Ares Management (ARES) risk factors, FY2024 10-K

Risks Related to Our Businesses

1. 01Inflation has adversely affected and may continue to adversely affect our business, results of operations and financial condition of our funds and their portfolio companies
2. 02Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition
3. 03We depend on our executive officers, senior professionals and other key personnel, and our ability to retain them and attract additional qualified personnel is critical to our success and our growth prospects
4. 04Our failure to appropriately address conflicts of interest could damage our reputation and adversely affect our businesses
5. 05Conflicts of interest may arise in our allocation of co-investment opportunities
6. 06The investment management business is intensely competitive
7. 07We may lose investment opportunities in the future if we do not match pricing, structures and terms offered by our competitors. Alternatively, we may experience decreased profitability, rates of return and increased risks of loss if we match pricing, structures and terms offered by our competitors
8. 08Poor performance of our funds, or a failure of slowdown in deployment, would cause a decline in our revenue and results of operations and could adversely affect our ability to raise capital for future funds
9. 09ARCC’s management fee comprises a significant portion of our management fees
10. 10We may not be able to maintain our current fee structure as a result of industry pressure from fund investors to reduce fees, which could have an adverse effect on our profit margins and results of operations
11. 11Rapid growth of our businesses, particularly outside the U.S., may be difficult to sustain and may place significant demands on our administrative, operational and financial resources
12. 12We may not be able to manage our expanding operations effectively or be able to continue to grow, and any failure to do so could adversely affect our ability to generate revenue and control our expenses
13. 13We may enter into new lines of business and expand into new investment strategies, geographic markets, strategic partnerships and businesses, each of which may result in additional risks, expenses and uncertainties in our businesses
14. 14If we are unable to consummate or successfully integrate development opportunities, acquisitions or joint ventures, we may not be able to implement our growth strategy successfully

Risks Related to Regulation

1. 15Extensive regulation affects our activities, increases the cost of doing business and creates the potential for significant liabilities and penalties that could adversely affect our businesses and results of operations
2. 16Regulators are also increasing scrutiny and considering regulation of the use of artificial intelligence technologies. We cannot predict what, if any, actions may be taken, but such regulation could have a material adverse effect on our business and results of operations
3. 17some of our funds are required to post collateral to satisfy the variation margin requirements which has made transacting in uncleared swaps more expensive
4. 18Changes in relevant data protection laws could necessitate changes to the steps taken by our funds for the purposes of complying with such laws and the way in which personal data is transferred between our funds
5. 19Regulations impacting the insurance industry could adversely affect our business and our operations, and our provision of products and services to insurance companies, including through Aspida, subjects us to a variety of risks and uncertainties
6. 20Employee misconduct could harm us by impairing our ability to attract and retain investors and subjecting us to significant legal liability, regulatory scrutiny and reputational harm
7. 21Regulatory changes in jurisdictions outside the U.S. could adversely affect our businesses
8. 22Securitisation Regulation
9. 23Alternative Investment Fund Managers Directive
10. 24AIFMD II may, depending on the jurisdiction of the AIF and the AIFM, result in new restrictions on the ability of certain of our affiliates other than AM Lux to register funds for marketing to investors in certain EEA states
11. 25Economic Crime and Corporate Transparency Act 2023
12. 26Regulations governing the operation of our business development companies affect their ability to raise, and the way in which they raise, additional capital
13. 27The publicly-traded and perpetual wealth investment vehicles that we manage are subject to regulatory complexities that limit the way in which they do business and may subject them to a higher level of regulatory scrutiny
14. 28Failure to comply with “pay to play” regulations implemented by the SEC and certain states, and changes to the “pay to play” regulatory regimes, could adversely affect our businesses
15. 29include a broad mandate to eliminate federal DEI programs and indicate continued scrutiny of DEI initiatives, potential investigations of certain private entities, including publicly traded companies, and changes to federal contracting regulations
16. 30compliance more difficult and expensive, affect the manner in which we, our funds or their portfolio companies conduct our businesses and adversely affect our profitability
17. 31Economic sanction laws in the U.S. and other jurisdictions may prohibit us and our affiliates from transacting with certain countries, individuals and companies, which could negatively impact our business, financial condition and operating results
18. 32The U.K.’s exit from the EU (“Brexit”) could adversely affect our business and our operations
19. 33We are subject to risks in using prime brokers, custodians, counterparties, administrators and other agents
20. 34damage, penalties or losses. We may be unsuccessful in seeking reimbursement or indemnification from these third-party service providers
21. 35A portion of our revenue, earnings and cash flow is variable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis and may cause the price of shares of our Class A common stock to decline
22. 36Fraud and other deceptive practices or other misconduct at our funds’ portfolio companies, properties or projects could similarly subject us to liability and reputational damage and also harm our businesses
23. 37Our use of leverage to finance our businesses exposes us to substantial risks
24. 38We are exposed to risks associated with changes in interest rates
25. 39Operational risks may disrupt our businesses, result in losses or limit our growth
26. 40may introduce could create a significant risk that our existing systems may not be adequate to identify or control the relevant risks in the investment strategies employed by such new investment products
27. 41Finally, there continues to be significant evolution and developments in the use of artificial intelligence and machine learning technologies, including generative artificial intelligence and large language models. We cannot fully determine the impact of such evolving technology to our business at this time
28. 42Adverse regulatory and legal developments relating to SPACs and their sponsors could adversely affect our business and reputation and result in significant losses and expenses

Risks Related to Our Funds

1. 43The historical returns attributable to our funds should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in shares of our Class A common stock
2. 44Valuation methodologies for certain assets can be subject to significant subjectivity, and our value of an asset may differ materially from the value ultimately realized
3. 45often do vary greatly from the prices we eventually realize; as a result, there can be no assurance that such unrealized valuations will be fully or timely realized
4. 46Although we frequently engage independent third parties to perform the foregoing valuations, the valuation process remains inherently subjective for the reasons described above
5. 47The valuation process for the portfolio holdings of our registered funds and business development companies that we manage may create a conflict of interest
6. 48Market values of debt instruments and publicly-traded securities that our funds hold as investments may be volatile
7. 49Our funds may be unable to deploy capital at a steady and consistent pace, which could have an adverse effect on our results of operations and future fundraising
8. 50Our funds depend on investment cycles, and any change in such cycles could have an adverse effect on our investment prospects
9. 51Dependence on significant leverage by our funds subjects us to volatility and contractions in the debt financing markets could adversely affect our ability to achieve attractive rates of return on those investments
10. 52Some of our funds may invest in companies that are highly leveraged, which may increase the risk of loss associated with those investments
11. 53Many of our funds invest in assets that are high risk, illiquid or subject to restrictions on transfer and we may fail to realize any profits from these activities ever or for a considerable period of time or lose some or all of the capital invested
12. 54Government policies regarding certain regulations, such as antitrust law, or restrictions on foreign investment in certain of our funds’ portfolio companies or assets can also make it more difficult for us to deploy capital in certain jurisdictions and limit our funds’ exit opportunities
13. 55Certain of our funds make preferred and common equity investments that rank junior to preferred equity and debt in a company’s capital structure
14. 56Certain of our funds utilize special situations and distressed debt investment strategies that involve significant risks
15. 57Contingent liabilities could harm fund performance
16. 58Our funds may be held liable for the underfunded pension liabilities of their portfolio companies
17. 59Our failure to comply with investment guidelines set by our clients and/or investors could result in damage awards against us or a reduction in AUM, either of which would cause our earnings to decline and adversely affect our business
18. 60Third-party investors in certain of our funds with commitment-based structures may not satisfy their contractual obligation to fund capital calls when requested by us, which could adversely affect a fund’s operations and performance
19. 61Our funds make investments in companies that are based outside of the United States, which may expose us to additional risks not typically associated with investing in companies that are based in the United States
20. 62Investments in emerging markets are subject to greater risks than those in more developed markets
21. 63Many of our funds make investments in companies that we do not control
22. 64Increased regulatory scrutiny and uncertainty with regards to expense allocation may increase risk of harm
23. 65We may need to pay “clawback” or “contingent repayment” obligations if and when they are triggered under the governing agreements with our funds
24. 66We derive a substantial portion of our revenues from funds managed pursuant to management agreements that may be terminated or fund partnership agreements that permit fund investors to request liquidation of investments in our funds on short notice
25. 67Customized separate account and advisory account fee revenue is not a long-term contracted source of revenue and is subject to intense competition
26. 68We are vulnerable to an increased number of investors seeking to participate in share redemption programs or tender offers of our perpetual wealth vehicles
27. 69A downturn in the global credit markets could adversely affect our CLO investments
28. 70Our funds may face risks relating to undiversified investments
29. 71Our funds may be forced to dispose of investments at a disadvantageous time. Furthermore, we may have to waive management fees for certain of our funds in certain circumstances
30. 72Our real estate funds are subject to the risks inherent in the ownership and operation of real estate and the construction and development of real estate
31. 73Climate change, climate change-related regulation and other efforts to reduce climate change and address sustainability concerns could adversely affect our business
32. 74Hedging strategies may adversely affect the returns on our funds’ investments
33. 75Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks
34. 76Restrictions on our ability to collect and analyze data regarding our clients’ investments could adversely affect our business

Risks Related to Our Organization and Structure

1. 77If we were deemed to be an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our businesses as contemplated and could have a material adverse effect on our businesses
2. 78assets that could be considered investment securities. Accordingly, we do not believe that AMC is an inadvertent investment company by virtue of the 40% test in Section 3(a)(1)(C) of the Investment Company Act as described in the second bullet point above
3. 79Due to the disparity in voting power among the classes of our common stock, holders of our Class A common stock will generally have no influence over matters on which holders of our common stock vote and limited ability to influence decisions regarding our business
4. 80The Holdco Members are able to significantly influence the outcome of any matter that may be submitted for a vote of holders of our common stock
5. 81Potential conflicts of interest may arise among the Class B Stockholder and the Class C Stockholder, on the one hand, and the holders of our Class A common stock and/or Series B mandatory convertible preferred stock, on the other hand
6. 82partner interests, tax liabilities and amounts of reserves, each of which can affect the amount of cash that is available for distribution to holders of AOG Units
7. 83Certain actions by our board of directors require the approval of the Class B Stockholder, which is controlled by the Holdco Members
8. 84As a “controlled company,” we qualify for some exemptions from the corporate governance and other requirements of the NYSE
9. 85Our certificate of incorporation states that the Class B Stockholder is under no obligation to consider the separate interests of our other stockholders and contains provisions limiting the liability of the Class B Stockholder
10. 86provisions are detrimental to the holders of our Class A common stock because they restrict the remedies available to our stockholders for actions of the Class B Stockholder
11. 87The provision of our certificate of incorporation requiring exclusive venue in the Court of Chancery in the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against us and our directors, officers and stockholders
12. 88Our ability to pay dividends to the holders of our Class A and non-voting common stock may be limited by our holding company structure, applicable provisions of Delaware law and contractual restrictions or obligations
13. 89Furthermore, by making cash dividends to our stockholders rather than investing that cash in our businesses, we risk slowing the pace of our growth, or not having a sufficient amount of cash to fund our operations, new investments or unanticipated capital expenditures, should the need arise
14. 90The Class B Stockholder or the Class C Stockholder may transfer their interests in the shares of our Class B common stock or the shares of our Class C common stock, respectively, which could materially alter our operations
15. 91Our certificate of incorporation also provides us with a right to acquire shares of our Class A common stock under specified circumstances, which may adversely affect the price of shares of our Class A common stock
16. 92Other anti-takeover provisions in our charter documents could delay or prevent a change in control

Risks Related to Shares of Our Common Stock

1. 93The market price and trading volume of shares of our Class A common stock may be volatile, which could result in rapid and substantial losses for holders of our Class A common stock
2. 94The market price of shares of our Class A common stock may decline due to the large number of shares of Class A common stock eligible for exchange and future sale

Risks Related to Taxation

1. 95Changes in relevant tax laws, regulations or treaties or an adverse interpretation of these items by tax authorities may adversely affect our effective tax rate, tax liability and financial condition and results
2. 96tax compliance complexity and result in additional administrative costs and income tax liabilities. The potential impact of CAMT on future taxable years, including as early as the 2026 taxable year, will depend on the facts and circumstances of such years
3. 97The impacts of ATAD II on interest and other finance costs in the context of European investments are jurisdiction specific and will be examined on an investment-by-investment basis
4. 98Tax consequences to the direct and indirect holders of AOG Units or to general partners in our funds may give rise to conflicts of interests
5. 99We may receive carried interest or incentive fees from our funds if specified returns are achieved by those funds. In certain circumstances, we may prefer to structure the fees as a special allocation of income, which we refer to as a carried interest, rather than as an incentive fee
6. 100Limitations on the amount of interest expense that we may deduct could materially increase our tax liability and negatively affect an investment in shares of our Class A common stock
7. 101each case, causing our business and results of operations to suffer or otherwise causing interruptions or malfunctions in our, our employees’, our fund investors’, our counterparties’ or third parties’ operations
8. 102We are subject to numerous privacy laws, and violation of such laws may subject us to significant fines or penalties, litigation, or reputational damage, and new privacy laws could impact our business and financial performance
9. 103We may be subject to litigation risks and may face liabilities and damage to our professional reputation
10. 104We may not be able to maintain sufficient insurance to cover us for potential litigation or other risks
11. 105Events which harm our reputation or brand may impact our ability to attract and retain investors and raise new capital