change indicating that the carrying amount of the intangible asset may not be recoverable. We evaluate impairment by comparing the estimated undiscounted cash flows attributable to the intangible asset being evaluated with its carrying amount. If an impairment is determined to exist, we accelerate amortization expense so that the carrying amount represents fair value. We estimate fair value using a discounted future cash flow methodology. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our strategic plans. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Additionally, future estimates may differ materially from current estimates and assumptions.

Income Taxes

The Company is taxed as corporation for U.S. federal and state income tax purposes. We use the liability method of accounting for deferred income taxes pursuant to GAAP. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying value of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the statutory tax rates expected to be applied in the periods in which those temporary differences are settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change. A valuation allowance is recorded on our net deferred tax assets when it is more likely than not that such assets will not be realized or when timing is unknown. When evaluating the realizability of our deferred tax assets, all evidence, both positive and negative, is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies and expectations of future earnings.

Under GAAP, the amount of tax benefit to be recognized is the amount of benefit that is more likely than not to be sustained upon examination. We analyze our tax filing positions in all of the U.S. federal, state, local and foreign tax jurisdictions where we are required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, we determine that uncertainties in tax positions exist, a liability is established. We recognize accrued interest and penalties related to unrecognized tax positions within interest expense and general, administrative and other expenses, respectively, within the Consolidated Statements of Operations.

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Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense and in evaluating tax positions, including evaluating uncertainties under GAAP. We review our tax positions quarterly and adjust our tax balances as new legislation is passed or new information becomes available.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements and their impact on the Company can be found in “Note 2. Summary of Significant Accounting Policies,” within our consolidated financial statements included in this Annual Report on Form 10-K.

Contractual Obligations, Commitments and Contingencies and Other Arrangements

In the normal course of business, we enter into contractual obligations that may require future cash payments. We may also engage in off-balance sheet arrangements, including transactions in derivatives, guarantees, capital commitments to funds, indemnifications and potential contingent repayment obligations. The following table sets forth our contractual obligations and capital commitments of the Company and of the Consolidated Funds as of December 31, 2022 ($ in thousands):

[[GREPCENT_TABLE]]
[["","","Less than 1 year","","1 - 3 years","","4 - 5 years","","Thereafter","","Total"],["The Company:"],["Operating lease obligations(1)","","$","46,674","","","$","86,240","","","$","70,123","","","$","179,894","","","$","382,931"],["Debt obligations payable(2)","","\u2014","","","248,693","","","700,000","","","1,325,161","","","2,273,854"],["Finance lease obligations","","167","","","173","","","\u2014","","","\u2014","","","340"],["Interest obligations on debt(3)","","68,766","","","127,531","","","110,762","","","915,883","","","1,222,942"],["Other long-term obligations(4)","","2,685","","","674","","","\u2014","","","\u2014","","","3,359"],["Capital commitments(5)","","677,912","","","\u2014","","","\u2014","","","\u2014","","","677,912"],["Subtotal","","796,204","","","463,311","","","880,885","","","2,420,938","","","4,561,338"],["Consolidated Funds:"],["Debt obligations payable","","93,046","","","75,000","","","921,378","","","10,095,859","","","11,185,283"],["Interest obligations on debt(3)","","536,391","","","1,057,933","","","1,013,214","","","2,105,502","","","4,713,040"],["Capital commitments of Consolidated Funds(5)","","1,178,314","","","\u2014","","","\u2014","","","\u2014","","","1,178,314"],["","","$","2,603,955","","","$","1,596,244","","","$","2,815,477","","","$","14,622,299","","","$","21,637,975"]]
[[/GREPCENT_TABLE]]

(1)The table includes future minimum commitments for our operating leases, including leases that have been executed but have not yet commenced. Office space, computer and communication equipment are leased under agreements with expirations ranging from one-year contracts to lease commitments through 2036. Rent expense includes only base contractual rent.

(2)Debt obligations include $1,150.0 million of senior notes and $450.0 million of subordinated notes, net of unamortized discount, and outstanding balance under the Credit Facility as of December 31, 2022.

(3)Interest obligations reflect future interest payments on outstanding debt obligations with stated interest rates for fixed rate debt and at the prevailing rate in effect as of the reporting date for floating rate debt.

(4)Represents payment obligations with respect to long-term service contracts entered into by the Company.

(5)Represents commitments to fund certain investments. These amounts are generally due on demand and are therefore presented as obligations payable in less than one-year.

We entered into a TRA with the TRA Recipients that requires us to pay them 85% of any cash tax savings, if any, realized by AMC from any step-up in tax basis resulting from an exchange of AOG Units for shares of our Class A common stock or, at our option, for cash. Because the timing of amounts to be paid under the TRA cannot be determined, this contractual commitment has not been presented in the table above. The cash tax savings, if any, achieved may not ensure that we have sufficient cash available to pay this liability, and we may be required to incur additional debt to satisfy this liability.

For further discussion of our capital commitments, indemnification arrangements and contingent obligations, see “Note 9. Commitments and Contingencies,” within our consolidated financial statements included in this Annual Report on Form 10-K.

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