Ares Management (ARES) Rating (From NEUTRAL) OUTPERFORM Price (10-May-17, US$) 18.10 UPGRADE RATING Target Price (US$) 23.00 52-Week Price Range (US$) 23.25 - 12.25

11 May 2017 Americas/United States Equity Research Asset Managers

Ares Management (ARES) Rating (from NEUTRAL) OUTPERFORM Price (10-May-17, US$) 18.10 UPGRADE RATING Target price (US$) 23.00 52-week price range (US$) 23.25 - 12.25

Market cap (US$ m) 3,832.14 Upgrading to Outperform After CFO Meetings; Target price is for 12 months. Estimate Record 2Q17 ENI & Solid DE in 2017 Research Analysts Craig Siegenthaler, CFA Ares is a ~$100B alternative asset manager with a large global direct origination 212 325 3104 [email protected] (credit) business that could benefit directly from higher rates/stronger economic Ari Ghosh activity. While the float is small at ~9% of the market value, this is a positive 212 325 7113 signal, as the partners/senior mgmt own ~72%, have been buyers, and have [email protected] never sold stock before. We hosted meetings with ARES's CFO on May 9/10. Jordan Friedlander 212 325 3184 ■ High Growth: We think Ares's business model is at an earlier stage in its [email protected] growth cycle with significant opportunities to expand its mature business (direct origination) and scale its smaller businesses (private equity, real estate, infrastructure, mezzanine). ■ Management fee heavy profits & higher EPS visibility: FRE contributes ~50% of Ares's earnings versus the alt peer group of ~35% on average. This dampens EPS volatility for ARES, and should support a higher valuation. 78% of its AuM has a duration of three years or longer, which enhances the stock's EPS visibility. Also, we expect a large fee related earnings (FRE) ramp over the ST given the ACAS acquisition and the fee step-up from ACOF V (partial impact remains in 2Q17). ■ Undervalued after recent underperformance: The ARES stock just traded down by ~20% from its February highs. Additionally, Ares is arguably the most attractive alternative under sum-of-the-parts valuation given its high contribution of FRE. It could also convert to a C-Corp eventually with or without corporate tax reform (link to our C-Corp Conversion Research Note). Key risks to the stock include future performance and Ares’s ability to put capital to work with both US equity and credit markets generally expensive. Financial and valuation metrics

Year 12/16A 12/17E 12/18E 12/19E EPS (CS adj.) (US$) 1.42 1.89 2.16 2.44 . Prev. EPS (US$) - - - - P/E (x) 12.8 9.6 8.4 7.4 Relative P/E (%) 64 53 52 50 Revenue (US$ m) 0.0 0.0 0.0 0.0 Pre provision Income (US$ m) 357 477 552 628 Book Value (US$) n.m n.m n.m n.m Tangible book value (US$) n.m n.m n.m n.m ROE (%) 0.0 0.0 0.0 0.0 ROA (%) 0.02 0.02 0.02 0.02

Book Value (Next Qtr., US$) 7744.41 Tangible BV (Next Qtr) (US$) 7744.41 P/BV (x) (Next Qtr.) 0.0 P/TBV (Next Qtr) (x) 0.0 Dividend (Next Qtr) (US$) 1.40 Shares Outstanding (m) 212 Dividend yield (%) 5.0 Source: Company data, Thomson Reuters, Credit Suisse estimates

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

11 May 2017

■ Estimates/TP: Estimate 2018/2019 ENI of $2.16/$2.44 vs. $1.89/$2.03 for consensus. Our 12-month TP of $23 represents a 31% total return (includes dividends) compares to 23% for US alt peers. We estimate ARES will generate record 2Q17 ENI due to the successful IPO of Floor and Decor, and will also report stronger DE in 2Q17-4Q17 (vs. 1Q) given expected realizations in Clayton Williams.

■ 2Q17 should be Ares's strongest ENI quarter ever: While Ares reported a soft 1Q17 versus market expectations, we estimate that 2Q17 could be Ares strongest ENI quarter ever, and a solid distributable earnings quarter too. On the 1Q17 earnings call, mgmt. guided to over $80M of unrealized net performance fees and incentive income from the IPOs of one its portfolio companies (Floor and Decor). Additionally, while we expect this to be one of Ares's largest ENI quarters ever, we also have a strong DE projection for 2Q/3Q too. Ares's Clayton Williams deal closed in 2Q17 which should add 6cents to DE in 2Q17 and we estimate an incremental 10cents over the rest of 2017. Also, we expect fundraising to pick-up y/y, with the larger contributors including Ares New Junior Direct Lending Fund (could have final close by year end, $2.5B target), US RE Value Add (mgmt. announced $400M close in 2Q), Ares next European Direct Lending fund (est. 2H17 first raise), Power & Energy III (est. final close in 2Q), CLOs (mgmt. announced $800M close for 2Q) and SMA inflows. Lastly, we continue to think the investment environment will be challenging, thus Ares will be more patient/strategic in deploying capital.

Figure 1: Last 3Mo Total Return (Including Dividend Distribution) Figure 2: Three Year AuM Growth (2014Q1-2017Q1)

20% 40% 17% 35% 15% 30% 35% 11% 30% 10% 24% 6% 20% 5% 2% 2% 16% 10% 0% 0% -5%

-10% -10% -19% -12% -15% -20% APO CG KKR OAK BX ARES BX KKR ARES APO OAK CG

Source: Credit Suisse Asset Manager Research, Data as of 05/09/2017. Source: Credit Suisse Asset Manager Research, CG negative AuM growth due to large HF redemptions (CG HF AuM is now zero).

1) High Growth - AuM & FRE

■ Estimate robust AuM growth over the next five years; Ares's business model is still at an earlier stage in its growth cycle: Ares is one of the fastest growing alternative asset managers in the industry with a ten year CAGR of 23%. Specifically, Ares grew its AuM base from $18B in 2007 to $100B of AuM currently. The main driver of Ares's AuM growth has been its credit business ($64B of AuM), which has benefitted directly from the de-leveraging of the US and EU banking systems, in addition to the high demand for yield given the low rate/return backdrop in the US, EU, and Japan. We think there is significant upside to Ares current AuM, as the company has established quality franchises across three of the four main alternative asset segments – credit, private equity and real estate. Additionally, two of Ares's segments are less mature and have just started to ramp over the past five years (private equity and real estate franchises are younger businesses, see Figure 3). We believe Ares will continue to grow all three business segments and diversify its AuM base but also look for ARES to further scale its private equity and real estate businesses.

Ares Management (ARES) 2 11 May 2017

Figure 3: Ares's AuM ($,B): Robust Growth Over the Past Ten Years – 23% CAGR

$110 $100 $100 $97 $94 10 $90 10 10 $82 $80 $74 11 25 21 25 $70 9 $60 10 $60 2 10 $49 10 $50 1 $42 7 $40 $34 8 65 $30 7 61 62 60 $25 55 48 $20 $18 6 41 4 34 $12 27 $10 3 19 14 9 $0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Q1

Credit Private Equity Real Estate

Source: Credit Suisse Asset Manager Research, Company data

■ "One-Stop-Shop" Platform: Ares capital raising has benefited from an industry trend of investors consolidating manager relationships with ~40% of Ares's investors now invested in more than one fund (up from 23% five years ago). We view Ares's three segments (credit, private equity, real estate) as complimentary for its global distribution effort, and believe that the company will continue to benefit from the trend of manager consolidation – and could see some of its investors in its larger credit platform cross into its next private equity and real estate fund raises. We note that Ares’s PE business has already been successfully scaling, with the current vintage private equity fund (ACOF V) adding significant AuM over the last vintage (see Figure 3). Additionally, we believe Ares's AuM growth will come from its ability to innovate products and adapt to client demand, continuing to build out its "one-stop-shop" platform.

Figure 4: Ares's Main Private Equity Fund AuM (by Series / Vintage, $B)

$8 $7.9 $7

$5 $4.7 $4

$3 $3.5

$2 $2.1 $1 $0.8 $0 ACOF I ACOF II ACOF III ACOF IV ACOF V (2003) (2006) (2008) (2012) (2016)

Source: Credit Suisse Asset Manager Research, Company data

Ares Management (ARES) 3 11 May 2017

Long-term, Locked-up Capital

Figure 5: Ares's AuM by Duration: Ares's AuM Base Is Long-Term

16% 16% Permanent Capital 6% 10 or more years 15% 7 to 9 years 3 to 6 years Fewer than 3 years 27% Managed Accounts 20%

Source: Credit Suisse Asset Manager Research, Company data

■ Large Proportion of Long-Term, Locked-Up Capital Allows for Strategic/Patient Capital Deployment: We believe Ares's high mix of long-term, locked-up capital allows the company to exhibit patience and be more strategic with the timing of its investments. Ares's current business model is titled to the credit vertical, and as we estimate the US is in the later innings of the credit cycle, we also think the cycle could be extended given an expected re-acceleration in nominal GDP growth in the US in 2017/18. This is driven by the benefit of potentially lower taxes, de-regulation, and higher rates/inflation, which are three of the key underpinnings of President Trump's platform. Of Ares AuM, 78% has a duration greater than three years and 51% has a duration greater than seven years, which we think enables Ares to be more measured in how it deploys capital. It also provides stronger earnings visibility and could allow for counter-cycle earnings drivers (capital deployment) to accelerate in the next severe market correction.

Ares Management (ARES) 4 11 May 2017

2) Management Fee Rich Income Statement

Figure 6: Fee Revenue Breakdown: Management Fee Driven Business Model

Source: Credit Suisse Asset Manager Research, Company data

■ Management Fee Rich Income Statement => High Quality Earnings: Ares has higher quality earnings than its performance fee-heavy alternative peers. With the volatility of earnings being a key concern for investors in the alternative asset management firms, we think the more consistent level of earnings and higher predictability should allow for the ARES stock to trade at a premium valuation. Ares's FRE accounts for ~50% of earnings vs. the peer group average of ~35%, and project this to continue for 2018, as Ares has a higher revenue contribution from stable management fees, and lower exposure to volatile p-fees than its public competitors (see Figure 7).

Figure 7: Earnings Composition: Ares Has the Largest Proportion of FRE to ENI

Pre-tax FRE as % of Pre-tax ENI (FY 2018 CS Projections) APO ARES BX CG KKR OAK Average FRE % 47% 52% 30% 26% 24% 33% 35%

Source: Credit Suisse Asset Manager Research

Ares Management (ARES) 5 11 May 2017

3) Future Earnings Visibility Strong

Figure 8: $13B of AuM not Yet Earnings Fees (Available Capital)

Capital Available for Future Development $346

$1,614 Capital Available for Deployment for Follow- $655 on Investments

Available Capital Currently in Funds Unlikely to be Drawn (due to leverage $10,278 targets/restrictions) Funds in or Expected to be in Wind- down

Source: Credit Suisse Asset Manager Research, Company data

■ Earnings Visibility => Estimate FRE Ramp in 2017-2019: We expect a large FRE ramp in over the next two years. More specifically, ~$8B of the increase in fee-paying AuM is attributable to ACOF V, which could generate management fees net of the step down in ACOF IV of ~$60M (only 1/3 of fees in 1Q17, with full quarterly impact in 2Q17). The rest of the step-up in fee-paying AuM (~2.5B AuM) is attributable to the acquisition of ACAS (by ARCC closed in 1Q17), which includes two revenue streams – management fees and Part 1 incentive fees. (1) 1.5% mgmt. fee on $3B (in 1Q17 only benefits from half of the step-up in mgmt. fees), and (2) 1.4% Part 1 incentive fees on $3B. Important to note, Ares is currently in the process of rotating the ACAS portfolio, and as this processes unwinds, Part 1 incentive fees will increase, thus we expect the ACAS acquisition to be more accretive in 2H17/1H18. Additionally, Ares has agreed to waive $10M/q of Part 1 fees on the first ten quarters (2Q17 – 3Q19), thus we estimate the ACAS acquisition will add ~$45M of incremental fees, with the step-up in 2H 2019 when the fee waiver is complete. Overall, we project FRE margin expansion in 2H2017, nearing a 30%, and an incremental higher run-rate basis for 2018/19 (FRE margin was 26% in 1Q17).

Figure 9: FRE (per unit): Est. FRE Ramp in 2017

$1.30

$1.20 FRE Ramp in 1H17 $1.24 with ACOF V fees $1.10 turning on and ACAS acquisition closing. $1.00 $1.05

$0.90

$0.80 $0.80 $0.70

$0.60 $0.63 $0.62 $0.50

$0.40

$0.30 2015 2016 2017 2018 2019

Source: Credit Suisse Asset Manager Research

Ares Management (ARES) 6 11 May 2017

Figure 10: Incentive Eligible AuM at Record $55.9B ($,M)

Incentive Generating $11,706

$20,207 To Be Invested $3,743 Not Above Hurdle

$20,243 ARCC Part II Fees Not Above Hurdle

Source: Credit Suisse Asset Manager Research, Company data

■ Incentive Eligible AuM Growth => Accrued Carry Upside: Ares's core earnings base has exhibited robust growth over the past year, with incentive eligible AuM growing 17% y/y to $56B. Even though performance fees are a smaller proportion of Ares total earnings compared with the other alts, we think we have yet to see the true strength of Ares's earnings power – a reacceleration in the economy, coupled with the larger carry eligible AuM base could translate into an incremental increase in incentive income. Ares currently has $36B of AuM not generating performance fees, with $14.7B to be invested in funds already above their respective hurdle rates.

Ares Management (ARES) 7 11 May 2017

4) Our Valuation Methodology

■ Target Price Methodology: We value each of the alternative asset management firms under a blended approach that uses (1) normalized / 5Y forward FCF (DE) and (2) EV to NOPAT. We prefer five year forward EPS which will “normalize” for NT volatility in p- fees (up or down). We use an apples-to-apples cash earnings calculation across the entire asset management vertical to optimize the comparability. Our cash earnings calculation includes equity comp (post IPO), cap-x (small), but removes non-cash D&A. To arrive at our $23 target price, we apply a premium (14x vs. 11x) multiple on Ares's five year forward cash EPS as we believe Ares's EPS will (1) outgrow its competition (earlier stage growth company) and (2) experience less volatility given the large proportion of FRE.

Figure 11: 12-Month TP Methodology: Normalized/Long-Term Cash Earnings-Based Valuation Valuation Method #1 Valuation Method #2 Alternative Asset Managers: Target Price Price to Cash Earnings EV to NOPAT

Total CY2018 Cash Current Target Upside to Return Cash 5Yr Earnings 2017 Ticker Company Name Price Price TP (incl div) Earnings Average Multiple EV/NOPAT Dividend BX Blackstone Group $30 $42 39% 47% $2.64 $2.98 14.0x 12.7x 2.48 MDLY Medley Management Inc. $6 $8 25% 37% $0.64 $0.73 11.0x 14.1x 0.80 CG Carlyle Group LP $18 $23 27% 34% $2.34 $2.27 10.0x 9.0x 1.18 ARES Ares Management LP $18 $23 25% 31% $1.45 $1.63 14.0x 10.8x 1.14 OZM Och Ziff Capital $2 $3 9% 23% $0.35 $0.45 6.0x 8.5x 0.36 OAK Oaktree Capital $45 $52 15% 23% $4.09 $4.32 12.0x 13.5x 3.35 KKR KKR & Co LP $19 $22 16% 20% $1.66 $2.01 11.0x 7.1x 0.68 APO Apollo Global Mgmt $27 $29 5% 11% $2.65 $2.60 11.0x 9.0x 1.66 FSAM Fifth Street Asset Management Inc $5 $3 -26% -15% $0.44 $0.43 8.0x 5.2x 0.50 16% 23% 11.0x 9.0x

Source: Credit Suisse Asset Manager Research, Thomson Reuters, Prices as of 05/10/2017

Sum-of-the-Parts Valuation

■ ARES & APO are two of the more attractive alt stocks under a sum-of-the parts framework: Ares is the cheapest alt under a sum-of-the-parts valuation, as our model leads us to a valuation of $28-29, which implies ~55% upside from the current stock price of $18.30 (see Figure 12). We put the largest multiple (20x) on fee related earnings (FRE) because this is the highest quality earnings (more stable / predictable than performance fee revenue), which supports Ares loftier sum-of-the-parts valuation compared with peers.

Ares Management (ARES) 8 11 May 2017

Figure 12: Ares Is the Cheapest Alt Asset Manager by the Sum-of-the-Parts Valuation Alternative Asset Manager Sum-of-the-Parts Valuation

(December year end, dollars in millions, except per-share data) FY 2018 APO ARES BX CG KKR OAK

Fee Related Earnings Management Fee $1,254 $827 $2,988 $1,191 $994 $797 Advisory Fee ------48 -- -- Transaction/ Other 87 23 159 18 430 -- Fee Revenue $1,340 $850 $3,148 $1,256 $1,423 $797

Base Compensation $384 $422 $1,383 $643 $527 $416 Non-Comp Expense 257 141 424 362 282 143 Total Fee-Related Expense $641 $563 $1,807 $1,005 $809 $560

FRE Op Income $699 $287 $1,341 $251 $615 $238 FRE Margin 52.2% 33.8% 42.6% 20.0% 43.2% 29.8%

Tax Rate 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% FRE After Tax $594 $244 $1,140 $213 $523 $202

Performance Fee Earnings Total Performance Fee Revenue $1,264 $637 $4,372 $1,544 $1,344 $825

Total Performance Comp Expense $543 $442 $1,766 $734 $536 $413

Performance Fee Earnings $721 $195 $2,606 $810 $808 $413 P-Fee Margin 57.1% 30.7% 59.6% 52.5% 60.1% 50.0%

Balance Sheet Cash and equivalents $816 $104 $5,003 $783 $3,268 $1,003 Investment 1,576 653 2,619 1,349 8,403 1,593 Debt Obligation 1,354 488 3,444 1,332 2,000 746 Total Financial Assets, net $1,039 $268 $4,178 $800 $9,671 $1,850

Total Shares 402 216 1,212 332 847 159

FRE/Share $1.48 $1.13 $0.94 $0.64 $0.62 $1.27 P/FRE Ratio 18x 16x 32x 28x 31x 36x

P-Fee/Share $1.79 $0.90 $2.15 $2.44 $0.95 $2.59 P/P-Fee Ratio 15x 20x 14x 7x 20x 17x

Net Financial Assets/Share $2.58 $1.24 $3.45 $2.41 $11.41 $11.60 P/Book Ratio 11x 15x 9x 7x 2x 4x

20x FRE 29.54 22.61 18.81 12.84 12.34 25.34 5x P-Fee 8.97 4.52 10.76 12.19 4.77 12.93 1x Book Value 2.58 1.24 3.45 2.41 11.41 11.60 Sum $41.09 $28.38 $33.01 $27.44 $28.52 $49.86 Upside $13.92 $10.08 $3.02 $9.59 $9.55 $4.86 Upside % 51% 55% 10% 54% 50% 11%

Share Price $27.17 $18.30 $29.99 $17.85 $18.97 $45.00

Source: Credit Suisse Asset Manager Research, Price as of 5/09/2017; $M except per-share data

Ares Management (ARES) 9 11 May 2017

Business Description – Three Key Segments

Figure 13: Ares Business Segment Overview

Ares Management Business Overview Credit Private Equity Real Estate Hedge Fund

AuM $64.1 $25.0 $9.8 $0.0

High Yield Bonds/Syndicated Loans Corporate Private Equity Real Estate Debt Structured Credit U.S. Power & Energy Infrastructure No Current Product Products Real Estate Private Equity Direct Lending Special Situations

Source: Credit Suisse Asset Manager Research, Company data, AuM is in $B

Business Description: Ares Management recently went public in May 2014 (at $19/share) and has $97B of AuM across three business segments – credit, private equity, and real estate (currently no hedge fund segment). The company has a global presence, with offices spanning across the United States, Europe, and Asia.

■ Credit: Ares largest segment is its credit business (~65% of AuM, ~60% of ENI), in which it is one of the market leaders in direct lending and has strong footholds in high yield bonds/syndicated loans and structured credit products. The credit business includes Ares Capital Corp – the largest BDC by market cap and AuM. We believe direct lending is the core driver behind Ares credit business, and the company has created a competitive advantage in this segment given its origination capabilities and large scale. We estimate there is still a significant growth opportunity in the direct lending space, as Ares's 5% market share is still quite low versus the key leaders in most industries. It's important to note that 70% of its credit assets are floating rate, so with increasing rates on the NT horizon, this could lead to increased returns and performance. Additionally, risk adjusted returns could increase – historically, rates increasing usually signifies the economy is strengthening, and thus Ares borrowers would be performing better and as a result Ares would be derisking its portfolio.

■ Private Equity: This business has grown to ~25% of Ares AuM (and ~30% of ENI), with concentrations across corporate private equity, U.S. power & energy infrastructure, and special situations. We think the PE business will continue to be the main contributor to Ares's future net accrued p-fees (currently PE accounts for 2/3 of $185M of net accrued p-fee balance).

■ Real Estate: Ares’s real estate business was established in 2011 and is the smallest business segment (10% of AuM, ~10% of ENI), and focuses in real estate private equity (75%) and real estate debt (25%). In 2012, Ares Real Estate Group formed Ares Commercial Real Estate Corporation (ACRE), which is a REIT that provides financing for middle market commercial businesses. We think Ares could grow its real estate business with a similar discipline as it did with its direct origination business – both have focuses on local markets.

■ Hedge Fund: Ares currently does not offer a HF product, though the company recently shutdown a multi-strategy hedge fund platform, Deimos, realizing a $20M loss (full extent of the investment) in 3Q16. We think Ares could eventually establish a fourth "bucket" to meet client demand in another product vertical down the road.

Ares Management (ARES) 10 11 May 2017

ARES Earnings Model

Figure 14: ARES Earnings Model

2016A 2017E 2013 2014 2015 Q1A Q2A Q3A Q4A 2016A Q1A Q2E Q3E Q4E 2017E 2018E 2019E Management fees Total management fees 516,657 598,046 650,920 162,668 162,612 168,796 165,375 659,451 176,781 184,873 189,043 193,476 744,173 827,026 900,792 Administrative fees and other income 23,954 28,448 30,604 7,529 1,319 751 9,574 19,173 4,834 5,800 5,800 5,800 22,234 23,240 23,240 Compensation and benefits 305,067 373,142 382,210 101,509 97,053 97,338 94,539 390,439 100,610 102,095 100,354 102,222 405,282 421,925 438,703 General, administrative and other expenses 82,881 106,090 122,322 29,640 27,313 26,874 32,008 115,835 34,283 33,138 33,138 33,138 133,697 141,103 149,685 Fee Related Earnings (FRE) 152,663 147,262 176,992 39,048 39,565 45,335 48,402 172,350 46,722 55,440 61,350 63,916 227,428 287,237 335,644

Performance fees Performance fees - Realized 224,180 146,496 121,948 6,349 81,604 132,837 72,208 292,998 8,805 167,800 137,800 64,883 379,288 311,900 281,900 Performance fees - Unrealized 71,986 94,883 31,648 (37,348) 123,314 32,368 110,138 228,472 49,261 60,221 9,460 81,564 200,505 325,597 438,378 Total P-fees 296,166 241,379 153,596 (30,999) 204,918 165,205 182,346 521,470 58,066 228,021 147,260 146,447 579,794 637,497 720,278

Performance Fee Comp - Realized 134,190 80,600 65,192 1,983 51,031 93,778 51,472 198,264 5,301 125,771 102,036 44,347 277,455 205,140 182,640 Performance Fee Comp - Unrealized 60,104 89,432 46,491 (23,313) 100,865 29,395 82,635 189,582 35,401 44,141 3,669 60,402 143,613 236,903 315,925 Total P-fee Related Comp 194,294 170,032 111,683 (21,330) 151,896 123,173 134,107 387,846 40,702 169,912 105,706 104,748 421,068 442,043 498,565 Net Performance Fees 101,872 71,347 41,913 (9,669) 53,022 42,032 48,239 133,624 17,364 58,109 41,554 41,699 158,726 195,454 221,713

Investment income Investment Income - Realized income 77,022 52,580 22,749 (139) 3,790 (8,301) 14,676 10,026 4,539 4,000 4,000 4,000 16,539 14,058 14,561 Investment Income - Unrealized income (10,348) 10,937 (27,362) (8,568) (5,519) 34,716 (6,173) 14,456 11,284 33,111 9,711 9,711 63,817 43,386 42,883 Investment Income 66,674 63,517 (4,613) (8,707) (1,729) 26,415 8,503 24,482 15,823 38,083 14,683 14,683 83,271 61,332 61,332 Interest, dividend and other investment income 18,828 15,700 17,233 8,331 16,321 7,086 12,770 44,508 826 8,200 8,200 8,200 25,426 25,712 26,523 Interest expense (11,336) (8,619) (15,145) (4,855) (4,828) (4,136) (4,162) (17,981) (4,879) (4,175) (4,175) (4,175) (17,404) (17,313) (17,313) Net Investment Income 74,166 70,598 (2,525) (5,231) 9,764 29,365 17,111 51,009 11,770 42,108 18,708 18,708 91,293 69,731 70,541

Economic income 328,701 289,207 216,380 24,148 102,351 116,732 113,752 356,983 75,856 155,656 121,612 124,323 477,447 552,422 627,899 Fee-related Earnings (FRE) 152,663 147,262 176,992 39,048 39,565 45,335 48,402 172,350 46,722 55,440 61,350 63,916 227,428 287,237 335,644 Performance related earnings 176,038 141,945 39,388 (14,900) 62,786 71,397 65,350 184,633 29,134 100,216 60,262 60,407 250,019 265,185 292,255 Performance fees, net 101,872 71,347 41,913 (9,669) 53,022 42,032 48,239 133,624 17,364 58,109 41,554 41,699 158,726 195,454 221,713 Economic Net Income 328,701 289,207 216,380 24,148 102,351 116,732 113,752 356,983 75,856 155,656 121,612 124,323 477,447 552,422 627,899 ENI Check 328,701 289,207 216,380 24,148 102,351 116,732 113,752 356,983 75,856 155,656 121,612 124,323 477,447 552,422 627,899

Total Tax 22,666 31,144 7,565.0 8,653.0 11,455.0 13,246.0 40,919 6,633.0 17,900 13,985 14,297 52,816 63,529 72,208 Tax Rate 7.8% 14.4% 31.3% 8.5% 9.8% 11.6% 11.5% 8.7% 11.5% 11.5% 11.5% 11.1% 11.5% 11.5% Preferred Unit Distribution 6,751 5,425 12,176 5,425 5,400 5,400 5,400 21,625 21,600 21,600 After Tax Economic Net Income - 266,541 185,236 16,583 93,698 98,526 95,081 303,888 63,798 132,356 102,227 104,626 403,006 467,294 534,090

After Tax ENI (per share) - $1.26 $0.87 $0.08 $0.44 $0.46 $0.44 $1.42 $0.30 $0.62 $0.48 $0.49 $1.89 $2.16 $2.44

Tax Rate for DE 16.2% 15.2% 22.0% 13.1% 17.5% 12.9% 15.5% 15.8% 13.0% 13.0% 13.0% 13.3% 13.0% 13.0% Current Provision for Income Taxes - 14,131 13,248 3,445 3,816 4,008 3,664 14,933 2,151 5,083 5,057 4,361 16,652 19,872 22,227 DE After Tax - 72,935 74,048 12,187 25,313 18,935 24,666 81,101 11,486 34,016 33,845 29,185 108,532 132,987 148,749

Distributable EPS - $0.90 $0.91 $0.15 $0.31 $0.23 $0.30 $0.99 $0.13 $0.38 $0.38 $0.33 $1.21 $1.49 $1.66

Diluted and exchangeable Units - 211.6 213.8 213.6 214.7 215.3 214.2 214.2 212.6 212.8 213.1 213.3 213.3 216.0 218.7

Distributable EPS $0.90 $0.91 $0.15 $0.31 $0.23 $0.30 $0.99 $0.13 $0.38 $0.38 $0.33 $1.21 $1.49 $1.66 Payout ratio on After-tax DE 98% 92% 100% 90% 87% 93% 92% 109% 92% 92% 92% 94% 92% 92% Dividend Distribution per unit - $0.88 $0.84 $0.15 $0.28 $0.20 $0.28 $0.91 $0.14 $0.35 $0.35 $0.30 $1.14 $1.37 $1.53 Key Metrics Capital Raising 14,407 15,757 22,004 3,018 4,416 4,324 2,104 13,862 3,074 3,750 3,750 4,750 15,324 19,000 21,000 y/y Change -5% 9% 40% 2% 66% -33% -79% -37% 2% -15% -13% 126% 11% 24% 11% q/q Change -70% 46% -2% -51% 46% 22% 0% 27% Deployments 4,571 5,394 20,484 2,121 4,364 2,652 2,821 11,958 4,593 2,650 2,650 2,650 12,543 11,881 12,869 y/y Change 135% 18% 280% 244% 227% 49% -55% -42% 117% -39% 0% -6% 5% -5% 8% q/q Change -66% 106% -39% 6% 63% -42% 0% 0% Monetizations (Distributions) 5,576 4,841 5,928 1,244 2,033 1,538 2,241 7,056 1,795 1,900 1,900 1,650 7,245 7,000 6,500 y/y Change 3% -13% 22% -12% 2% 37% 59% 19% 44% -7% 24% -26% 3% -3% -7% q/q Change -12% 63% -24% 46% -20% 6% 0% -13% DE / Avg FP AuM 0.52% 0.40% 0.49% 0.42% 0.22% 0.53% 0.52% 0.44% 0.44% 0.48% 0.50%

Source: Credit Suisse Asset Manager Research, $ thousands, except for per share data, and AuM $ Millions.

Ares Management (ARES) 11 11 May 2017

ARES AuM Roll-forward

Figure 15: ARES AuM Roll-forward

2016A 2017E 2013 2014 2015 Q1A Q2A Q3A Q4A 2016A Q1A Q2E Q3E Q4E 2017E 2018E 2019E ECONOMIC INCOME Total Economic Income $430,890 $432,271 $374,978 $70,872 $158,612 $164,518 $157,491 $551,493 $120,708 $201,358 $167,314 $170,025 $659,405 $738,886 $818,092 % Private Equity 25% 28% 31% 13% 40% 36% 38% 35% 31% 50% 37% 36% 40% 39% 38% % Credit 74% 61% 61% 75% 56% 55% 57% 58% 61% 46% 59% 59% 55% 55% 53% % Real Estate 1% 11% 8% 12% 4% 10% 5% 7% 8% 4% 5% 5% 5% 7% 9% REALIZED NET P-FEES & INVESTMENT INCOME Private Equity $91,655 $27,476 $26,189 -$112 $65,782 $119,513 $63,270 $248,453 $579 $134,250 $104,250 $31,333 $270,412 $130,058 $100,561 Credit $222,445 $167,400 $106,357 $6,340 $16,147 $23,009 $11,349 $56,845 $9,096 $35,000 $35,000 $35,000 $114,096 $184,000 $184,000 Real Estate -$12,898 $4,200 $12,174 $39 $3,496 $2,019 $6,778 $12,332 $1,810 $2,550 $2,550 $2,550 $9,460 $11,900 $11,900 Total Realized Performance-related earnings $301,202 $199,076 $144,720 $6,267 $85,425 $144,541 $81,397 $317,630 $11,485 $171,800 $141,800 $68,883 $393,968 $325,958 $296,461 % Private Equity 30% 14% 18% -2% 77% 83% 78% 78% 5% 78% 74% 45% 69% 40% 34% % Credit 74% 84% 73% 101% 19% 16% 14% 18% 79% 20% 25% 51% 29% 56% 62% % Real Estate -4% 2% 8% 1% 4% 1% 8% 4% 16% 1% 2% 4% 2% 4% 4% ACCRUED Performance FEES Total Accrued Performance Fees $548.1 $541.9 $529.8 $632.4 $661.5 $767.4 $767.4 $809.0 $869.2 $878.7 $960.3 $960.3 $986.5 $1,089.4 Assets Under Management Total AUM by Business Unit Private Equity 9,862 10,135 21,115 23,276 23,037 24,876 25,041 25,041 24,653 24,979 24,986 25,259 25,259 27,452 30,412 Credit 55,421 61,050 62,249 60,048 62,102 62,044 60,466 60,466 65,231 66,678 68,139 70,115 70,115 76,820 84,793 Real Estate 8,721 10,575 10,268 10,183 10,124 10,397 9,752 9,752 9,941 10,208 10,480 11,258 11,258 14,421 18,901 Total AUM (eop) 74,004 81,760 93,632 93,507 95,263 97,317 95,259 95,259 99,825 101,864 103,605 106,632 106,632 118,693 134,106 % Private Equity 13% 12% 23% 25% 24% 26% 26% 26% 25% 25% 24% 24% 24% 23% 23% % Credit 75% 75% 66% 64% 65% 64% 63% 63% 65% 65% 66% 66% 66% 65% 63% % Real Estate 12% 13% 11% 11% 11% 11% 10% 10% 10% 10% 10% 11% 11% 12% 14% y/y Private Equity -3% 3% 108% 57% 57% 70% 19% 19% 6% 8% 0% 1% 1% 9% 11% y/y Tradable Credit 15% 10% 2% -3% -1% -7% -3% -3% 9% 7% 10% 16% 16% 10% 10% y/y Real Estate 424% 21% -3% 1% 2% 3% -5% -5% -2% 1% 1% 15% 15% 28% 31% Total AUM (avg) 67,082 77,883 87,737 93,569 94,385 96,290 96,288 94,995 97,542 100,845 102,735 105,119 101,437 112,662 126,399

Total AUM Roll Forward Total AUM (beginning of period) 60,157 74,004 81,760 93,632 93,507 95,263 97,317 93,632 95,259 99,825 101,864 103,605 95,259 106,632 118,693 Total AUM (end of period) 74,004 81,760 93,632 93,507 95,263 97,317 95,259 95,259 99,825 101,864 103,605 106,632 106,632 118,693 134,106 Total AUM (average) 67,082 77,883 87,737 93,569 94,385 96,290 96,288 94,995 97,542 100,845 102,735 105,119 101,437 112,662 126,399 Available Capital 15,266 18,220 22,419 22,980 24,289 24,516 23,235 23,235 24,203 23,741 23,278 22,816 22,816 20,966 20,966 Mark (%) ex. dry powder 8% 2% 1% 1% 1% 3% 1% 6% 1% 2% 2% 2% 7% 7% 7% Capital Deployment & Dry Powder Capital deployed 4,571 5,394 20,484 2,121 4,364 2,652 2,821 11,958 4,593 2,650 2,650 2,650 12,543 11,881 12,869 Available capital 15,266 18,220 22,419 22,980 24,289 24,516 23,235 23,235 24,203 23,741 23,278 22,816 22,816 20,966 19,116 % of Fee-earning AUM 26% 30% 33% Fund Performance & Realizations Performance Fee Accrual Roll Forward Accrued Performance fees (bop) - 460 548 542 530 632 662 542 767 809 869 879 767 960 986 Performance Fee Accrual - 241 154 (31) 205 165 182 521 58 228 147 146 580 338 385 Distributions of cash from funds - (151) (133) 37 (80) (112) (46) (200) 22 (168) (138) (65) (348) (312) (282) Accrued Performance fees (eop) - 548 542 530 632 662 767 767 809 869 879 960 960 986 1,089

Balance Sheet Assets Cash and cash equivalents 89,802 148,858 121,483 109,934 264,588 336,783 342,861 342,861 103,989 103,989 103,989 103,989 103,989 103,989 103,989 Investments, at fair value 504,291 594,346 636,092 646,910 637,366 646,494 622,215 622,215 652,684 652,684 652,684 652,684 652,684 652,684 652,684 Cash & Investments 594,093 743,204 757,575 756,844 901,954 983,277 965,076 965,076 756,673 756,673 756,673 756,673 756,673 756,673 756,673 Performance fees receivable 481,751 548,098 541,852 529,800 632,382 661,527 767,429 767,429 816,786 869,229 878,689 960,252 960,252 986,493 1,089,372 Other 368,938 397,910 441,784 452,369 448,848 446,720 443,587 443,587 510,512 510,512 510,512 510,512 510,512 510,512 510,512 Total Assets 1,444,782 1,689,212 1,741,211 1,739,013 1,983,184 2091524 2,176,092 2,176,092 2,083,971 2,136,414 2,145,874 2,227,437 2,227,437 2,253,678 2,356,557 Debt obligations 153,119 245,752 389,120 471,274 279,430 279,587 305,784 305,784 488,221 488,221 488,221 488,221 488,221 488,221 488,221

Source: Credit Suisse Asset Manager Research, $ thousands, except for per share data, and AuM $ Millions.

Ares Management (ARES) 12 11 May 2017

Companies Mentioned (Price as of 10-May-2017) Apollo Global Management LLC (APO.N, $27.02) Ares Management (ARES.N, $18.1, OUTPERFORM, TP $23.0) Blackstone Group (BX.N, $30.02) Fifth Street Asset Management (FSAM.OQ, $4.45) Fortress Investment Group (FIG.N, $8.04) KKR and Co LP (KKR.N, $18.83) Medley Management Inc. (MDLY.N, $6.3) Oaktree Capital Group, LLC (OAK.N, $44.95) Och-Ziff Capital Management (OZM.N, $2.46) The Carlyle Group L.P. (CG.OQ, $17.7)

Disclosure Appendix Analyst Certification Craig Siegenthaler, CFA, and Ari Ghosh each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Ares Management (ARES.N)

ARES.N Closing Price Target Price Date (US$) (US$) Rating 03-Jun-15 19.40 23.00 N * 28-Jul-15 19.48 22.00 27-Aug-15 16.74 20.00 02-Oct-15 17.30 22.00 29-Oct-15 16.06 20.00 01-Dec-15 14.10 18.00 30-Dec-15 12.91 14.00 27-Jan-16 11.93 15.00 14-Mar-16 14.19 16.00

01-Apr-16 15.30 18.00 NEUTRAL REST RICT ED 23-May-16 14.10 R N O T RAT ED 05-Jan-17 18.95 NR 25-Jan-17 19.85 21.00 N 05-Apr-17 18.80 22.00 10-May-17 18.10 23.00 * Asterisk signifies initiation or assumption of coverage. The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark* over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 1 2-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, wh ich was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. Not Rated (NR) : Credit Suisse Equity Research does not have an investment rating or view on the stock or any other securities related to the company at this time. Not Covered (NC) : Credit Suisse Equity Research does not provide ongoing coverage of the company or offer an investment rating or investment view on the equity security of the company or related products.

Ares Management (ARES) 13 11 May 2017

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward. Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors. Credit Suisse's distribution of stock ratings (and banking clients) is:

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Target Price and Rating Valuation Methodology and Risks: (12 months) for Ares Management (ARES.N) Method: We arrive at our $23 target price on ARES by: (1) applying a 14x multiple on our average 5 year cash earnings estimate, which is moderately above the industry average for alternative asset managers on account of ARES larger proportion of fee related earnings. Our Outperform rating is driven by the recent stock underperformance as Ares has higher upside potential in our normalized/LT cash EPS framework. Risk: Key risks to our $23 target price and our Outperform Rating on ARES include: 1) Fund Performance: This is critical measure for future fund raises and could be subject to the market, political, and monetary environment. 2) Market/Beta: This could negatively impact accrued carry potential and book value. 3) Credit Cycle: Credit spreads are tight and market liquidity is high, which is making the investment enviornment challenging.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures/view/selectArchive for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names The subject company (ARES.N, OAK.N, MDLY.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N, OZM.N) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (ARES.N, OAK.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N) within the past 12 months. Credit Suisse provided non-investment banking services to the subject company (ARES.N, OAK.N, MDLY.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N, OZM.N) within the past 12 months Credit Suisse has managed or co-managed a public offering of securities for the subject company (OAK.N, FIG.N, CG.OQ, BX.N, APO.N) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (ARES.N, OAK.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N) within the past 12 months

Ares Management (ARES) 14 11 May 2017

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (ARES.N, OAK.N, MDLY.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N, OZM.N) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (ARES.N, OAK.N, MDLY.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N, OZM.N) within the past 12 months A member of the Credit Suisse Group is party to an agreement with, or may have provided services set out in sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and Council ("MiFID Services") to, the subject issuer (ARES.N, OAK.N, MDLY.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N) within the past 12 months. As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (FIG.N). Credit Suisse beneficially holds >0.5% long position of the total issued share capital of the subject company (FIG.N). For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit- suisse.com/disclosures or call +1 (877) 291-2683. For date and time of production, dissemination and history of recommendation for the subject company(ies) featured in this report, disseminated within the past 12 months, please refer to the link: https://rave.credit-suisse.com/disclosures/view/report?i=300279&v=- 775yhcjd8mhg4w0cwqf1gcmy2 . Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit- suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (OAK.N, MDLY.N, KKR.N, FIG.N, CG.OQ, BX.N, APO.N, OZM.N) within the past 3 years. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that. This research report is authored by: Credit Suisse Securities (USA) LLC ...... Craig Siegenthaler, CFA ; Ari Ghosh ; Jordan Friedlander Important disclosures regarding companies or other issuers that are the subject of this report are available on Credit Suisse’s disclosure website at https://rave.credit-suisse.com/disclosures or by calling +1 (877) 291-2683.

Ares Management (ARES) 15 11 May 2017

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