Ares Management (ARES) risk factors, FY2025 10-K

Risks Related to Our Businesses

1. 01Our 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
2. 02We 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
3. 03Our failure to appropriately address conflicts of interest could damage our reputation and adversely affect our businesses
4. 04Conflicts of interest may arise in our allocation of co-investment opportunities
5. 05The investment management business is intensely competitive
6. 06Developments in financial technology, such as artificial intelligence or distributed ledger technology (or blockchain), have the potential to disrupt the financial industry and change the way financial institutions, including investment managers, do business, and could exacerbate these competitive pressuresNew
7. 07Poor performance of our funds, or a failure or 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
8. 08ARCC’s management fee comprises a significant portion of our management fees
9. 09We 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 operations22% rewritten
10. 10A 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
11. 11Our use of leverage to finance our businesses exposes us to substantial risks
12. 12We are exposed to risks associated with changes in interest rates
13. 13Inflation has impacted and may in the future adversely affect our business, results of operations and financial condition of our funds and their portfolio companies
14. 14Operational risks may disrupt our businesses, result in losses or limit our growth88% rewritten
15. 15Our capital markets activities expose us to risks that could limit our revenue growth and expose us to losses from counterpartiesNew
16. 16We are subject to risks in using prime brokers, custodians, counterparties, administrators and other agents93% rewritten
17. 17Rapid 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
18. 18We 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
19. 19We 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 businesses23% rewritten
20. 20If we are unable to consummate or successfully integrate new businesses and strategies, acquisitions or joint ventures, we may not be able to implement our growth strategy successfully
21. 21Our financial support to particular structured financing vehicles, or our inability to provide support, may cause our AUM, revenue and earnings to declineNew
22. 22Hedging strategies may adversely affect the returns on our cash flow and financial condition and funds’ investments
23. 23Our risk management strategies and procedures may leave us exposed to unidentified or unanticipated risks
24. 24Restrictions on our ability to collect and analyze data regarding our clients’ investments could adversely affect our business

Risks Related to Regulation

1. 25Extensive 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 operations92% rewritten
2. 26similar effect. These registration requirements impose significant compliance obligations on registered lobbyists and their employers, which may include annual registration fees, periodic disclosure reports and internal recordkeeping, and may also prohibit the payment of contingent feesNew
3. 27Changes 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 funds96% rewritten
4. 28transfer practices and our uses of data and technology, and could increase the risk of investigations, enforcement actions, litigation or penalties if we fail to complyNew
5. 29Regulations 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 uncertainties28% rewritten
6. 30Employee misconduct and failure to comply with applicable laws, obligations and standards 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. 31Regulatory changes in jurisdictions outside the U.S. could adversely affect our businesses31% rewritten
8. 32Securitisation Regulation20% rewritten
9. 33Alternative Investment Fund Managers Directive
10. 34AIFMD 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 states83% rewritten
11. 35We will continue to assess the impact of AIFMD II to AM Lux, our non-EEA AIFMs and AIFs that are managed and/or marketed in the EEANew
12. 36Economic Crime and Corporate Transparency Act 202360% rewritten
13. 37Regulations governing the operation of our business development companies affect their ability to raise, and the way in which they raise, additional capital
14. 38The 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 scrutiny22% rewritten
15. 39Failure 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 businesses62% rewritten
16. 40Increased regulatory scrutiny and uncertainty with respect to expense allocation may expose us to additional risk90% rewritten
17. 41New and evolving and sometimes conflicting sustainability/ESG regulations and disclosure expectations could increase our compliance costs and expose us to enforcement, litigation or fundraising constraintsNew
18. 42Economic 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
19. 43The U.K.’s divergence from the EU (“Brexit”) could adversely affect our business and our operationsNew
20. 44Failure to comply with regulations related to financial crimes, fraud and other deceptive practices or other misconduct at our funds’ portfolio companies, properties or projects could subject us to liability and reputational damage and also harm our businesses
21. 45Adverse 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. 46The 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. 47Valuation methodologies for certain assets can be subject to significant subjectivity, and our value of an asset may differ materially from the value ultimately realized43% rewritten
3. 48Although we frequently engage independent third parties to perform the foregoing valuations, the valuation process remains inherently subjective for the reasons described above
4. 49The valuation process for the portfolio holdings of our registered funds and BDCs that we manage may create a conflict of interest73% rewritten
5. 50Investment Company Act (collectively, the “registered funds”) and the BDCs that we manage have designated their respective investment advisers to serve as valuation designee. These investment advisers are subsidiaries of the CompanyNew
6. 51Market values of debt instruments and publicly-traded securities that our funds hold as investments may be volatile
7. 52Our 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. 53Dependence 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
9. 54Some of our funds may invest in companies that are highly leveraged, which may increase the risk of loss associated with those investments
10. 55Many 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
11. 56Government 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 opportunities49% rewritten
12. 57our overall performance. The scope of this regime may evolve over time, including through additional guidance or changes in covered sectors, activities or countriesNew
13. 58Certain of our funds utilize special situations and distressed debt investment strategies that involve significant risks
14. 59Our funds may be held liable for the underfunded pension liabilities of their portfolio companies
15. 60Contingent liabilities could harm fund performance
16. 61Our 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
17. 62Third-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
18. 63Our 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
19. 64Investments in emerging markets are subject to greater risks than those in more developed markets
20. 65Many of our funds make investments in companies that we do not control and may rank junior to preferred equity and debt in a company’s capital structure50% rewritten
21. 66We may need to pay “clawback” or “contingent repayment” obligations if and when they are triggered under the governing agreements with our funds
22. 67We derive a substantial portion of our revenues from funds managed pursuant to management agreements that may be terminated. In addition, the investment management agreements related to our separately managed accounts may permit the investor to terminate our management of such accounts on short notice33% rewritten
23. 68Customized separate account and advisory account fee revenue is not a long-term contracted source of revenue and is subject to intense competition
24. 69We are vulnerable to an increased number of investors seeking to participate in share redemption programs or tender offers of our perpetual wealth vehicles
25. 70Our 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
26. 71Our credit funds are subject to the risks inherent in the private credit industryNew
27. 72Our Real Assets Group funds are subject to the risks inherent in the ownership and operation of real assets and the construction and development of real assets50% rewritten
28. 73Certain of our funds invest in secondaries investment products that we do not controlNew
29. 74Our Private Equity Group funds’ performance has been and may in the future be adversely affected by the financial performance of our portfolio companies and the industries in which our funds investNew
30. 75Climate change and related transition and physical risks could adversely affect our operations and those of our portfolio companies and increase costs (including insurance costs)New

Risks Related to Our Organization and Structure

1. 76If 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 businesses53% rewritten
2. 77Due 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
3. 78The 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
4. 79Potential 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 hand31% rewritten
5. 80As a “controlled company,” we qualify for some exemptions from the corporate governance and other requirements of the NYSE
6. 81Certain actions by our board of directors require the approval of the Class B Stockholder, which is controlled by the Holdco Members
7. 82Our 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 Stockholder48% rewritten
8. 83The 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
9. 84Our 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
10. 85Furthermore, 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
11. 86The 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
12. 87Our 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
13. 88Other anti-takeover provisions in our charter documents could delay or prevent a change in control

Risks Related to Shares of Our Common Stock

1. 89The 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. 90The 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 sale81% rewritten
3. 91In addition, some of our directors and executive officers have entered into, or may enter into, Rule 10b5-1 trading plans pursuant to which they may sell shares of our Class A common stock from time to time in the futureNew

Risks Related to Taxation

1. 92Changes 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 results56% rewritten
2. 93condition and results, ability to raise funds from certain foreign investors, increase our compliance or withholding tax costs and conflict with our contractual obligationsNew
3. 94The 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 basis63% rewritten
4. 95adversely affect the returns of investors in our funds. The implementation of BEPS 2.0 in relevant jurisdictions is complex and likely to remain uncertain for a number of yearsNew
5. 96Tax consequences to the direct and indirect holders of AOG Units or to general partners in our funds may give rise to conflicts of interests
6. 97We 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
7. 98Limitations 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 stock71% rewritten
8. 99Technological developments in artificial intelligence could disrupt the markets in which we operate and subject us to increased competition, legal and regulatory risks and compliance costsNew
9. 100We 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 performance70% rewritten
10. 101resources to compliance. A failure to comply with applicable Privacy Laws could result in fines, sanctions, enforcement actions or other penalties or reputational damageNew
11. 102We may be subject to litigation risks and may face liabilities and damage to our professional reputation
12. 103We may not be able to maintain sufficient insurance to cover us for potential litigation or other risks
13. 104Events which harm our reputation or brand may impact our ability to attract and retain investors and raise new capital