ARES MANAGEMENT LP (Form: 10-Q, Received: 08/06/2018 07:31:12)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001‑36429

ARES MANAGEMENT, L.P.

(Exact name of Registrant as specified in its charter)



Delaware (State or other jurisdiction of incorporation or organization)	80‑0962035 (I.R.S. Employer Identification Number)

2000 Avenue of the Stars, 12 th Floor, Los Angeles, CA 90067

(Address of principal executive office) (Zip Code)

(310) 201‑4100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act. (Check one):



Large accelerated filer x	Accelerated filer ¨	Non‑accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨	Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ¨ No x

The number of common shares representing limited partner interests outstanding as of July 27, 2018 was 98,398,340.

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TABLE OF CONTENTS



			Page
PART I—FINANCIAL INFORMATION
Item 1.	Financial Information - Unaudited		7
		Condensed Consolidated Statements of Financial Condition as of June 30, 2018 and December 31, 2017	7
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and June 30, 2017	8
		Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and June 30, 2017	9
		Condensed Consolidated Statements of Changes in Equity for the six months ended June 30, 2018	10
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and June 30, 2017	11
		Notes to the Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		60
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		112
Item 4.	Controls and Procedures		112
PART II—OTHER INFORMATION			113
Item 1.	Legal Proceedings		113
Item 1A.	Risk Factors		113
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		113
Item 3.	Defaults Upon Senior Securities		113
Item 4.	Mine Safety Disclosures		113
Item 5.	Other Information		113
Item 6.	Exhibits		114
Signatures			115

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Forward‑Looking Statements

This report contains forward‑looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward‑looking statements by the use of forward‑looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words. The forward‑looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Such forward‑looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. Some of these factors are described in this report and in our Annual report on Form 10-K for the year ended December 31, 2017 , under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.” These factors should not be construed as exhaustive and should be read in conjunction with the risk factors and other cautionary statements that are included in this report and in our other periodic filings. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these forward‑looking statements. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Therefore, you should not place undue reliance on these forward‑looking statements. Any forward‑looking statement speaks only as of the date on which it is made. We do not undertake any obligation to publicly update or review any forward‑looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Under generally accepted accounting principles in the United States (“GAAP”), we are required to consolidate (a) entities other than limited partnerships and entities similar to limited partnerships in which we hold a majority voting interest or have majority ownership and control over the operational, financial and investing decisions of that entity, including Ares‑affiliates and affiliated funds and co‑investment entities, for which we are presumed to have controlling financial interests, and (b) entities that we concluded are variable interest entities (“VIEs”), including limited partnerships and collateralized loan obligations, for which we are deemed to be the primary beneficiary. When an entity is consolidated, we reflect the assets, liabilities, revenues, expenses and cash flows of the entity in our consolidated financial statements on a gross basis, subject to eliminations from consolidation, including the elimination of the management fees, performance income and other fees that we earn from the entity. However, the presentation of performance related compensation and other expenses associated with generating such revenues is not affected by the consolidation process. In addition, as a result of the consolidation process, the net income attributable to third‑party investors in consolidated entities is presented as net income attributable to redeemable interests and non‑controlling interests in Consolidated Funds in our Condensed Consolidated Statements of Operations.

In this quarterly report on Form 10-Q, in addition to presenting our results on a consolidated basis in accordance with GAAP, we present revenues, expenses and other results on a (i) “segment basis,” which deconsolidates these entities and therefore shows the results of our reportable segments without giving effect to the consolidation of the entities and (ii) “Unconsolidated Reporting basis,” which shows the results of our reportable segments on a combined segment basis together with our Operations Management Group. In addition to our three segments, we have an Operations Management Group (the “OMG”) that consists of six independent, shared resource groups to support our reportable segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, business development/corporate strategy, legal/compliance and human resources. The OMG’s expenses are not allocated to our three reportable segments but we consider the cost structure of the OMG when evaluating our financial performance. This information constitutes non‑GAAP financial information within the meaning of Regulation G, as promulgated by the SEC. Our management uses this information to assess the performance of our reportable segments and our OMG, and we believe that this information enhances the ability of shareholders to analyze our performance. For more information, see “Notes to the Condensed Consolidated Financial Statements - Note 14. Segment Reporting.”

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Glossary

When used in this report, unless the context otherwise requires:


•	“ARCC Part I Fees” refers to a quarterly performance income on the investment income from Ares Capital Corporation (NASDAQ: ARCC) (“ARCC”);


•	“Ares Operating Group Unit” or an “AOG Unit” refer to, collectively, a partnership unit in each of the Ares Operating Group entities;

•

“assets under management” or “AUM” refers to the assets we manage. For our funds other than CLOs, our AUM represents the sum of the net asset value of such funds, the drawn and undrawn debt (at the fund‑level including amounts subject to restrictions) and uncalled committed capital (including commitments to funds that have yet to commence their investment periods). For our funds that are CLOs, our AUM represents subordinated notes (equity) plus all drawn and undrawn debt tranches;


•	“available capital” is comprised of uncalled committed capital and undrawn amounts under credit facilities and may include AUM that may be canceled or not otherwise available to invest (also referred to as “dry powder”).


•	“CLOs” refers to “our funds” which are structured as collateralized loan obligations;


•	“Consolidated Funds” refers collectively to certain Ares‑ affiliated funds, related co‑investment entities and certain CLOs that are required under GAAP to be consolidated in our consolidated financial statements;


•	“Co‑Founders” refers to Michael Arougheti, David Kaplan, John Kissick, Antony Ressler and Bennett Rosenthal;


•	“Credit Facility” refers to the revolving credit facility of the Ares Operating Group;

•

“economic net income” or “ENI”, a non-GAAP measure, is an operating metric used by management to evaluate total operating performance, a decision tool for deployment of resources, and an assessment of the performance of our business segments. ENI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, and (e) certain other items that we believe are not indicative of our total operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE and RI for the current period;


•	“fee paying AUM” or “FPAUM” refers to the AUM on which we directly earn management fees. Fee paying AUM is equal to the sum of all the individual fee bases of our funds that directly contribute to our management fees;

•

“fee related earnings” or “FRE”, a non-GAAP measure, refers to a component of ENI that is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it adjusts for the items included in the calculation of ENI and excludes performance income, performance related compensation, investment income from our Consolidated Funds and non-consolidated funds and certain other items that we believe are not indicative of our core operating performance. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE for the current period;


•	“Holdco Members” refers to Messrs. Arougheti, Kaplan, Ressler and Rosenthal and Ryan Berry, R. Kipp deVeer and Michael McFerran;

•

“Incentive generating AUM” or “IGAUM” refers to the AUM of our funds that are currently generating, on a realized or unrealized basis, performance income. It generally represents the NAV of our funds for which we are entitled to receive performance income, excluding capital committed by us and our professionals (which generally is not subject to performance income). With respect to ARCC, only ARCC Part II Fees can be generated from IGAUM;

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•

“Incentive eligible AUM” or “IEAUM” refers to the AUM of our funds that are eligible to produce performance income, regardless of whether or not they are currently generating performance income. It generally represents the NAV plus uncalled equity of our funds for which we are entitled to receive a performance income, excluding capital committed by us and our professionals (which generally is not subject to a performance income);

•

“management fees” refers to fees we earn for advisory services provided to our funds, which are generally based on a defined percentage of fair value of assets, total commitments, invested capital, net asset value, net investment income, total assets or par value of the investment portfolios managed by us and also include ARCC Part I Fees that are classified as management fees as they are predictable and recurring in nature, not subject to contingent repayment and generally cash‑settled each quarter;


•	“net inflows of capital” refers to net new commitments during the period, including equity and debt commitments and gross inflows into our open-ended managed accounts and sub-advised accounts, as well as equity offerings by our publicly traded vehicles minus redemptions from our open-ended funds, managed accounts and sub-advised accounts;


•	“net performance income” refers to performance income net of performance related compensation, which is the portion of the performance income earned from certain funds that is payable to professionals;


•	“our funds” refers to the funds, alternative asset companies, co-investment vehicles and other entities and accounts that are managed or co‑managed by the Ares Operating Group, and which are structured to pay fees. It also includes funds managed by Ivy Hill Asset Management, L.P., a wholly owned portfolio company of ARCC, and a registered investment adviser;

•

“permanent capital” refers to capital of our funds that do not have redemption provisions or a requirement to return capital to investors upon exiting the investments made with such capital, except as required by applicable law, which funds currently consist of ARCC, Ares Commercial Real Estate Corporation (“ACRE”) and Ares Dynamic Credit Allocation Fund, Inc. (“ARDC”). Such funds may be required, or elect, to return all or a portion of capital gains and investment income;


•	“performance income” refers to income we earn based on the performance of a fund, which are generally based on certain specific hurdle rates as defined in the fund’s investment management or partnership agreements and may be either an incentive fee or carried interest;

•

“performance related earnings” or “PRE”, a non-GAAP measure, is used to assess our investment performance net of performance related compensation. PRE differs from income (loss) before taxes computed in accordance with GAAP as it only includes performance income, performance related compensation and total investment and other income that we earn from our Consolidated Funds and non-consolidated funds;

•

“realized income” or “RI”, a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that we believe are not indicative of our operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE and RI for the current period. Prior to the introduction of RI, management used distributable earnings for this evaluation. Management believes RI is a more appropriate metric to evaluate the Company's current business operations;


•	“SEC” refers to the Securities and Exchange Commission;


•	“Senior Notes” or the "AFC Notes" refers to senior notes of a wholly owned subsidiary of Ares Holdings; and

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•	“Term Loans” refers to term loans of a wholly owned subsidiary of AM LLC.

References in this Quarterly Report on Form 10-Q to (1) “common units” or “common shares” and “preferred units” or “preferred shares” outstanding prior to March 1, 2018 refer to our common units and preferred units, respectively, previously outstanding prior to March 1, 2018 and (2) “common unitholders” or “common shareholders” and “preferred unitholders” or “preferred shareholders” prior to March 1, 2018 refer to our common unitholders and preferred unitholders, respectively, prior to March 1, 2018. Note that the terms of our common shares and preferred shares, and the associated rights, remain unchanged.

Many of the terms used in this report, including AUM, FPAUM, ENI, FRE, PRE and RI, may not be comparable to similarly titled measures used by other companies. In addition, our definitions of AUM and FPAUM are not based on any definition of AUM or FPAUM that is set forth in the agreements governing the investment funds that we manage and may differ from definitions of AUM or FPAUM set forth in other agreements to which we are a party. Further, ENI, FRE, PRE and RI are not measures of performance calculated in accordance with GAAP. We use ENI, FRE, PRE and RI as measures of operating performance, not as measures of liquidity. ENI, FRE, PRE and RI should not be considered in isolation or as substitutes for operating income, net income, operating cash flows, or other income or cash flow statement data prepared in accordance with GAAP. The use of ENI, FRE, PRE and RI without consideration of related GAAP measures is not adequate due to the adjustments described above. Our management compensates for these limitations by using ENI, FRE, PRE and RI as supplemental measures to our GAAP results. We present these measures to provide a more complete understanding of our performance as our management measures it. Amounts and percentages throughout this report may reflect rounding adjustments and consequently totals may not appear to sum.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Ares Management, L.P.

Condensed Consolidated Statements of Financial Condition

(Amounts in Thousands, Except Share Data)



	As of June 30,			As of December 31,
	2018			2017
	(unaudited)			As adjusted
Assets
Cash and cash equivalents	$	125,448		$	118,929
Investments (includes accrued carried interest of $985,035 and $1,077,236, at June 30, 2018 and December 31, 2017, respectively)	1,466,247			1,724,571
Due from affiliates	172,428			165,750
Deferred tax asset, net	42,942			8,326
Other assets	100,183			130,341
Intangible assets, net	33,999			40,465
Goodwill	143,848			143,895
Assets of Consolidated Funds:
Cash and cash equivalents	836,274			556,500
Investments, at fair value	6,968,067			5,582,842
Due from affiliates	13,704			15,884
Dividends and interest receivable	14,634			12,568
Receivable for securities sold	225,764			61,462
Other assets	1,197			1,989
Total assets	$	10,144,735		$	8,563,522
Liabilities
Accounts payable, accrued expenses and other liabilities	$	73,227		$	81,955
Accrued compensation	87,254			27,978
Due to affiliates	62,344			39,184
Performance related compensation payable	730,782			822,084
Debt obligations	370,628			616,176
Liabilities of Consolidated Funds:
Accounts payable, accrued expenses and other liabilities	69,040			64,316
Payable for securities purchased	744,534			350,145
CLO loan obligations, at fair value	6,333,239			4,963,194
Fund borrowings	138,438			138,198
Total liabilities	8,609,486			7,103,230
Commitments and contingencies
Preferred equity (12,400,000 shares issued and outstanding at June 30, 2018 and December 31, 2017)	298,761			298,761
Non-controlling interest in Consolidated Funds	577,217			528,488
Non-controlling interest in Ares Operating Group entities	316,048			358,186
Controlling interest in Ares Management, L.P.:
Shareholders' equity (98,398,340 shares and 82,280,033 shares issued and outstanding at June 30, 2018 and at December 31, 2017, respectively)	349,981			279,065
Accumulated other comprehensive loss, net of tax	(6,758		)	(4,208		)
Total controlling interest in Ares Management, L.P.	343,223			274,857
Total equity	1,535,249			1,460,292
Total liabilities and equity	$	10,144,735		$	8,563,522

See accompanying notes to the condensed consolidated financial statements.

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Ares Management, L.P.

Condensed Consolidated Statements of Operations

(Amounts in Thousands, Except Share Data)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
				As adjusted						As adjusted
Revenues
Management fees (includes ARCC Part I Fees of $29,866, $58,283 and $19,143, $52,400 for the three and six months ended June 30, 2018 and 2017, respectively)	$	194,032		$	180,768		$	383,547		$	352,813
Carried interest allocation	(13,444		)	333,808			40,685			385,815
Incentive fees	7,740			4,216			12,811			7,381
Principal investment income	1,871			38,307			6,780			40,894
Administrative, transaction and other fees	13,964			15,098			26,429			29,538
Total revenues	204,163			572,197			470,252			816,441
Expenses
Compensation and benefits	138,992			131,219			273,631			255,558
Performance related compensation	(13,005		)	261,705			12,873			302,407
General, administrative and other expenses	59,918			50,751			104,368			98,089
Transaction support expense	—			—			—			275,177
Expenses of Consolidated Funds	35,112			4,522			36,428			8,433
Total expenses	221,017			448,197			427,300			939,664
Other income (expense)
Net realized and unrealized gain (loss) on investments	3,267			(6,588		)	2,428			(5,700		)
Interest and dividend income	2,356			1,462			5,703			3,386
Interest expense	(6,076		)	(5,354		)	(12,945		)	(10,233		)
Other income (expense), net	(1,987		)	2,822			(2,298		)	19,318
Net realized and unrealized gain (loss) on investments of Consolidated Funds	34,487			(12,713		)	21,402			19,323
Interest and other income of Consolidated Funds	92,633			38,326			157,055			79,818
Interest expense of Consolidated Funds	(56,754		)	(26,875		)	(101,179		)	(58,197		)
Total other income (expense)	67,926			(8,920		)	70,166			47,715
Income (loss) before taxes	51,072			115,080			113,118			(75,508		)
Income tax expense (benefit)	36,903			1,253			24,528			(33,011		)
Net income (loss)	14,169			113,827			88,590			(42,497		)
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds	9,882			(8,647		)	10,249			7,208
Less: Net income (loss) attributable to non-controlling interests in Ares Operating Group entities	16,062			72,596			49,168			(58,449		)
Net income (loss) attributable to Ares Management, L.P.	(11,775		)	49,878			29,173			8,744
Less: Preferred equity dividend paid	5,425			5,425			10,850			10,850
Net income (loss) attributable to Ares Management, L.P. common shareholders	$	(17,200	)	$	44,453		$	18,323		$	(2,106	)
Net income (loss) attributable to Ares Management, L.P. per common share:
Basic	$	(0.20	)	$	0.54		$	0.16		$	(0.04	)
Diluted	$	(0.20	)	$	0.53		$	0.16		$	(0.04	)
Weighted-average common shares:
Basic	98,037,252			81,829,086			91,861,946			81,469,967
Diluted	98,037,252			84,319,882			91,861,946			81,469,967
Dividend declared and paid per common share	$	0.37		$	0.13		$	0.77		$	0.41

Substantially all revenue is earned from affiliated funds of the Company. See accompanying notes to the condensed consolidated financial statements.

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Ares Management, L.P.

Condensed Consolidated Statements of Comprehensive Income

(Amounts in Thousands)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
				As adjusted						As adjusted
Net income (loss)	$	14,169		$	113,827		$	88,590		$	(42,497	)
Other comprehensive income:
Foreign currency translation adjustments	(12,377		)	2,029			(6,892		)	5,471
Total comprehensive income (loss)	1,792			115,856			81,698			(37,026		)
Less: Comprehensive income (loss) attributable to non-controlling interests in Consolidated Funds	4,193			(8,818		)	7,735			7,038
Less: Comprehensive income (loss) attributable to non-controlling interests in Ares Operating Group entities	12,131			74,461			47,340			(54,344		)
Comprehensive income (loss) attributable to Ares Management, L.P.	$	(14,532	)	$	50,213		$	26,623		$	10,280

See accompanying notes to the condensed consolidated financial statements.

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Ares Management, L.P.

Condensed Consolidated Statements of Changes in Equity

(Amounts in Thousands)

(unaudited)



	Preferred Equity			Shareholders' Equity			Accumulated Other Comprehensive Loss			Non-controlling Interest in Ares Operating Group Entities			Non-controlling Interest in Consolidated Funds			Total Equity
Balance at December 31, 2017	$	298,761		$	279,065		$	(4,208	)	$	358,186		$	528,488		$	1,460,292
Cumulative effect of the adoption of ASC 606	—			(10,827		)	—			(17,117		)	5,333			(22,611		)
As adjusted balance at January 1, 2018	298,761			268,238			(4,208		)	341,069			533,821			1,437,681
Adoption of ASU 2018-02 (see note #2)	—			1,202			(1,202		)	—			—			—
Changes in ownership interests and related tax benefits	—			7,465			—			14,099			—			21,564
Contributions	—			106,283			—			764			70,990			178,037
Dividends/Distributions	(10,850		)	(69,743		)	—			(111,851		)	(35,329		)	(227,773		)
Net income	10,850			18,323			—			49,168			10,249			88,590
Currency translation adjustment	—			—			(1,348		)	(1,828		)	(2,514		)	(5,690		)
Equity compensation	—			18,213			—			24,627			—			42,840
Balance at June 30, 2018	$	298,761		$	349,981		$	(6,758	)	$	316,048		$	577,217		$	1,535,249

See accompanying notes to the condensed consolidated financial statements.

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Ares Management, L.P.

Condensed Consolidated Statements of Cash Flows

(Amounts in Thousands)

(unaudited)



	For the Six Months Ended June 30,
	2018			2017
				As adjusted
Cash flows from operating activities:
Net income (loss)	$	88,590		$	(42,497	)
Adjustments to reconcile net income (loss) to net cash used in operating activities	225,963			(92,537		)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities allocable to non-controlling interests in Consolidated Funds	(1,634,788		)	(61,985		)
Cash flows due to changes in operating assets and liabilities	66,925			(144,249		)
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interests in Consolidated Funds	(34,335		)	37,108
Net cash used in operating activities	(1,287,645		)	(304,160		)
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements, net	(7,126		)	(21,194		)
Net cash used in investing activities	(7,126		)	(21,194		)
Cash flows from financing activities:
Proceeds from issuance of common shares	105,333			—
Proceeds from credit facility	325,000			165,000
Proceeds from term notes	44,050			70,009
Repayments of credit facility	(410,000		)	(30,000		)
Repayments of term loans	(206,089		)	—
Distributions	(181,594		)	(102,315		)
Preferred equity distributions	(10,850		)	(10,850		)
Taxes paid in net settlement of vested common shares	(17,225		)	(13,471		)
Stock option exercise	950			1,036
Tax from share-based payment	44			81
Other financing activities	764			1,583
Allocable to non-controlling interests in Consolidated Funds:
Contributions from non-controlling interests in Consolidated Funds	70,990			47,265
Distributions to non-controlling interests in Consolidated Funds	(35,329		)	(46,876		)
Borrowings under loan obligations by Consolidated Funds	2,206,816			1,314,026
Repayments under loan obligations by Consolidated Funds	(599,801		)	(1,287,425		)
Net cash provided by financing activities	1,293,059			108,063
Effect of exchange rate changes	8,231			11,686
Net change in cash and cash equivalents	6,519			(205,605		)
Cash and cash equivalents, beginning of period	118,929			342,861
Cash and cash equivalents, end of period	$	125,448		$	137,256

See accompanying notes to the condensed consolidated financial statements.

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

1. ORGANIZATION

Ares Management, L.P. ("the Company"), a Delaware limited partnership treated as a corporation for U.S. federal income tax purposes, is a leading global alternative asset management firm that operates three distinct but complementary investment groups: Credit, Private Equity and Real Estate. Information about segments should be read together with Note 14, “Segment Reporting.” Subsidiaries of the Company serve as the general partners and/or investment managers to various investment funds and managed accounts within each investment group (the “Ares Funds”). Such subsidiaries provide investment advisory services to the Ares Funds in exchange for management fees. Ares is managed and operated by its general partner, Ares Management GP LLC. Unless the context requires otherwise, references to “Ares” or the “Company” refer to Ares Management, L.P. together with its subsidiaries.

The Company is a holding company, and its sole assets are equity interests in Ares Holdings Inc. (“AHI”), Ares Offshore Holdings, Ltd., and Ares AI Holdings L.P., each of which is directly or indirectly wholly owned by the Company. In this quarterly report, the following of the Company’s subsidiaries are collectively referred to as the “Ares Operating Group”: Ares Offshore Holdings L.P. (“Ares Offshore”), Ares Holdings L.P. (“Ares Holdings”), and Ares Investments L.P. (“Ares Investments”). The Company, indirectly through its wholly owned subsidiaries, is the general partner of each of the Ares Operating Group entities. The Company operates and controls all of the businesses and affairs of and conducts all of its material business activities through the Ares Operating Group.

Non-Controlling Interests in Ares Operating Group Entities

The non-controlling interests in Ares Operating Group (“AOG”) entities represent a component of equity and net income attributable to the owners of the Ares Operating Group Units (“AOG Units”) that are not held directly or indirectly by the Company. These interests are adjusted for contributions to and distributions from AOG during the reporting period and are allocated income from the AOG entities based on their historical ownership percentage for the proportional number of days in the reporting period.

Change in Company Tax Status Election

Effective March 1, 2018, the Company elected to be treated as a corporation for U.S. federal income tax purposes. The Company’s legal structure remains a Delaware limited partnership. In connection with the tax election, the Company amended and restated its partnership agreement to, among other things, reflect the new tax classification and change the name of its common units and preferred units to common shares and preferred shares, respectively. The terms of such common shares and preferred shares, and the associated rights, otherwise remain unchanged. Further, other terminology has been modified to be consistent with a corporation's results. For example, distributions are now referred to as dividends, and earnings per common unit are now referred to as earnings per common share. Comparative periods conform with the current period's presentation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements are prepared in accordance with the generally accepted accounting principles in the United States (“GAAP”) for interim financial information and instructions to the Quarterly Report on Form 10-Q. The condensed consolidated financial statements, including these notes, are unaudited and exclude some of the disclosures required in annual financial statements. Management believes it has made all necessary adjustments so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The operating results presented for interim periods are not necessarily indicative of the results that may be expected for any other interim period or for the entire year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC.

The condensed consolidated financial statements include the accounts and activities of the AOG entities, their consolidated subsidiaries and certain Consolidated Funds. These Consolidated Funds include certain Ares-affiliated funds, related co-investment entities and collateralized loan obligations (“CLOs”) (collectively, the “Consolidated Funds”) managed by Ares Management LLC (“AM LLC”) and its wholly owned subsidiaries. Including the results of the Consolidated Funds significantly increases the reported amounts of the assets, liabilities, revenues, expenses and cash flows in the accompanying condensed consolidated financial

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

statements; however, the Consolidated Funds results included herein have no direct effect on the net income attributable to controlling interests or on total controlling equity. Instead, economic ownership interests of the investors in the Consolidated Funds are reflected as non-controlling interests in Consolidated Funds in the accompanying condensed consolidated financial statements. Further, cash flows allocable to non-controlling interest in Consolidated Funds are specifically identifiable in the Condensed Consolidated Statements of Cash Flows. All intercompany balances and transactions have been eliminated upon consolidation.

The Company has reclassified certain prior period amounts to conform to the current year presentation.

Adoption of ASC 606

Effective January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) Topic 606 (“ASC 606”), Revenue from Contracts with Customers . The Company adopted ASC 606 to all applicable contracts under the modified retrospective approach using the practical expedient provided for within paragraph 606-10-65-1(f)(3); therefore, the presentation of prior year periods has not been adjusted. The Company recognized the cumulative effect of initially adopting ASC 606 as an adjustment to the opening balance of components of equity as of January 1, 2018.

Pursuant to ASC 606, the Company recognizes revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Under this standard, revenue is based on a contract with a determinable transaction price and distinct performance obligations with probable collectability. Revenues cannot be recognized until the performance obligation(s) are satisfied and control is transferred to the customer. The Company's adoption of ASC 606 impacted the timing and recognition of incentive fees in the Company’s consolidated statements of operations. The adoption of ASC 606 did not have an impact on the Company’s management fees, administrative fees, transaction fees or other fees. The details of the significant changes and quantitative impact of the adoption of ASC 606 are further discussed below.

The adoption of ASC 606 had the following impact on the Company’s revenue streams:



Revenues of the Company	Impact of ASC 606
Management fees	No Impact - Management fees are recognized as revenue in the period advisory services are rendered.
Performance income - Carried interest allocation	No impact. See discussion below for change in accounting policy.
Performance income - Incentive fees	See discussion below for impact.
Administrative, transaction and other fees	No Impact - Administrative, transaction and other fees are recognized as revenue in the period in which the related services are rendered.

Performance Income

Performance income consists of carried interest and incentive fees.

Carried Interest

In certain fund structures, typically in private equity and real estate equity funds, carried interest is allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents. At the end of each reporting period, a fund will allocate carried interest applicable to the Company based upon an assumed liquidation of that fund's net assets on the reporting date, irrespective of whether such amounts have been realized. Carried interest is recorded to the extent such amounts have been allocated, and may be subject to reversal to the extent that the amount allocated ultimately exceeds the amount due to the Company based on a fund’s cumulative investment returns.

Carried interest is realized when an underlying investment is profitably disposed of and the fund’s cumulative returns are in excess of the specific hurdle rates as defined in the applicable governing documents. Since carried interest is subject to reversal, the Company may need to accrue for potential repayment of previously received carried interest. This accrual represents all amounts previously distributed to the Company that would need to be repaid to the funds if the funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual repayment obligations, however, generally

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

do not become realized until the end of a fund’s life. As of June 30, 2018 , if the funds were liquidated at their fair values, there would be a $0.2 million repayment obligation, and accordingly, the Company recorded a contingent repayment liability as June 30, 2018 . As of December 31, 2017 , if the funds were liquidated at their fair values, there would be no repayment obligation, and accordingly, the Company did not record a contingent repayment liability as of December 31, 2017 .

Prior to January 1, 2018, the Company accounted for carried interest under Method 2 described in ASC 605-20-S99-1, which provides guidance on accounting for incentive-based performance income, including carried interest. Since Method 2 is no longer available following the adoption of ASC 606, the Company has reassessed its accounting policy for carried interest, and has determined that carried interest is within scope of ASC 323, Investments-Equity Method and Joint Ventures, and out of scope under the scoping provision of ASC 606. Therefore, following the election of ASC 323, the Company accounted for carried interest, which represents a performance-based capital allocation from an investment fund to the Company, as earnings from financial assets within the scope of ASC 323. Accordingly, the Company recognizes carried interest allocation as a separate revenue line item in the Condensed Consolidated Statements of Operations. Uncollected carried interest as of the reporting date is recorded within investments in the Condensed Consolidated Statements of Financial Condition.

The Company has applied the change in accounting principle on a full retrospective basis, and prior periods presented have been recast to conform with the current period's presentation. The change in accounting principle did not change the timing or the amount of carried interest recognized. Instead, the change in accounting principle resulted in reclassification from performance income to carried interest allocation, and therefore did not have any impact on net income. See the tables below for the impact of the change in accounting principle of carried interest .

Incentive Fees

Incentive fees earned on the performance of certain fund structures, typically in credit funds, are recognized based on the fund’s performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. Incentive fees are realized at the end of a measurement period, typically annually. Once realized, such fees are no longer subject to reversal.

Prior to January 1, 2018, the Company accounted for incentive fees under Method 2 as described above. However, the accounting for incentive fees is separate and distinct from the accounting for carried interest because the incentive fees are contractual fee arrangements and do not represent allocations of returns from partners' capital accounts. The Company now accounts for incentive fees in accordance with ASC 606. Accordingly, the Company recognizes incentive fee revenue only when the amount is realized and no longer subject to reversal. Therefore, the Company no longer recognizes unrealized incentive fees in revenues in the condensed consolidated financial statements. The adoption of ASC 606 results in the delayed recognition of unrealized incentive fees in the condensed consolidated financial statements until they become realized at the end of the measurement period, which is typically annually.

The Company adopted ASC 606 for incentive fees using the modified retrospective approach with an effective date of January 1, 2018. The cumulative effect of the adoption resulted in the reversal of $22.6 million of unrealized incentive fees and is presented as a reduction to the opening balances of components of equity as of January 1, 2018.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables present the adjustments made in connection with the Company's change in accounting principle related to carried interest under ASC 323, Investments-Equity Method and Joint Ventures on the financial statement line items for the periods presented in the condensed consolidated financial statements:



Condensed Consolidated Statement of Financial Condition

	As of December 31, 2017
	As Previously Reported		Adjustments				As Adjusted
	(audited)
Assets
Investments ($1,077,236 of accrued carried interest)	$	647,335	$	1,077,236			$	1,724,571
Performance income receivable	1,099,847		(1,099,847		)		—
Other assets	107,730		22,611			(1)	130,341


(1)	Unrealized incentive fees receivable balance as of December 31, 2017.



Condensed Consolidated Statement of Operations

	Three Months Ended June 30, 2017
	As Previously Reported		Adjustments			As Adjusted

Revenues
Performance fees	$	338,024	$	(338,024	)	$	—
Carried interest allocation	—		333,808			333,808
Incentive fees	—		4,216			4,216
Principal investment income	—		38,307			38,307
Total revenues	533,890		38,307			572,197
Other income (expense)
Net realized and unrealized gain on investments	30,079		(36,667		)	(6,588		)
Interest and dividend income	3,102		(1,640		)	1,462



Condensed Consolidated Statement of Operations

	Six Months Ended June 30, 2017
	As Previously Reported		Adjustments			As Adjusted

Revenues
Performance fees	$	393,196	$	(393,196	)	$	—
Carried interest allocation	—		385,815			385,815
Incentive fees	—		7,381			7,381
Principal investment income	—		40,894			40,894
Total revenues	775,547		40,894			816,441
Other income (expense)
Net realized and unrealized gain on investments	32,734		(38,434		)	(5,700		)
Interest and dividend income	5,846		(2,460		)	3,386

The Company's change in accounting policy related to carried interest did not impact the Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Changes in Equity or Condensed Consolidated Statements of Cash Flows for the year ended December 31, 2017.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables present the impact of incentive fees on the condensed consolidated financial statements upon the adoption of ASC 606 effective January 1, 2018:

Condensed Consolidated Statement of Financial Condition



	As of January 1, 2018
	As adjusted December 31, 2017		Adjustments				As Adjusted for ASC 606 adoption
Investments	$	1,724,571	$	—			$	1,724,571
Other assets	130,341		(22,611		)	(1)	107,730
Total assets	8,563,522		(22,611		)		8,540,911
Total liabilities	7,103,230		—				7,103,230
Cumulative effect adjustment to equity(2)	—		(22,611		)		(22,611		)
Total equity	1,460,292		(22,611		)		1,437,681
Total liabilities, non-controlling interests and equity	8,563,522		(22,611		)		8,540,911


(1)	Unrealized incentive fees receivable balance as of December 31, 2017.


(2)	See detail below.

Condensed Consolidated Statement of Changes in Equity



	Preferred Equity		Shareholders' Capital			Accumulated Other Comprehensive Loss			Non-controlling interest in Ares Operating Group Entities			Non-Controlling Interest in Consolidated Funds		Total Equity
Balance at December 31, 2017	$	298,761	$	279,065		$	(4,208	)	$	358,186		$	528,488	$	1,460,292
Cumulative effect of the adoption of ASC 606	—		(10,827		)	—			(17,117		)	5,333		(22,611		)
As adjusted balance at January 1, 2018	$	298,761	$	268,238		$	(4,208	)	$	341,069		$	533,821	$	1,437,681

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

In accordance with the ASC 606 disclosure requirements, the following tables present the adjustments made by the Company to remove the effects of adopting ASC 606 on the condensed consolidated financial statements as of and for the three and six months ended June 30, 2018 :



Condensed Consolidated Statement of Financial Condition

	As of June 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606
Assets
Cash and cash equivalents	$	125,448		$	—		$	125,448
Investments ($985,035 of accrued carried interest)	$	1,466,247					$	1,466,247
Due from affiliates	$	172,428					$	172,428
Deferred tax asset, net	$	42,942		$	(199	)	$	42,743
Other assets	100,183			26,195			126,378
Total assets	10,144,735			25,996			10,170,731
Commitments and contingencies
Non-controlling interest in Consolidated Funds	577,217			(3,473		)	573,744
Non-controlling interest in Ares Operating Group entities	316,048			18,109			334,157
Controlling interest in Ares Management, L.P.:
Shareholders' equity (98,398,340 shares issued and outstanding)	349,981			11,443			361,424
Accumulated other comprehensive loss, net of tax	(6,758		)	(83		)	(6,841		)
Total controlling interest in Ares Management, L.P	343,223			11,360			354,583
Total equity	1,535,249			25,996			1,561,245
Total liabilities and equity	10,144,735			25,996			10,170,731

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



Condensed Consolidated Statement of Operations

	Three Months Ended June 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606
Revenues
Incentive fees	$	7,740		$	2,924		$	10,664
Total revenues	204,163			2,924			207,087
Expenses
Expenses of Consolidated Funds	35,112			—			35,112
Total expenses	221,017			—			221,017
Other income (expense)
Other income (expense), net	(1,987		)	12			(1,975		)
Total other income	67,926			12			67,938
Income before taxes	51,072			2,936			54,008
Income tax benefit	36,903			(50		)	36,853
Net income	14,169			2,986			17,155
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds	9,882			3,579			13,461
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	16,062			(433		)	15,629
Net income attributable to Ares Management, L.P.	(11,775		)	(160		)	(11,935		)
Less: Preferred equity dividend paid	5,425						5,425
Net income attributable to Ares Management, L.P. common shareholders	(17,200		)	(160		)	(17,360		)



Condensed Consolidated Statement of Operations

	Six Months Ended June 30, 2018
	As Reported		Adjustments		Balances without adoption of ASC 606
Revenues
Incentive fees	$	12,811	$	3,780	$	16,591
Total revenues	470,252		3,780		474,032
Expenses
Expenses of Consolidated Funds	36,428		—		36,428
Total expenses	427,300		—		427,300
Income before taxes	113,118		3,780		116,898
Income tax benefit	24,528		200		24,728
Net income	88,590		3,580		92,170
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds	10,249		1,860		12,109
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	49,168		1,104		50,272
Net income attributable to Ares Management, L.P.	29,173		616		29,789
Less: Preferred equity dividend paid	10,850				10,850
Net income attributable to Ares Management, L.P. common shareholders	18,323		616		18,939

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Condensed Consolidated Statement of Comprehensive Income



	Three Months Ended June 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606

Net income	$	14,169		$	2,986		$	17,155
Other comprehensive income:
Foreign currency translation adjustments	(12,377		)	(444		)	(12,821		)
Total comprehensive income	1,792			2,542			4,334
Less: Comprehensive income attributable to non-controlling interests in Consolidated Funds	4,193			3,579			7,772
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities	12,131			—			12,131
Comprehensive income attributable to Ares Management, L.P.	$	(14,532	)	$	(1,037	)	$	(15,569	)

Condensed Consolidated Statement of Comprehensive Income



	Six Months Ended June 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606

Net income	$	88,590		$	3,580		$	92,170
Other comprehensive income:
Foreign currency translation adjustments	(6,892		)	(195		)	(7,087		)
Total comprehensive income	81,698			3,385			85,083
Less: Comprehensive income attributable to non-controlling interests in Consolidated Funds	7,735			1,860			9,595
Less: Comprehensive income attributable to non-controlling interests in Ares Operating Group entities	47,340			992			48,332
Comprehensive income attributable to Ares Management, L.P.	$	26,623		$	533		$	27,156

Condensed Consolidated Statement of Cash Flows



	Six Months Ended June 30, 2018
	As Reported			Adjustments			Balances without adoption of ASC 606

Cash flows from operating activities:
Net income	$	88,590		$	3,580		$	92,170
Cash flows due to changes in operating assets and liabilities	66,925			(1,720		)	65,205
Cash flows due to changes in operating assets and liabilities allocable to non-controlling interests in Consolidated Funds	(34,335		)	(1,860		)	(36,195		)

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Recent Accounting Pronouncements

The Company considers the applicability and impact of all FASB ASUs issued. ASUs not listed below were assessed and either determined to be not applicable or expected to have minimal impact on the Company's condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The objective of the guidance in ASU 2016-02 is to increase transparency and comparability among organizations by recognizing lease assets and liabilities in the balance sheet and disclosing key information. ASU 2016-02 amends previous lease guidance, which required a lessee to categorize and account for leases as either operating leases or capital leases, and instead requires a lessee to recognize a lease liability and a right-of-use asset on the entity’s balance sheet for all leases with terms that exceed one year. The lease liability and right-of-use asset are to be carried at the present value of remaining expected future lease payments. The guidance should be applied using a modified retrospective approach. ASU 2016-02 is effective for public entities for annual reporting periods beginning after December 15, 2018 and interim periods within those reporting periods, with early adoption permitted. The Company is currently compiling all leases and right–of–use terms to evaluate the impact of this guidance on its condensed consolidated financial statements.

In January 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from Public Law No. 115-97 (the “Tax Cuts and Jobs Act”). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Cuts and Jobs Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. This ASU also requires certain disclosures about stranded tax effects. ASU 2018-02 is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The guidance should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. The Company adopted ASU 2018-02 in the three months ended March 31, 2018. As a result of the adoption of ASU 2018-02, $1.2 million of stranded tax effects resulting from the Tax Cuts and Jobs Act were reclassified from accumulated other comprehensive income to shareholders' equity during the three months ended March 31, 2018.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

3. GOODWILL AND INTANGIBLE ASSETS

Finite Lived Intangible Assets, Net

The Company's intangible assets include acquired management contracts, client relationships, a trade name, and the future benefits of managing new assets for existing clients that were recognized at fair value as of their acquisition dates.

The following table summarizes the carrying value, net of accumulated amortization, for the Company's intangible assets:



	Weighted Average Amortization Period as of June 30, 2018	As of June 30,			As of December 31,
	Weighted Average Amortization Period as of June 30, 2018	2018			2017
Management contracts	3.0 years	$	42,335		$	67,306
Client relationships	10.0 years	38,600			38,600
Trade name	4.0 years	3,200			3,200
Other(1)	0.7 years	180			—
Intangible assets		84,315			109,106
Less: accumulated amortization		(50,316		)	(68,641		)
Intangible assets, net		$	33,999		$	40,465


(1)	In connection with the CION Ares Diversified Credit Fund, the Company pays upfront commissions to brokers that sell class C shares in the fund. The Company is then entitled to 12 months of service fees from the sold shares, which are recorded as revenue.

Amortization expense associated with intangible assets was $3.3 million and $5.2 million for the three months ended June 30, 2018 and 2017 , respectively, and $6.6 million and $10.5 million for the six months ended June 30, 2018 and 2017 , respectively, and is presented within general, administrative and other expenses within the Condensed Consolidated Statements of Operations. During the first quarter of 2018, the Company removed $25.0 million of intangible assets that were fully amortized.

Goodwill

The following table summarizes the carrying value of the Company's goodwill assets:



	Credit		Private Equity		Real Estate			Total
Balance as of December 31, 2017	$	32,196	$	58,600	$	53,099		$	143,895
Foreign currency translation	—		—		(47		)	(47		)
Balance as of June 30, 2018	$	32,196	$	58,600	$	53,052		$	143,848

There was no impairment of goodwill recorded during the six months ended June 30, 2018 and 2017 . The impact of foreign currency translation is reflected within other comprehensive income.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

4. INVESTMENTS

The Company’s investments are comprised of:



					Percentage of total investments
	June 30,		December 31,		June 30,		December 31,
	2018		2017		2018		2017
			As adjusted				As adjusted
Private Investment Partnership Interests:
Equity method private investment partnership interests - principal (1)	$	348,831	$	340,354	23.8	%	19.7	%
Equity method - carried interest (1)	985,035		1,077,236		67.2	%	62.5	%
Equity method private investment partnership interests - other	70,780		74,439		4.8	%	4.3	%
Other private investment partnership interests	38,097		35,748		2.6	%	2.1	%
Total private investment partnership interests	1,442,743		1,527,777		98.4	%	88.6	%
Collateralized loan obligations	22,125		195,158		1.5	%	11.3	%
Common stock	1,379		1,636		0.1	%	0.1	%
Total investments	$	1,466,247	$	1,724,571


(1)	Interest or portion of the interest is denominated in foreign currency and is translated into U.S. dollars at each reporting date.

Equity Method Investments

The Company’s equity method investments include investments that are not consolidated but over which the Company exerts significant influence. The Company evaluates each of its equity method investments to determine if any were significant under SEC guidance. For the three and six months ended June 30, 2018 and 2017, no individual equity method investment held by the Company met the significance criteria.

The Company recognized net gains related to its equity method investments of $3.8 million and $38.3 million for the three months ended June 30, 2018 and 2017 , respectively, and $7.3 million and $41.3 million for the six months ended June 30, 2018 and 2017 , respectively. These amounts are included within both principal investment income and within net realized and unrealized gain on investments within the Consolidated Statements of Operations.

The material assets of the Company's equity method investments are expected to generate long-term capital appreciation and/or interest income; the material liabilities are debt instruments collateralized by, or related to, the financing of the assets; and net income is materially comprised of the changes in fair value of these net assets.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Investments of the Consolidated Funds

Investments held in the Consolidated Funds are summarized below:



	Fair value at				Fair value as a percentage of total investments at
	June 30,		December 31,		June 30,		December 31,
	2018		2017		2018		2017
United States:
Fixed income securities:
Consumer discretionary	$	1,714,080	$	1,295,732	24.8	%	23.2	%
Consumer staples	76,664		55,073		1.1	%	1.0	%
Energy	169,208		176,836		2.4	%	3.2	%
Financials	424,838		270,520		6.1	%	4.8	%
Healthcare, education and childcare	665,530		449,888		9.6	%	8.1	%
Industrials	407,280		370,926		5.8	%	6.6	%
Information technology	175,704		167,089		2.5	%	3.0	%
Materials	189,786		185,170		2.7	%	3.3	%
Telecommunication services	625,619		399,617		9.0	%	7.2	%
Utilities	79,660		77,102		1.1	%	1.4	%
Total fixed income securities (cost: $4,573,566 and $3,459,318 at June 30, 2018 and December 31, 2017, respectively)	4,528,369		3,447,953		65.1	%	61.8	%
Equity securities:
Energy	60		126		0.0	%	0.0	%
Total equity securities (cost: $2,265 and $2,265 at June 30, 2018 and December 31, 2017, respectively)	60		126		0.0	%	0.0	%
Partnership and interests
Partnership and interests	251,608		232,332		3.6	%	4.2	%
Total partnership and LLC interests (cost: $206,000 and $190,000 at June 30, 2018 and December 31, 2017, respectively)	251,608		232,332		3.6	%	4.2	%

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



	Fair value at				Fair value as a percentage of total investments at
	June 30,		December 31,		June 30,		December 31,
	2018		2017		2018		2017
Europe:
Fixed income securities:
Consumer discretionary	$	772,714	$	604,608	11.1	%	10.8	%
Energy	14,833		2,413		0.2	%	0.0	%
Consumer staples	90,207		76,361		1.3	%	1.4	%
Financials	127,141		81,987		1.8	%	1.5	%
Healthcare, education and childcare	234,696		209,569		3.4	%	3.8	%
Industrials	124,690		145,706		1.8	%	2.6	%
Information technology	21,329		21,307		0.3	%	0.4	%
Materials	184,342		213,395		2.6	%	3.8	%
Telecommunication services	256,032		182,543		3.7	%	3.3	%
Total fixed income securities (cost: $1,849,235 and $1,545,297 at June 30, 2018 and December 31, 2017, respectively)	1,825,984		1,537,889		26.2	%	27.6	%
Equity securities:
Healthcare, education and childcare	51,010		63,155		0.7	%	1.1	%
Total equity securities (cost: $67,198 and $67,198 at June 30, 2018 and December 31, 2017, respectively)	51,010		63,155		0.7	%	1.1	%
Asia and other:
Fixed income securities:
Consumer discretionary	1,878		2,008		0.0	%	0.0	%
Financials	4,288		12,453		0.1	%	0.2	%
Telecommunication services	20,888		21,848		0.3	%	0.4	%
Total fixed income securities (cost: $27,737 and $36,180 at June 30, 2018 and December 31, 2017, respectively)	27,054		36,309		0.4	%	0.6	%
Equity securities:
Consumer discretionary	43,647		59,630		0.6	%	1.1	%
Consumer staples	42,717		45,098		0.6	%	0.8	%
Healthcare, education and childcare	44,637		44,637		0.6	%	0.8	%
Industrials	50,795		16,578		0.7	%	0.3	%
Total equity securities (cost: $122,418 and $122,418 at June 30, 2018 and December 31, 2017, respectively)	181,796		165,943		2.5	%	3.0	%

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



	Fair value at				Fair value as a percentage of total investments at
	June 30,		December 31,		June 30,		December 31,
	2018		2017		2018		2017
Canada:
Fixed income securities:
Consumer discretionary	$	7,287	$	6,757	0.1	%	0.1	%
Consumer staples	36,420		15,351		0.5	%	0.3	%
Energy	4,895		33,715		0.1	%	0.6	%
Industrials	27,356		18,785		0.4	%	0.3	%
Telecommunication services	12,569		6,189		0.2	%	0.1	%
Total fixed income securities (cost: $89,165 and $80,201 at June 30, 2018 and December 31, 2017, respectively)	88,527		80,797		1.3	%	1.4	%
Equity securities:
Consumer discretionary	—		5,912		—	%	0.1	%
Total equity securities (cost: $ 0 and $17,202 at June 30, 2018 and December 31, 2017, respectively)	—		5,912		—	%	0.1	%
Australia:
Fixed income securities:
Consumer discretionary	11,932		10,863		0.2	%	0.2	%
Energy	1,727		1,563		0.0	%	0.0	%
Total fixed income securities (cost: $13,915 and $12,714 at June 30, 2018 and December 31, 2017, respectively)	13,659		12,426		0.2	%	0.2	%
Total fixed income securities	6,483,593		5,115,374		93.2	%	91.6	%
Total equity securities	232,866		235,136		3.2	%	4.2	%
Total partnership interests	251,608		232,332		3.6	%	4.2	%
Total investments, at fair value	$	6,968,067	$	5,582,842

At June 30, 2018 and December 31, 2017 , no single issuer or investment, including derivative instruments and underlying portfolio investments of the Consolidated Funds, had a fair value that exceeded 5.0% of the Company’s total assets.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

5. FAIR VALUE

Fair Value Measurements

GAAP establishes a hierarchal disclosure framework that prioritizes 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 for which 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 rates, yield curves, volatilities, prepayment risks, loss severities, credit risks and default rates.


•	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 more than one level 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. The Company’s assessment of the significance of an input requires judgment and considers factors specific to the instrument. The Company accounts for the transfer of assets into or out of each fair value hierarchy level as of the beginning of the reporting period.

Fair Value of Financial Instruments Held by the Company and Consolidated Funds

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of June 30, 2018 :



Financial Instruments of the Company	Level I		Level II			Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Fixed income-collateralized loan obligations	$	—	$	—		$	22,125	$	—	$	22,125
Equity securities	353		1,026			—		—		1,379
Partnership interests	—		—			47,219		38,097		85,316
Total investments, at fair value	353		1,026			69,344		38,097		108,820
Derivatives—foreign exchange contracts	—		803			—		—		803
Total assets, at fair value	$	353	$	1,829		$	69,344	$	38,097	$	109,623
Liabilities, at fair value
Derivatives—foreign exchange contracts	$	—	$	(2,252	)	$	—	$	—	$	(2,252	)
Total liabilities, at fair value	$	—	$	(2,252	)	$	—	$	—	$	(2,252	)

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



Financial Instruments of the Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	88,672		$	7,634		$	96,306
Loans	—		5,886,315			474,741			6,361,056
Collateralized loan obligations	—		26,231			—			26,231
Total fixed income investments	—		6,001,218			482,375			6,483,593
Equity securities	48,283		—			184,583			232,866
Partnership interests	—		—			251,608			251,608
Total investments, at fair value	48,283		6,001,218			918,566			6,968,067
Derivatives:
Asset swaps - other	—		—			953			953
Total assets, at fair value	$	48,283	$	6,001,218		$	919,519		$	6,969,020
Liabilities, at fair value
Asset swaps - other	$	—	$	—		$	(723	)	$	(723	)
Loan obligations of CLOs	—		(6,333,239		)	—			(6,333,239		)
Total liabilities, at fair value	$	—	$	(6,333,239	)	$	(723	)	$	(6,333,962	)

The tables below summarize the financial assets and financial liabilities measured at fair value for the Company and Consolidated Funds as of December 31, 2017 :



Financial Instruments of the Company	Level I		Level II			Level III		Investments Measured at NAV		Total
Assets, at fair value
Investments:
Fixed income-collateralized loan obligations	$	—	$	—		$	195,158	$	—	$	195,158
Equity securities	520		1,116			—		—		1,636
Partnership interests	—		—			44,769		35,998		80,767
Total investments, at fair value	520		1,116			239,927		35,998		277,561
Derivatives—foreign exchange contracts	—		498			—		—		498
Total assets, at fair value	$	520	$	1,614		$	239,927	$	35,998	$	278,059
Liabilities, at fair value
Derivatives—foreign exchange contracts	$	—	$	(2,639	)	$	—	$	—	$	(2,639	)
Total liabilities, at fair value	$	—	$	(2,639	)	$	—	$	—	$	(2,639	)

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



Financial Instruments of the Consolidated Funds	Level I		Level II			Level III			Total
Assets, at fair value
Investments:
Fixed income investments:
Bonds	$	—	$	82,151		$	7,041		$	89,192
Loans	—		4,755,335			260,848			5,016,183
Collateralized loan obligations	—		10,000			—			10,000
Total fixed income investments	—		4,847,486			267,889			5,115,375
Equity securities	72,558		—			162,577			235,135
Partnership interests	—		—			232,332			232,332
Total investments, at fair value	72,558		4,847,486			662,798			5,582,842
Derivatives:
Asset swaps - other	—		—			1,366			1,366
Total derivative assets, at fair value	—		—			1,366			1,366
Total assets, at fair value	$	72,558	$	4,847,486		$	664,164		$	5,584,208
Liabilities, at fair value
Asset swaps - other	$	—	$	—		$	(462	)	$	(462	)
Loan obligations of CLOs	—		(4,963,194		)	—			(4,963,194		)
Total liabilities, at fair value	$	—	$	(4,963,194	)	$	(462	)	$	(4,963,656	)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended June 30, 2018 :



	Level III Assets
Level III Assets and Liabilities of the Company	Fixed Income			Partnership Interests		Total
Balance, beginning of period	$	242,984		$	44,769	$	287,753
Sales/settlements(2)	(219,744		)	—		(219,744		)
Realized and unrealized appreciation (depreciation), net	(1,115		)	2,450		1,335
Balance, end of period	$	22,125		$	47,219	$	69,344
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	(100	)	$	2,450	$	2,350



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	160,422		$	240,763		$	252,700		$	86		$	653,971
Transfer in	—			94,776			—			—			94,776
Transfer out	—			(68,328		)	—			—			(68,328		)
Purchases(1)	—			273,879			6,000			—			279,879
Sales/settlements(2)	—			(57,206		)	—			(17		)	(57,223		)
Amortized discounts/premiums	—			(9		)	—			(21		)	(30		)
Realized and unrealized appreciation (depreciation), net	24,161			(1,500		)	(7,092		)	182			15,751
Balance, end of period	$	184,583		$	482,375		$	251,608		$	230		$	918,796
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(2,090	)	$	(3,785	)	$	—		$	134		$	(5,741	)


(1)	Purchases include paid‑in‑kind interest and securities received in connection with restructurings.


(2)	Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the three months ended June 30, 2017 :



	Level III Assets								Level III Liabilities
Level III Assets and Liabilities of the Company	Fixed Income			Partnership Interests		Total			Contingent Considerations
Balance, beginning of period	$	108,253		$	33,410	$	141,663		$	1,909
Purchases(1)	60,242			—		60,242			—
Sales/settlements(2)	(3,324		)	—		(3,324		)	—
Realized and unrealized depreciation, net	(364		)	—		(364		)	31
Balance, end of period	$	164,807		$	33,410	$	198,217		$	1,940
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	(625	)	$	—	$	(625	)	$	31



Level III Assets of Consolidated Funds	Equity Securities		Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	142,358	$	278,829		$	196,690		$	845		$	618,722
Transfer in	444		18,356			—			—			18,800
Transfer out	—		(108,757		)	—			—			(108,757		)
Purchases(1)	—		56,292			50,000			—			106,292
Sales/settlements(2)	—		(60,481		)	(30,000		)	(888		)	(91,369		)
Amortized discounts/premiums	—		(78		)	—			(100		)	(178		)
Realized and unrealized appreciation, net	3,472		3,418			1,050			2,952			10,892
Balance, end of period	$	146,274	$	187,579		$	217,740		$	2,809		$	554,402
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	3,472	$	(277	)	$	1,050		$	3,145		$	7,390


(1)	Purchases include paid‑in‑kind interest and securities received in connection with restructurings.


(2)	Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the six months ended June 30, 2018 :



	Level III Assets
Level III Assets and Liabilities of the Company	Fixed Income			Partnership Interests		Total
Balance, beginning of period	$	195,158		$	44,769	$	239,927
Deconsolidation of fund	78			—		78
Purchases(1)	48,731			—		48,731
Sales/settlements(2)	(220,571		)	—		(220,571		)
Realized and unrealized appreciation (depreciation), net	(1,271		)	2,450		1,179
Balance, end of period	$	22,125		$	47,219	$	69,344
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	(829	)	$	2,450	$	1,621



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests		Derivatives, Net			Total
Balance, beginning of period	$	162,577		$	267,889		$	232,332	$	904		$	663,702
Deconsolidation of fund				(233		)						(233		)
Transfer in	—			95,450			—		—			95,450
Transfer out	—			(73,777		)	—		—			(73,777		)
Purchases(1)	—			313,462			16,000		—			329,462
Sales/settlements(2)	—			(117,503		)	—		(194		)	(117,697		)
Amortized discounts/premiums	—			35			—		(14		)	21
Realized and unrealized appreciation (depreciation), net	22,006			(2,948		)	3,276		(466		)	21,868
Balance, end of period	$	184,583		$	482,375		$	251,608	$	230		$	918,796
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	(12,211	)	$	(1,671	)	$	3,276	$	(566	)	$	(11,172	)


(1)	Purchases include paid‑in‑kind interest and securities received in connection with restructurings.


(2)	Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following tables set forth a summary of changes in the fair value of the Level III measurements for the six months ended June 30, 2017 :



	Level III Assets									Level III Liabilities
Level III Assets and Liabilities of the Company	Fixed Income			Partnership Interests			Total			Contingent Considerations
Balance, beginning of period	$	89,111		$	33,410		$	122,521		$	22,156
Purchases(1)	80,684			169			80,853			—
Sales/settlements(2)	(5,241		)	—			(5,241		)	—
Realized and unrealized appreciation (depreciation), net	253			(169		)	84			(20,216		)
Balance, end of period	$	164,807		$	33,410		$	198,217		$	1,940
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets and liabilities still held at the reporting date	$	(155	)	$	—		$	(155	)	$	61



Level III Assets of Consolidated Funds	Equity Securities			Fixed Income			Partnership Interests			Derivatives, Net			Total
Balance, beginning of period	$	130,690		$	242,253		$	171,696		$	(2,708	)	$	541,931
Transfer in	—			34,182			—			—			34,182
Transfer out	(6,160		)	(108,806		)	—			—			(114,966		)
Purchases(1)	6,692			93,111			73,000			—			172,803
Sales/settlements(2)	—			(76,714		)	(30,000		)	1,966			(104,748		)
Amortized discounts/premiums	—			46			—			216			262
Realized and unrealized appreciation, net	15,052			3,507			3,044			3,335			24,938
Balance, end of period	$	146,274		$	187,579		$	217,740		$	2,809		$	554,402
Increase (decrease) in unrealized appreciation/depreciation included in earnings related to financial assets still held at the reporting date	$	15,749		$	(785	)	$	3,044		$	3,914		$	21,922


(1)	Purchases include paid‑in‑kind interest and securities received in connection with restructurings.


(2)	Sales/settlements include distributions, principal redemptions and securities disposed of in connection with restructurings.

The Company recognizes transfers between the levels as of the beginning of the period. Transfers out of Level III were generally attributable to certain investments that experienced a more significant level of market activity during the period and thus were valued using observable inputs either from independent pricing services or multiple brokers. Transfers into Level III were generally attributable to certain investments that experienced a less significant level of market activity during the period and thus were only able to obtain one or fewer quotes from a broker or independent pricing service. For the six months ended June 30, 2018 , there were no transfers between Level I and Level II fair value measurements.

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of June 30, 2018 :



	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Partnership interests	$	47,219	Other	N/A	N/A
Collateralized loan obligations	22,125		Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	69,344

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table summarizes the quantitative inputs and assumptions used for the Company’s Level III measurements as of December 31, 2017 :



	Fair Value		Valuation Technique(s)	Significant Unobservable Input(s)	Range
Assets
Partnership interests	$	44,769	Other	N/A	N/A
Collateralized loan obligations	195,158		Broker quotes and/or 3rd party pricing services	N/A	N/A
Total	$	239,927

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of June 30, 2018 :



	Fair Value			Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	51,010		Enterprise value market multiple analysis	EBITDA multiple(2)	7.7x	7.7
	44,637			Market approach (comparable companies)	Net income multiple	51.8x	51.8
					Illiquidity discount	25.0%	25.0%
	60			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	88,876			Transaction price(1)	N/A	N/A	N/A
Partnership interest	251,608			Discounted cash flow	Discount rate	17.0%	17.0%
Fixed income securities
	434,397			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	47,978			Income approach	Yield	7.8% - 15.2%	11.3%
Derivative instruments	953			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	919,519
Liabilities
Derivatives instruments	$	(723	)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(723	)


(1)	Transaction price consists of securities recently purchased or restructured. The Company determined that there was no change to the valuation based on the underlying assumptions used at the closing of such transactions.


(2)	“EBITDA” in the table above is a non-GAAP financial measure and refers to earnings before interest, tax, depreciation and amortization.

Table of Contents

Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table summarizes the quantitative inputs and assumptions used for the Consolidated Funds’ Level III measurements as of December 31, 2017 :



	Fair Value			Valuation Technique(s)	Significant Unobservable Input(s)	Range	Weighted Average
Assets
Equity securities
	$	63,155		Enterprise value market multiple analysis	EBITDA multiple	2.7x	2.7x
	61,215			Market approach (comparable companies)	Net income multiple Illiquidity discount	27.0x - 36.2x 25.0%	33.7x 25.0%
	126			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	38,081			Transaction price(1)	N/A	N/A	N/A
Partnership interest	232,332			Discounted cash flow	Discount rate	19.0%	19.0%
Fixed income securities
	222,413			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
	45,243			Income approach	Yield	10.8% - 22.5%	12.1%
	233			Market approach (comparable companies)	EBITDA multiple	6.5x	6.5x
Derivative instruments	1,366			Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total assets	$	664,164
Liabilities
Derivatives instruments	$	(462	)	Broker quotes and/or 3rd party pricing services	N/A	N/A	N/A
Total liabilities	$	(462	)


(1)	Transaction price consists of securities purchased or restructured. The Company determined that there has been no change to the valuation based on the underlying assumptions used at the closing of such transactions.

The Company's investments valued using net asset value (“NAV”) per share have terms and conditions that do not allow for redemption without certain events or approvals that are outside the Company's control. A summary of fair value by segment and the remaining unfunded commitments are presented below:



	As of June 30, 2018				As of December 31, 2017
	Fair Value		Unfunded Commitments		Fair Value		Unfunded Commitments
Non-core investments(1)	$	38,097	$	16,286	$	35,998	$	16,492
Total	$	38,097	$	16,286	$	35,998	$	16,492

(1) Non-core investments are reported within OMG.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

6. DERIVATIVE FINANCIAL INSTRUMENTS

In the normal course of business, the Company and the Consolidated Funds are exposed to certain risks relating to their ongoing operations and use various types of derivative instruments primarily to mitigate against credit and foreign exchange risk. The derivative instruments are not designated as hedging instruments under the accounting standards for derivatives and hedging. The Company recognizes all of its derivative instruments at fair value as either assets or liabilities in the Condensed Consolidated Statements of Financial Condition within other assets or accounts payable, accrued expenses and other liabilities, respectively. These amounts may be offset to the extent that there is a legal right to offset and if elected by management.

The following tables identify the fair value and notional amounts of derivative contracts by major product type on a gross basis for the Company and the Consolidated Funds as of June 30, 2018 and December 31, 2017 :



	As of June 30, 2018								As of December 31, 2017
	Assets				Liabilities				Assets				Liabilities
The Company	Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value		Notional(1)		Fair Value
Foreign exchange contracts	$	13,733	$	803	$	86,130	$	2,252	$	13,724	$	498	$	51,026	$	2,639
Total derivatives, at fair value(2)	$	13,733	$	803	$	86,130	$	2,252	$	13,724	$	498	$	51,026	$	2,639



	As of June 30, 2018				As of December 31, 2017
	Assets		Liabilities		Assets		Liabilities
Consolidated Funds	Notional(1)	Fair Value	Notional(1)	Fair Value	Notional(1)	Fair Value	Notional(1)	Fair Value
Asset swap - other	4,558	953	1,351	723	5,363	1,366	1,840	462
Total derivatives, at fair value(3)	4,558	953	1,351	723	5,363	1,366	1,840	462


(1)	Represents the total contractual amount of derivative assets and liabilities outstanding.


(2)	As of June 30, 2018 and December 31, 2017 , the Company had the right to, but elected not to, offset $0.8 million and $0.5 million of its derivative assets and liabilities, respectively.


(3)	As of June 30, 2018 and December 31, 2017 , the Consolidated Funds offset $0.3 million and $0.4 million of their derivative assets and liabilities, respectively.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

7. DEBT

The following table summarizes the Company’s and its subsidiaries’ debt obligations:



					As of June 30, 2018			As of December 31, 2017
	Debt Origination Date	Maturity	Original Borrowing Amount		Carrying Value		Interest Rate	Carrying Value		Interest Rate
Credit Facility(1)	Revolver	2/24/2022	N/A		$	125,000	3.63%	$	210,000	3.09%
Senior Notes(2)	10/8/2014	10/8/2024	$	250,000	245,628		4.21%	245,308		4.21%
2015 Term Loan(3)	9/2/2015	7/29/2026	—		—		N/A	35,037		2.86%
2016 Term Loan(4)	12/21/2016	1/15/2029	—		—		N/A	25,948		3.08%
2017 Term Loan A(4)	3/22/2017	1/22/2028	—		—		N/A	17,407		2.90%
2017 Term Loan B(4)	5/10/2017	10/15/2029	—		—		N/A	35,062		2.90%
2017 Term Loan C(4)	6/22/2017	7/30/2029	—		—		N/A	17,078		2.88%
2017 Term Loan D(4)	11/16/2017	10/15/2030	—		—		N/A	30,336		2.77%
Total debt obligations					$	370,628		$	616,176

(1)

The AOG entities are borrowers under the Credit Facility, which provides a $1.065 billion revolving line of credit. It has a variable interest rate based on LIBOR or a base rate plus an applicable margin with an unused commitment fee paid quarterly, which is subject to change with the Company’s underlying credit agency rating. As of June 30, 2018 , base rate loans bear interest calculated based on the base rate plus 0.50% and the LIBOR rate loans bear interest calculated based on LIBOR plus 1.50%. The unused commitment fee is 0.20% per annum. There is a base rate and LIBOR floor of zero .


(2)	The Senior Notes were issued in October 2014 by Ares Finance Co. LLC, a subsidiary of the Company, at 98.268% of the face amount with interest paid semi-annually. The Company may redeem the Senior Notes prior to maturity, subject to the terms of the indenture .

(3)

The 2015 Term Loan was entered into in August 2015 by a subsidiary of the Company that acts as a manager to a CLO. The 2015 Term Loan is secured by collateral in the form of CLO senior tranches owned by the Company. To the extent the assets are not sufficient to cover the Term Loan, there is no further recourse to the Company to fund or repay the remaining balance. Interest is paid quarterly, and the Company also pays a fee of 0.025% of a maximum investment amount .

(4)

The 2016 and 2017 Term Loans (“Term Loans”) were entered into by a subsidiary of the Company that acts as a manager to CLOs. The Term Loans are secured by collateral in the form of CLO senior tranches and subordinated notes owned by the Company. Collateral associated with one of the Term Loans may be used to satisfy outstanding liabilities of another Term Loan should the collateral fall short. To the extent the assets associated with these Term Loans are not sufficient to cover the Term Loans, there is no further recourse to the Company to fund or repay the remaining balance. Interest is paid quarterly, and the Company also pays a fee of 0.03% of a maximum investment amount.

As of June 30, 2018 , the Company and its subsidiaries were in compliance with all covenants under the debt obligations.

The Company typically incurs and pays debt issuance costs when entering into a new debt obligation or when amending an existing debt agreement. Debt issuance costs related to the Company's Senior Notes and Term Loans are recorded as a reduction of the corresponding debt obligation and debt issuance costs related to the Credit Facility are included in other assets in the Condensed Consolidated Statements of Financial Condition. All debt issuance costs are amortized over the term of the related obligation.

Subsequent to the removal of the U.S. risk retention requirements related to open–market CLO managers, the Company sold $219.3 million of its CLO securities and used the proceeds to pay off the related 2015-2017 Term Loans and settle a repurchase agreement of $206.0 million during the three months ended June 30, 2018 . The resulting loss from the debt extinguishment was immaterial.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the activity of the Company's debt issuance costs:



	Credit Facility			Senior Notes			Term Loans			Repurchase Agreement Loan
Unamortized debt issuance costs as of December 31, 2017	$	6,543		$	1,571		$	1,171		$	—
Debt issuance costs incurred	—			—			173			259
Amortization of debt issuance costs	(786		)	(121		)	(56		)	(7		)
Debt extinguishment expense	—			—			(1,288		)	(252		)
Unamortized debt issuance costs as of June 30, 2018	$	5,757		$	1,450		$	—		$	—

Loan Obligations of the Consolidated CLOs

Loan obligations of the Consolidated Funds that are CLOs ("Consolidated CLOs") represent amounts due to holders of debt securities issued by the Consolidated CLOs. The Company measures the loan obligations of the Consolidated CLOs using the fair value of the financial assets of its Consolidated CLOs. As of June 30, 2018 and December 31, 2017 the following loan obligations were outstanding and classified as liabilities of the Company’s Consolidated CLOs:



	As of June 30, 2018					As of December 31, 2017
	Loan Obligations		Fair Value of Loan Obligations		Weighted Average Remaining Maturity In Years	Loan Obligations		Fair Value of Loan Obligations		Weighted Average Remaining Maturity In Years
Senior secured notes(1)	$	6,189,246	$	6,111,930	11.00	$	4,801,582	$	4,776,883	10.57
Subordinated notes(2)	319,840		221,309		11.40	276,169		186,311		11.25
Total loan obligations of Consolidated CLOs	$	6,509,086	$	6,333,239		$	5,077,751	$	4,963,194


(1)	Original borrowings under the senior secured notes totaled $6.2 billion , with various maturity dates ranging from October 2024 to October 2030. The weighted average interest rate as of June 30, 2018 was 5.21% .


(2)	Original borrowings under the subordinated notes totaled $319.8 million , with various maturity dates ranging from October 2024 to October 2030. The notes do not have contractual interest rates, instead holders of the notes receive distributions from the excess cash flows generated by each Consolidated CLO.

Loan obligations of the Consolidated CLOs are collateralized by the assets held by the Consolidated CLOs, consisting of cash and cash equivalents, corporate loans, corporate bonds and other securities. The assets of one Consolidated CLO may not be used to satisfy the liabilities of another Consolidated CLO. Loan obligations of the Consolidated CLOs include floating rate notes, deferrable floating rate notes, revolving lines of credit and subordinated notes. Amounts borrowed under the notes are repaid based on available cash flows subject to priority of payments under each Consolidated CLO’s governing documents. Based on the terms of these facilities, the creditors of the facilities have no recourse to the Company.

Credit Facilities of the Consolidated Funds

Certain Consolidated Funds maintain credit facilities to fund investments between capital drawdowns. These facilities generally are collateralized by the unfunded capital commitments of the Consolidated Funds’ limited partners, bear an annual commitment fee based on unfunded commitments and contain various affirmative and negative covenants and reporting obligations, including restrictions on additional indebtedness, liens, margin stock, affiliate transactions, dividends and distributions, release of capital commitments and portfolio asset dispositions. The creditors of these facilities have no recourse to the Company except to the extent the debt is guaranteed by a subsidiary or if a general partner is liable for the Consolidated Fund’s liabilities under applicable law. Credit facilities of the Consolidated Funds are reflected at cost in the Condensed Consolidated Statements of Financial Condition. As of June 30, 2018 and December 31, 2017 , the Consolidated Funds were in compliance with all covenants under such credit facilities.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Consolidated Funds had the following revolving bank credit facilities and term loan outstanding as of June 30, 2018 and December 31, 2017 :



				As of June 30, 2018				As of December 31, 2017
Consolidated Funds' Debt Facilities	Maturity Date	Total Capacity		Outstanding Loan(1)		Effective Rate		Outstanding Loan(1)		Effective Rate
Credit Facilities:
	1/1/2023	$	18,000	$	13,376	3.88%		$	12,942	2.88%
	6/29/2019	46,632		46,632		EURIBOR + 1.55%	(2)	48,042		1.55%	(2)
	3/7/2019	71,500		71,500		3.47%		71,500		2.88%
Revolving Term Loan	1/31/2022	1,900		1,216		8.07%		—		—%
	8/19/2019	11,429		5,714		9.32%		5,714		5.86%
Total borrowings				$	138,438			$	138,198


(1)	The fair values of the borrowings approximate the carrying value as the interest rate on the borrowings is a floating rate.


(2)	The effective rate is based on the three month EURIBOR or zero , whichever is higher, plus an applicable margin.

8. COMMITMENTS AND CONTINGENCIES

Indemnification Arrangements

Consistent with standard business practices in the normal course of business, the Company enters into contracts that contain indemnities for affiliates of the Company, persons acting on behalf of the Company or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the Company’s maximum exposure under these arrangements cannot be determined and has not been recorded in the Condensed Consolidated Statements of Financial Condition. As of June 30, 2018 , the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Commitments

As of June 30, 2018 and December 31, 2017 , the Company had aggregate unfunded commitments of $284.5 million and $285.7 million , respectively, including commitments to both non-consolidated funds and Consolidated Funds. Total unfunded commitments included $16.3 million and $16.5 million in commitments to funds not managed by the Company as of June 30, 2018 and December 31, 2017 , respectively.

ARCC Fee Waiver

In conjunction with ARCC's acquisition of American Capital, Ltd. (“ACAS”), the Company agreed to waive up to $10 million per quarter of ARCC's Part I Fees for ten calendar quarters, which began in the second quarter of 2017. ARCC Part I Fees will only be waived to the extent they are paid. The maximum amount of fees that may be waived in a quarter is $10 million , and if ARCC Part I Fees are less than $10 million in any single quarter, the shortfall will not carryover to subsequent quarters. As of June 30, 2018 , there are five remaining quarters as part of the fee waiver agreement, with a maximum of $50 million in potential waivers. ARCC Part I Fees are reported net of the fee waiver.

Performance Income

Generally, if at the termination of a fund (and increasingly at interim points in the life of a fund), the fund has not achieved investment returns that (in most cases) exceed the preferred return threshold or (in all cases) the general partner receives net profits over the life of the fund in excess of its allocable share under the applicable partnership agreement, the Company will be obligated to repay carried interest that was received by the Company in excess of the amounts to which the Company is entitled. This contingent obligation is normally reduced by income taxes paid by the Company related to its carried interest.

At June 30, 2018 and December 31, 2017 , if the Company assumed all existing investments were worthless, the amount of performance income subject to potential repayment, net of tax, which may differ from the recognition of revenue, would have

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

been approximately $472.9 million and $476.1 million , respectively, of which approximately $367.5 million and $370.0 million , respectively, is reimbursable to the Company by certain professionals who are the recipients of such performance income. Management believes the possibility of all of the investments becoming worthless is remote. As of June 30, 2018 , if the funds were liquidated at their fair values, there would be $0.2 million of repayment obligations, and accordingly, the Company recorded a contingent repayment liability as June 30, 2018 . As of December 31, 2017 , if the funds were liquidated at their fair values, there would be no repayment obligation, and accordingly, the Company did not record a contingent repayment liability as of December 31, 2017 .

Litigation

From time to time, the Company is named as a defendant in legal actions relating to transactions conducted in the ordinary course of business. Although there can be no assurance of the outcome of such legal actions, in the opinion of management, the Company does not have a potential liability related to any current legal proceeding or claim that would individually or in the aggregate materially affect its results of operations, financial condition or cash flows.

9. RELATED PARTY TRANSACTIONS

Substantially all of the Company’s revenue is earned from its affiliates, including management fees, carried interest allocation, incentive fees, investment income, other fees and administrative expense reimbursements. The related accounts receivable are included within due from affiliates within the Condensed Consolidated Statements of Financial Condition, except that accrued carried interest allocations and incentive fees receivable, which are presented within investments and other assets, respectively, within the Condensed Consolidated Statements of Financial Condition.

The Company has investment management agreements with various funds and accounts that it manages. In accordance with these agreements, the Consolidated Funds bear certain operating costs and expenses which are initially paid by the Company and subsequently reimbursed by the Consolidated Funds.

The Company also has entered into agreements with related parties to be reimbursed for its expenses incurred for providing administrative services to such related parties, including ARCC, ACRE, ARDC, Ivy Hill Asset Management, L.P., ACF FinCo I L.P, and CION Ares Diversified Credit Fund.

Employees and other related parties may be permitted to participate in co-investment vehicles that invest in Ares funds alongside fund investors. Participation is limited by law to individuals who qualify under applicable securities laws. These employee co-investment vehicles generally do not require the participants to pay management or incentive fees.

Performance income the Company earns from the funds can be distributed to professionals or their related entities on a current basis, subject to repayment by the subsidiary of the Company that acts as general partner of the relevant fund in the event that certain specified return thresholds are not ultimately achieved. The professionals have personally guaranteed, subject to certain limitations, the obligations of these subsidiaries in respect of this general partner obligation. Such guarantees are several, and not joint, and are limited to distributions received by the relevant recipient.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company considers its professionals and non-consolidated funds to be affiliates. Amounts due from and to affiliates were composed of the following:



	As of June 30,		As of December 31,
	2018		2017
Due from affiliates:
Management fees receivable from non-consolidated funds	$	132,132	$	126,506
Payments made on behalf of and amounts due from non-consolidated funds and employees	40,296		39,244
Due from affiliates—Company	$	172,428	$	165,750
Amounts due from portfolio companies and non-consolidated funds	$	13,704	$	15,884
Due from affiliates—Consolidated Funds	$	13,704	$	15,884
Due to affiliates:
Management fee rebate payable to non-consolidated funds	$	2,603	$	5,213
Management fees received in advance	4,746		1,729
Tax receivable agreement liability	12,925		3,503
Payable to company employees(1)	24,701		24,542
Payments made by non-consolidated funds on behalf of and payable by the Company	17,369		4,197
Due to affiliates—Company	$	62,344	$	39,184


(1)	Prior year amount of $24.5 million was reclassified from performance related compensation payable to due to affiliates to conform with current year presentation.

Due from Ares Funds and Portfolio Companies

In the normal course of business, the Company pays certain expenses on behalf of Consolidated Funds and non-consolidated funds for which it is reimbursed. Amounts advanced on behalf of Consolidated Funds are eliminated in consolidation. Certain expenses initially paid by the Company, primarily professional services, travel and other costs associated with particular portfolio company holdings are subject to reimbursement by the portfolio companies. The Company reimbursed ARCC approximately $0.6 million for certain recurring rent and utilities incurred by ARCC during the first quarter of 2018. In addition, during the three months ended June 30, 2018, the Company reimbursed ARCC approximately $2.2 million , $3.0 million , $3.2 million and $2.9 million of rent and utilities for the years ended 2017, 2016, 2015 and 2014, respectively, for an aggregate reimbursement to ARCC of $11.8 million . Beginning April 1, 2018, the Company will bear these expenses.

ARCC Investment Advisory and Management Agreement

In connection with ARCC's board approval of the modification of the asset coverage requirement applicable to senior securities from 200% to 150% effective on June 21, 2019, (unless ARCC receives earlier stockholder approval), the investment advisory and management agreement will be amended prior to June 21, 2019 (or such earlier date), to reduce the annual base management fee paid to the Company from 1.5% to 1.0% on all assets financed using leverage over 1.0 times debt to equity.

10. INCOME TAXES

Effective March 1, 2018, the Company elected to be treated as a corporation for U.S. federal income tax purposes, while remaining a limited partnership under state law. A portion of the Company’s operations was and continues to be held through AHI and corporate subsidiaries of Ares Investments. AHI and such corporate subsidiaries are U.S. corporations and subject to U.S. corporate tax on earnings that flow through from subsidiary entities. The income of such corporations has historically been subject to U.S. federal, state and local income taxes, and certain of its foreign subsidiaries continue to be subject to foreign income taxes (for which a foreign tax credit can generally offset U.S. corporate taxes imposed on the same income). Prior to March 1, 2018, a substantial portion of the Company’s earnings flowed through to owners of the Company without being subject to entity level income taxes. Consequently, a significant portion of the Company’s earnings did not reflect a provision for income taxes except those for foreign, state, city and local income taxes incurred at the entity level. Beginning March 1, 2018, this portion of the Company’s earnings was subject to U.S. corporate tax.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company’s income tax provision includes corporate income taxes and other entity level income taxes, as well as income taxes incurred by certain affiliated funds that are consolidated in these financial statements. The Company recorded an income tax expense of $36.9 million and $24.5 million for the three and six months ended June 30, 2018 , respectively. In connection with its election to be taxed as a corporation effective March 1, 2018, the Company recorded two significant one-time deferred tax items. The first item is a deferred tax liability arising from the embedded net unrealized gains of both carried interest and the investment portfolio that were not previously subject to corporate taxes. Cash taxes will only be paid on unrealized gains to the extent realized. The second item is a deferred tax asset representative of book to tax bases differences resulting from allocations of equity account balances upon ownership changes. This asset will ultimately be unwound on conversion of the AOG units to common shares by the private unitholders, will have no impact on the Statement of Operations and will not result in the Company paying any more or less taxes. During the quarter ended June 30, 2018, the Company determined it did not control the actions of the AOG unitholders and, therefore, the timing of the recognition of the benefit, and established a $28.9 million valuation allowance against the deferred tax asset, effectively increasing the provision for income taxes. Consequently, this deferred tax asset had no impact on the income tax provision for the six months ended June 30, 2018. The Company had an income tax expense of $1.3 million for the three months ended June 30, 2017 . For the six months ended June 30, 2017 , the Company had an income tax benefit of $33.0 million primarily driven by the one-time ARCC-ACAS transaction support payment.

Supplemental information on an unaudited pro forma basis, as if the Company's election to be treated as a corporation for U.S. federal income tax purposes was effective for the three and six months ended June 30, 2017 is as follows:




	Three Months Ended June 30,
					2017
	2018		2017		Pro forma
Provision for Income Taxes - The Company
Income tax expense of the Company	$	36,834	$	857	$	18,815

Provision for Income Taxes - Consolidated Funds
Income tax expense of the Consolidated Funds	69		396		396
Total Provision for Income Taxes	$	36,903	$	1,253	$	19,211




	Six Months Ended June 30,
						2017
	2018		2017			Pro forma
Provision for Income Taxes - The Company
Income tax expense (benefit) of the Company	$	24,459	$	(33,875	)	$	(9,528	)

Provision for Income Taxes - Consolidated Funds
Income tax expense of the Consolidated Funds	69		864			864
Total Provision for Income Taxes	$	24,528	$	(33,011	)	$	(8,664	)

The 2017 pro forma tax information was calculated as if the Company's election to be treated as a corporation for U.S. federal income tax purposes was effective for the three and six months ended June 30, 2017 .

The Company’s effective income tax rate is dependent on many factors, including the estimated nature of many amounts and the mix of revenues and expenses between U.S. corporate entities that are subject to income taxes and those subsidiaries that are not. For the three and six months ended June 30, 2018 and 2017 , the Company has utilized the discrete effective tax rate method to calculate its interim income tax provision. The discrete method is applied when the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year to date period as if it was the annual period and determines the income tax expense or benefit on that basis. Additionally, the Company’s effective tax rate is influenced by the amount of income tax provision recorded for any affiliated funds that are consolidated in these financial statements. Consequently, the effective income tax rate is subject to significant variation from period to period.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign tax regulators. As of June 30, 2018 , the Company’s U.S. federal income tax returns for the years 2014 through 2018 are open under the normal statute of limitations and therefore subject to examination. State and local tax returns are generally subject to audit from 2014 to 2018 . Foreign tax returns are generally subject to audit from 2013 to 2018 . Although the outcome of tax audits is always uncertain, the Company does not believe the outcome of any future audit will have a material adverse effect on the Company’s condensed consolidated financial statements.

11. EARNINGS PER COMMON SHARE

Basic earnings per common share are computed by dividing income available to common shareholders by the weighted‑average number of common shares outstanding during the period. Diluted earnings per common share are computed using the more dilutive method of either the two-class method or the treasury stock method.

For the three and six months ended June 30, 2018 and the six months June 30, 2017 , the two-class method was the more dilutive method for the unvested restricted units. For the three months ended June 30, 2017 , the treasury stock method was the more dilutive method for the unvested restricted units. No participating securities had rights to undistributed earnings during any period presented.

The computation of diluted earnings per common share for the three and six months ended June 30, 2018 and 2017 excludes the following options, restricted units and AOG Units, as their effect would have been anti-dilutive:



	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2018	2017	2018	2017
Options	19,111,390	21,155,026	19,471,589	21,244,858
Restricted units	15,271,381	39,082	15,811,964	14,463,590
AOG Units	120,231,237	130,249,329	124,211,007	130,325,826

The following table presents the computation of basic and diluted earnings per common share:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Net income (loss) attributable to Ares Management, L.P. common shareholders	$	(17,200	)	$	44,453		$	18,323		$	(2,106	)
Earnings distributed to participating securities (restricted units)	(1,970		)	(419		)	(3,877		)	(1,246		)
Net income (loss) available to common shareholders	$	(19,170	)	$	44,034		$	14,446		$	(3,352	)
Basic weighted-average common shares	98,037,252			81,829,086			91,861,946			81,469,967
Basic earnings (loss) per common share	$	(0.20	)	$	0.54		$	0.16		$	(0.04	)
Net income (loss) attributable to Ares Management, L.P. common shareholders	$	(17,200	)	$	44,453		$	18,323		$	(2,106	)
Earnings distributed to participating securities (restricted units)	(1,970		)	—			(3,877		)	(1,246		)
Net income (loss) available to common shareholders	$	(19,170	)	$	44,453		$	14,446		$	(3,352	)
Effect of dilutive shares:
Restricted units	—			2,490,796			—			—
Diluted weighted-average common shares	98,037,252			84,319,882			91,861,946			81,469,967
Diluted earnings (loss) per common share	$	(0.20	)	$	0.53		$	0.16		$	(0.04	)

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

12. EQUITY COMPENSATION

Equity Incentive Plan

In 2014, the Company adopted the Ares Management, L.P. 2014 Equity Incentive Plan (the “Equity Incentive Plan ” ). Based on a formula as defined in the Equity Incentive Plan, the total number of shares available to be issued under the Equity Incentive Plan resets and may increase on January 1 each year. Accordingly, on January 1, 2018 , the total number of shares available for issuance under the Equity Incentive Plan increased to 31,853,504 shares, and as of June 30, 2018 , 29,311,383 shares remain available for issuance.

Generally, unvested phantom units, restricted units and options are forfeited upon termination of employment in accordance with the Equity Incentive Plan. The Company recognizes forfeitures as a reversal of previously recognized compensation expense in the period the forfeiture occurs.

Equity-based compensation expense, net of forfeitures is included in the following table:



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Restricted units	$	18,516	$	14,601	$	36,547	$	25,818
Options	3,630		3,931		6,293		7,413
Phantom units	361		385		754		775
Equity-based compensation expense	$	22,507	$	18,917	$	43,594	$	34,006

Restricted Units

Each restricted unit represents an unfunded, unsecured right of the holder to receive a common share on a specific date. The restricted units generally vest and are settled in common shares either (i) at a rate of one-third per year, beginning on the third anniversary of the grant date, (ii) in their entirety on the fifth anniversary of the grant date, or (iii) at a rate of one quarter per year, beginning on either the first or second anniversary of the grant date. Compensation expense associated with restricted units is recognized on a straight-line basis over the requisite service period of the award.

The holders of restricted units generally have the right to receive as current compensation an amount in cash equal to (i) the amount of any distribution paid with respect to a common share multiplied by (ii) the number of restricted units held at the time such distributions are declared (“Dividend Equivalent”). For the three and six months ended June 30, 2018 , Dividend Equivalents were made to the holders of restricted units in the aggregate amount of $5.8 million and $12.4 million , respectively, which are presented as dividends within the Condensed Consolidated Statements of Changes in Equity. When restricted units are forfeited, the cumulative amount of dividend equivalents previously paid is reclassified to compensation and benefits expense in the Condensed Consolidated Statements of Operations.

The following table presents unvested restricted units' activity during the six months ended June 30, 2018 :



	Restricted Units		Weighted Average Grant Date Fair Value Per Unit
Balance - January 1, 2018	13,751,888		$	17.58
Granted	3,681,702		23.58
Vested	(1,903,923	)	16.93
Forfeited	(258,286	)	19.55
Balance - June 30, 2018	15,271,381		$	19.07

The total compensation expense expected to be recognized in all future periods associated with the restricted units is approximately $215.0 million as of June 30, 2018 and is expected to be recognized over the remaining weighted average period of 3.48 years .

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

Options

A summary of options activity during the six months ended June 30, 2018 is presented below:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Life (in years)	Aggregate Intrinsic Value
Balance - January 1, 2018	20,495,025		$	18.99	6.09	$	20,611
Granted	—				—
Exercised	(50,000	)	19.00		—	90
Expired	(889,432	)	19.00		—
Forfeited	(444,203	)	19.00		—
Balance - June 30, 2018	19,111,390		$	18.99	5.81	$	32,655
Exercisable at June 30, 2018	12,715,808		$	19.00	5.78	$	21,672

As of June 30, 2018 , there was $12.3 million of total unrecognized compensation expense that is expected to be recognized over the remaining weighted average period of 0.85 years . Net cash proceeds from the exercises of stock options was $1.0 million for the six months ended June 30, 2018 . The Company realized tax benefits of approximately $0.04 million from those exercises.

Phantom Units

A summary of unvested phantom unit activity during the six months ended June 30, 2018 is presented below:



	Phantom Units		Weighted Average Grant Date Fair Value Per Share
Balance - January 1, 2018	156,153		$	19.00
Vested	(70,352	)	19.00
Forfeited	(16,200	)	19.00
Balance - June 30, 2018	69,601		$	19.00

The fair value of the phantom unit awards is remeasured at each reporting period and was $ 20.70 per unit as of June 30, 2018 . Based on the fair value of the awards at June 30, 2018 , $1.2 million of unrecognized compensation expense in connection with phantom units outstanding is expected to be recognized over a weighted average period of 0.85 years . During the six months ended June 30, 2018 , the Company paid $1.6 million to settle vested phantom units.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

13. EQUITY

Ares Management, L.P.

Common Shares

Common shares represent limited partnership interests in the Company. The holders of common shares are entitled to participate pro rata in distributions from the Company and to exercise the rights or privileges that are available to common shareholders under the Company’s partnership agreement. The common shareholders have limited voting rights and have no right to remove the Company’s general partner, Ares Management GP LLC, or, except in limited circumstances, to elect the directors of the general partner. During the quarter ended March 31, 2018, an affiliate of Alleghany Corporation (“Alleghany”) exchanged 9,750,000 of its AOG Units into 9,750,000 common shares.

Common Share Offering

On March 12, 2018, AREC Holdings Ltd., a wholly owned subsidiary of Abu Dhabi Investment Authority (collectively, “ADIA”), and the Company completed a public offering of 15,000,000 common shares. In connection with this offering, ADIA sold 10,000,000 of its previously issued and outstanding common shares from which the Company received no proceeds. Additionally, the Company issued 5,000,000 common shares from which it received $105.9 million in gross proceeds. The Company incurred approximately $0.5 million of expenses in connection with this offering transaction. The expenses have been treated as a reduction of the proceeds received from the offering and are presented on a net basis together with the proceeds from the offering in shareholders' equity in the Condensed Consolidated Statements of Changes in Equity.

In April 2018, the underwriters in the offering exercised a portion of their option to purchase 1,130,000 additional common shares from ADIA. The Company did not receive any of the proceeds from the underwriters' exercise. The expenses incurred by the Company related to the option exercise have been included in other income (expense), net in the Condensed Consolidated Statements of Operations. ADIA paid the underwriting discounts and commissions and/or similar charges incurred for the sale of the common shares.

The following table presents each partner's AOG Units and corresponding ownership interest in each of the Ares Operating Group entities as of June 30, 2018 and December 31, 2017 , as well as its daily average ownership of AOG Units in each of the Ares Operating Group entities for the six months ended June 30, 2018 and 2017 .



							Daily Average Ownership
	As of June 30, 2018			As of December 31, 2017			For the Three Months Ended June 30,				For the Six Months Ended June 30,
	AOG Units	Direct Ownership Interest		AOG Units	Direct Ownership Interest		2018		2017		2018		2017
Ares Management, L.P.	98,398,340	45.03	%	82,280,033	38.75	%	44.92	%	38.58	%	42.51	%	38.47	%
Ares Owners Holding L.P.	117,379,305	53.71	%	117,576,663	55.36	%	53.82	%	55.53	%	54.40	%	55.63	%
Affiliate of Alleghany Corporation	2,750,000	1.26	%	12,500,000	5.89	%	1.26	%	5.89	%	3.09	%	5.90	%
Total	218,527,645	100.00	%	212,356,696	100.00	%

Preferred Equity

As of June 30, 2018 and December 31, 2017 , the Company had 12,400,000 shares of Series A Preferred Equity (the “Preferred Equity”) outstanding. When, as and if declared by the Company’s board of directors, distributions on the Preferred Equity are payable quarterly at a rate per annum equal to 7.00% . The Preferred Equity may be redeemed at the Company’s option, in whole or in part, at any time on or after June 30, 2021, at a price of $25.00 per share.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

14. SEGMENT REPORTING

The Company operates through its three distinct operating segments. During the six months ended June 30, 2018 , the Company reclassified certain expenses from OMG to its operating segments. Historical results have been modified to conform to the current period presentation.

The Company’s three operating segments are:

Credit Group: The Company’s Credit Group is a leading manager of credit strategies across the non-investment grade credit universe in the U.S. and Europe, with approximately $86.9 billion of assets under management and 152 funds as of June 30, 2018 . The Credit Group offers a range of credit strategies across the liquid and illiquid spectrum, including syndicated loans, high yield bonds, credit opportunities, structured credit investments and U.S. and European direct lending. The Credit Group provides solutions for traditional fixed income investors seeking to access the syndicated loans and high yield bond markets and capitalizes on opportunities across traded corporate credit. It additionally provides investors access to directly originated fixed and floating rate credit assets and the ability to capitalize on illiquidity premiums across the credit spectrum. The Credit Group’s syndicated loans strategy focuses on liquid, traded non-investment grade secured loans to corporate issuers. The high yield bond strategy seeks to deliver a diversified portfolio of liquid, traded non-investment grade corporate bonds, including secured, unsecured and subordinated debt instruments. Credit opportunities is a “go anywhere” strategy seeking to capitalize on market inefficiencies and relative value opportunities across the capital structure. The structured credit strategy invests across the capital structures of syndicated collateralized loan obligation vehicles (CLOs) and in directly-originated asset-backed instruments composed of diversified portfolios of consumer and commercial assets. The Company has one of the largest self-originating direct lending platforms in the U.S. and European middle markets, providing one-stop financing solutions for small-to-medium sized companies, which the Company believes are increasingly underserved by traditional lenders. The Company provides investors access to these capabilities through several vehicles, including commingled funds, separately managed accounts and a publicly traded vehicle. The Credit Group conducts its U.S. direct lending activities primarily through ARCC, the largest business development company as of June 30, 2018 , by both market capitalization and total assets. In addition, the Credit Group manages a commercial finance business that provides asset-based and cash flow loans to small and middle-market companies, as well as asset-based facilities to specialty finance companies. The Credit Group’s European direct lending platform is one of the most significant participants in the European middle-market, focusing on self-originated investments in illiquid middle-market credits.

Private Equity Group: The Company’s Private Equity Group has approximately $23.6 billion of assets under management as of June 30, 2018 , broadly categorizing its investment strategies as corporate private equity, U.S. power and energy infrastructure and special situations. As of June 30, 2018 the group managed five corporate private equity commingled funds focused on North America and Europe and three focused on greater China, six commingled funds and six related co-investment vehicles focused on U.S. power and energy infrastructure and three special situations funds. In its North American and European flexible capital strategy, the Company targets opportunistic majority or shared-control investments in businesses with strong franchises and attractive growth opportunities in North America and Europe. The U.S. power and energy infrastructure strategy targets U.S. energy infrastructure-related assets across the power generation, transmission and midstream sectors, seeking attractive risk-adjusted equity returns with current cash flow and capital appreciation. The special situations strategy seeks to invest opportunistically across a broad spectrum of distressed or mispriced investments, including corporate debt, rescue capital, private asset-backed investments, post-reorganization securities and non-performing portfolios.

Real Estate Group: The Company’s Real Estate Group manages comprehensive public and private equity and debt strategies, with approximately $10.9 billion of assets under management across 43 funds as of June 30, 2018 . Real Estate equity strategies focus on applying hands-on value creation initiatives to mismanaged and capital-starved assets, as well as new development, ultimately selling stabilized assets back into the market. The Real Estate Group manages both a value-add strategy and an opportunistic strategy. The value-add strategy seeks to create value by buying assets at attractive valuations and through active asset management of income-producing properties across the U.S. and Western Europe. The opportunistic strategy focuses on manufacturing core assets through development, redevelopment and fixing distressed capital structures across major properties in the U.S. and Europe. The Company’s debt strategies leverage the Real Estate Group’s diverse sources of capital to directly originate and manage commercial mortgage investments on properties that range from stabilized to requiring hands-on value creation. In addition to managing private debt funds, the Real Estate Group makes debt investments through a publicly traded commercial mortgage real estate investment trust, ACRE.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The Company has an OMG that consists of six shared resource groups to support the Company’s operating segments by providing infrastructure and administrative support in the areas of accounting/finance, operations, information technology, business development/corporate strategy, legal/compliance and human resources. Additionally, the OMG provides services to certain of the Company’s investment companies and partnerships, which reimburse the OMG for expenses equal to the costs of services provided. The OMG’s expenses are not allocated to the Company’s three reportable segments but the Company does consider the cost structure of the OMG when evaluating its financial performance.

Non-GAAP Measures: These measures supplement and should be considered in addition to, and not in lieu of, the Consolidated Statements of Operations prepared in accordance with GAAP.

Economic net income (“ENI”), a non-GAAP measure, is an operating metric used by management to evaluate total operating performance, a decision tool for deployment of resources, and an assessment of the performance of the Company’s business segments. ENI differs from net income by excluding (a) income tax expense, (b) operating results of the Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, and (e) certain other items that the Company believes are not indicative of its total operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers and acquisitions and capital transactions, underwriting costs, and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE and RI for the current period.

Fee related earnings (“FRE”), a non-GAAP measure, refers to a component of ENI that is used to assess core operating performance by determining whether recurring revenue, primarily consisting of management fees, is sufficient to cover operating expenses and to generate profits. FRE differs from income before taxes computed in accordance with GAAP as it adjusts for the items included in the calculation of ENI and excludes performance income, performance related compensation, investment income from the Consolidated Funds and non-consolidated funds and certain other items that the Company believes are not indicative of its core operating performance.

Performance related earnings (“PRE”), a non-GAAP measure, is used to assess the Company’s investment performance net of performance related compensation. PRE differs from income (loss) before taxes computed in accordance with GAAP as it only includes performance income, performance related compensation and total investment and other income earned from the Consolidated Funds and non-consolidated funds.

Realized income (“RI”), a non-GAAP measure, is an operating metric used by management to evaluate performance of the business based on operating performance and the contribution of each of the business segments to that performance, while removing the fluctuations of unrealized income and expenses, which may or may not be eventually realized at the levels presented and whose realizations depend more on future outcomes than current business operations. RI differs from net income by excluding (a) income tax expense, (b) operating results of our Consolidated Funds, (c) depreciation and amortization expense, (d) the effects of changes arising from corporate actions, (e) unrealized gains and losses related to performance income and investment performance and (f) certain other items that we believe are not indicative of our operating performance. Changes arising from corporate actions include equity-based compensation expenses, the amortization of intangible assets, transaction costs associated with mergers, acquisitions and capital transactions, underwriting costs and expenses incurred in connection with corporate reorganization. Beginning in 2018, placement fees are no longer excluded but are amortized to match the period over which management fees are recognized. This change had an immaterial impact to FRE and RI for the current period. Prior to the introduction of RI, management used distributable earnings for this evaluation. Management believes RI is a more appropriate metric to evaluate the Company's current business operations.

Management makes operating decisions and assesses the performance of each of the Company’s business segments based on financial and operating metrics and other data that is presented before giving effect to the consolidation of any of the Consolidated Funds. Consequently, all segment data excludes the assets, liabilities and operating results related to the Consolidated Funds and non‑consolidated funds.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended June 30, 2018 :



	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $29,866)	$	135,848		$	49,318		$	17,138		$	202,304		$	—		$	202,304
Other fees	6,877			337			7			7,221			—			7,221
Compensation and benefits	(51,892		)	(18,672		)	(8,768		)	(79,332		)	(31,059		)	(110,391		)
General, administrative and other expenses	(11,041		)	(4,175		)	(2,391		)	(17,607		)	(19,489		)	(37,096		)
Fee related earnings	79,792			26,808			5,986			112,586			(50,548		)	62,038
Performance income—realized	41,672			80,415			521			122,608			—			122,608
Performance income—unrealized	(4,568		)	(133,605		)	13,830			(124,343		)	—			(124,343		)
Performance related compensation—realized	(23,577		)	(64,311		)	7			(87,881		)	—			(87,881		)
Performance related compensation—unrealized	2,759			106,912			(8,785		)	100,886			—			100,886
Net performance income	16,286			(10,589		)	5,573			11,270			—			11,270
Investment income (loss)—realized	595			9,016			(250		)	9,361			798			10,159
Investment income (loss)—unrealized	1,617			290			(525		)	1,382			2,866			4,248
Interest and other investment income (expense)	3,428			3,039			(1,218		)	5,249			623			5,872
Interest expense	(3,596		)	(1,440		)	(452		)	(5,488		)	(588		)	(6,076		)
Net investment income (loss)	2,044			10,905			(2,445		)	10,504			3,699			14,203
Performance related earnings	18,330			316			3,128			21,774			3,699			25,473
Economic net income	$	98,122		$	27,124		$	9,114		$	134,360		$	(46,849	)	$	87,511
Realized income	$	97,921		$	53,408		$	6,479		$	157,808		$	(49,754	)	$	108,054

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the three months ended June 30, 2017 :



	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $19,143)	$	112,654		$	56,427		$	16,479		$	185,560		$	—		$	185,560
Other fees	5,663			338			19			6,020			—			6,020
Compensation and benefits	(45,160		)	(18,388		)	(9,714		)	(73,262		)	(30,584		)	(103,846		)
General, administrative and other expenses	(8,048		)	(4,345		)	(3,091		)	(15,484		)	(18,862		)	(34,346		)
Fee related earnings	65,109			34,032			3,693			102,834			(49,446		)	53,388
Performance income—realized	7,883			64,780			1,467			74,130			—			74,130
Performance income—unrealized	5,093			228,747			29,789			263,629			—			263,629
Performance related compensation—realized	(1,898		)	(50,914		)	(161		)	(52,973		)	—			(52,973		)
Performance related compensation—unrealized	(6,079		)	(184,021		)	(18,632		)	(208,732		)	—			(208,732		)
Net performance income	4,999			58,592			12,463			76,054			—			76,054
Investment income—realized	2,525			2,717			373			5,615			1,340			6,955
Investment income (loss)—unrealized	(3,450		)	25,354			1,134			23,038			(2,728		)	20,310
Interest and other investment income	2,958			1,983			1,534			6,475			225			6,700
Interest expense	(3,065		)	(1,397		)	(429		)	(4,891		)	(463		)	(5,354		)
Net investment income (loss)	(1,032		)	28,657			2,612			30,237			(1,626		)	28,611
Performance related earnings	3,967			87,249			15,075			106,291			(1,626		)	104,665
Economic net income	$	69,076		$	121,281		$	18,768		$	209,125		$	(51,072	)	$	158,053
Realized income	$	73,181		$	50,151		$	5,181		$	128,513		$	(48,346	)	$	80,167

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the six months ended June 30, 2018 :




	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $58,283)	$	267,614		$	99,205		$	32,311		$	399,130		$	—		$	399,130
Other fees	12,607			677			10			13,294			—			13,294
Compensation and benefits	(102,172		)	(37,871		)	(16,407		)	(156,450		)	(61,665		)	(218,115		)
General, administrative and other expenses	(20,670		)	(8,216		)	(4,823		)	(33,709		)	(38,105		)	(71,814		)
Fee related earnings	157,379			53,795			11,091			222,265			(99,770		)	122,495
Performance fees—realized	46,743			84,813			14,159			145,715			—			145,715
Performance fees—unrealized	11,524			(112,539		)	11,790			(89,225		)	—			(89,225		)
Performance fee compensation—realized	(26,665		)	(67,871		)	(8,214		)	(102,750		)	—			(102,750		)
Performance fee compensation—unrealized	9,935			88,218			(8,276		)	89,877			—			89,877
Net performance fees	41,537			(7,379		)	9,459			43,617			—			43,617
Investment income—realized	1,366			9,687			3,100			14,153			1,636			15,789
Investment income (loss)—unrealized	1,348			(3,860		)	(1,757		)	(4,269		)	4,097			(172		)
Interest and other investment income (expense)	5,624			3,368			(201		)	8,791			1,870			10,661
Interest expense	(8,269		)	(2,668		)	(872		)	(11,809		)	(1,136		)	(12,945		)
Net investment income	69			6,527			270			6,866			6,467			13,333
Performance related earnings	41,606			(852		)	9,729			50,483			6,467			56,950
Economic net income	$	198,985		$	52,943		$	20,820		$	272,748		$	(93,303	)	$	179,445
Realized income	$	176,778		$	80,735		$	20,148		$	277,661		$	(97,534	)	$	180,127

The following table presents the financial results for the Company’s operating segments, as well as the OMG, for the six months ended June 30, 2017 :




	Credit Group			Private Equity Group			Real Estate Group			Total Segments			OMG			Total
Management fees (Credit Group includes ARCC Part I Fees of $52,400)	$	234,001		$	96,246		$	32,094		$	362,341		$	—		$	362,341
Other fees	10,166			678			10			10,854			—			10,854
Compensation and benefits	(96,863		)	(31,606		)	(19,450		)	(147,919		)	(56,537		)	(204,456		)
General, administrative and other expenses	(16,089		)	(8,543		)	(5,822		)	(30,454		)	(38,175		)	(68,629		)
Fee related earnings	131,215			56,775			6,832			194,822			(94,712		)	100,110
Performance fees—realized	16,661			64,780			1,494			82,935			—			82,935
Performance fees—unrealized	8,029			260,984			43,877			312,890			—			312,890
Performance fee compensation—realized	(7,183		)	(50,914		)	(177		)	(58,274		)	—			(58,274		)
Performance fee compensation—unrealized	(7,537		)	(209,526		)	(27,070		)	(244,133		)	—			(244,133		)
Net performance fees	9,970			65,324			18,124			93,418			—			93,418
Investment income—realized	2,843			3,296			2,156			8,295			3,199			11,494
Investment income (loss)—unrealized	1,139			33,900			690			35,729			(4,135		)	31,594
Interest and other investment income	2,939			2,135			1,353			6,427			1,099			7,526
Interest expense	(5,523		)	(2,910		)	(861		)	(9,294		)	(939		)	(10,233		)
Net investment income (loss)	1,398			36,421			3,338			41,157			(776		)	40,381
Performance related earnings	11,368			101,745			21,462			134,575			(776		)	133,799
Economic net income	$	142,583		$	158,520		$	28,294		$	329,397		$	(95,488	)	$	233,909
Realized income	$	143,126		$	72,496		$	9,769		$	225,391		$	(91,551	)	$	133,840

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the components of the Company’s operating segments’ revenue, expenses and other income (expense):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Segment Revenues
Management fees (includes ARCC Part I Fees of $29,866, $58,283 and $19,143, $52,400 for the three and six months ended June 30, 2018 and 2017, respectively)	$	202,304		$	185,560		$	399,130		$	362,341
Other fees	7,221			6,020			13,294			10,854
Performance income—realized	122,608			74,130			145,715			82,935
Performance income—unrealized	(124,343		)	263,629			(89,225		)	312,890
Total segment revenues	$	207,790		$	529,339		$	468,914		$	769,020
Segment Expenses
Compensation and benefits	$	79,332		$	73,262		$	156,450		$	147,919
General, administrative and other expenses	17,607			15,484			33,709			30,454
Performance related compensation—realized	87,881			52,973			102,750			58,274
Performance related compensation—unrealized	(100,886		)	208,732			(89,877		)	244,133
Total segment expenses	$	83,934		$	350,451		$	203,032		$	480,780
Other Income (Expense)
Investment income—realized	$	9,361		$	5,615		$	14,153		$	8,295
Investment income (loss)—unrealized	1,382			23,038			(4,269		)	35,729
Interest and other investment income	5,249			6,475			8,791			6,427
Interest expense	(5,488		)	(4,891		)	(11,809		)	(9,294		)
Total segment other income	$	10,504		$	30,237		$	6,866		$	41,157

The following table reconciles segment revenue to Ares consolidated revenues:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Total segment revenue	$	207,790		$	529,339		$	468,914		$	769,020
Revenue of Consolidated Funds eliminated in consolidation	(25,123		)	(169		)	(30,233		)	(18,357		)
Administrative fees(1)	6,770			9,132			13,182			18,738
Performance income reclass(2)	31			(217		)	1,006			(241		)
Principal investment income	14,722			34,166			17,430			47,335
Revenue of non-controlling interests in consolidated subsidiaries(3)	(27		)	(54		)	(47		)	(54		)
Total consolidated adjustments and reconciling items	(3,627		)	42,858			1,338			47,421
Total consolidated revenue	$	204,163		$	572,197		$	470,252		$	816,441


(1)	Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Condensed Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.


(2)	Related to performance income for AREA Sponsor Holdings LLC, an investment pool. Changes in value of this investment are reflected within other income (expense) in the Company’s Condensed Consolidated Statements of Operations.


(3)	Adjustments for administrative fees reimbursed attributable to certain of our joint venture partners.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table reconciles segment expenses to Ares consolidated expenses:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Total segment expenses	$	83,934		$	350,451		$	203,032		$	480,780
Expenses of Consolidated Funds added in consolidation	47,382			8,825			56,011			19,334
Expenses of Consolidated Funds eliminated in consolidation	(12,270		)	(4,303		)	(19,583		)	(10,901		)
Administrative fees(1)	6,770			9,132			13,182			18,738
OMG expenses	50,548			49,446			99,770			94,712
Acquisition and merger-related expenses	47			724			(272		)	276,060
Equity compensation expense	22,507			18,917			43,594			34,006
Placement fees and underwriting costs	1,852			6,383			3,516			9,822
Amortization of intangibles	3,285			5,274			6,572			10,549
Depreciation expense	4,426			2,774			8,315			5,990
Other expenses(3)	11,836			—			11,836			—
Expenses of non-controlling interests in consolidated subsidiaries(2)	700			574			1,327			574
Total consolidation adjustments and reconciling items	137,083			97,746			224,268			458,884
Total consolidated expenses	$	221,017		$	448,197		$	427,300		$	939,664


(1)	Represents administrative fees that are presented in administrative, transaction and other fees in the Company’s Condensed Consolidated Statements of Operations and are netted against the respective expenses for segment reporting.


(2)	Costs being borne by certain of our joint venture partners.


(3)	Includes $11.8 million payment to ARCC for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

The following table reconciles segment other income (expense) to Ares consolidated other income:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Total segment other income	$	10,504		$	30,237		$	6,866		$	41,157
Other income (expense) from Consolidated Funds added in consolidation, net	69,193			(3,150		)	76,445			35,295
Other expense from Consolidated Funds eliminated in consolidation, net	993			(410		)	534			(433		)
Other income of non-controlling interests in consolidated subsidiaries	8			5			15			5
OMG other income (expense)	3,699			(1,626		)	6,467			(776		)
Performance income reclass(1)	(31		)	217			(1,006		)	241
Principal investment income	(14,722		)	(34,166		)	(17,430		)	(47,335		)
Changes in value of contingent consideration	—			(32		)	—			20,216
Other non-cash expense	(1,715		)	—			(1,722		)	—
Offering costs	(3		)	5			(3		)	(655		)
Total consolidation adjustments and reconciling items	57,422			(39,157		)	63,300			6,558
Total consolidated other income	$	67,926		$	(8,920	)	$	70,166		$	47,715


(1)	Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

The following table presents the reconciliation of income before taxes as reported in the Condensed Consolidated Statements of Operations to segment results of ENI, RI, FRE and PRE:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Economic net income
Income (loss) before taxes	$	51,072		$	115,080		$	113,118		$	(75,508	)
Adjustments:
Amortization of intangibles	3,285			5,274			6,572			10,549
Depreciation expense	4,426			2,774			8,315			5,990
Equity compensation expenses	22,507			18,917			43,594			34,006
Acquisition and merger-related expenses	47			756			(272		)	255,844
Placement fees and underwriting costs	1,852			6,383			3,516			9,822
OMG expenses, net	46,849			51,072			93,303			95,488
Offering costs	3			(5		)	3			655
Other expense(2)	13,551			—			13,558			—
Expense of non-controlling interests in consolidated subsidiaries(1)	719			623			1,359			623
(Income) loss before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(9,951		)	8,251			(10,318		)	(8,072		)
Total consolidation adjustments and reconciling items	83,288			94,045			159,630			404,905
Economic net income	134,360			209,125			272,748			329,397
Total performance income - unrealized	124,343			(263,629		)	89,225			(312,890		)
Total performance related compensation - unrealized	(100,886		)	208,732			(89,877		)	244,133
Total investment (income) loss - unrealized	(9		)	(25,715		)	5,565			(35,249		)
Realized income	157,808			128,513			277,661			225,391
Total performance income - realized	(122,608		)	(74,130		)	(145,715		)	(82,935		)
Total performance related compensation - realized	87,881			52,973			102,750			58,274
Total investment income - realized	(10,495		)	(4,522		)	(12,431		)	(5,908		)
Fee related earnings	112,586			102,834			222,265			194,822
Performance related earnings
Economic net income	$	134,360		$	209,125		$	272,748		$	329,397
Less: fee related earnings	(112,586		)	(102,834		)	(222,265		)	(194,822		)
Performance related earnings	$	21,774		$	106,291		$	50,483		$	134,575


(1)	Adjustments for administrative fees reimbursed and other revenue items attributable to certain of our joint venture partners.


(2)	Includes $11.8 million payment to ARCC for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and the first quarter of 2018.

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

15. CONSOLIDATION

Investments in Consolidated Variable Interest Entities

The Company consolidates entities in which the Company has a variable interest and, as the general partner or investment manager, has both the power to direct the most significant activities and a potentially significant economic interest. Investments in the consolidated VIEs are reported at their carrying value, which approximates fair value, and represents the Company’s maximum exposure to loss.

Investments in Non-Consolidated Variable Interest Entities

The Company holds interests in certain VIEs that are not consolidated as the Company is not the primary beneficiary. The Company's interest in such entities generally is in the form of direct equity interests, fixed fee arrangements or both. The maximum exposure to loss represents the potential loss of assets by the Company relating to these non-consolidated entities. Investments in the non-consolidated VIEs are carried at fair value.

The Company's interests and the Consolidated Funds' interests in consolidated and non-consolidated VIEs, as presented in the Condensed Consolidated Statements of Financial Condition, and their respective maximum exposure to loss relating to non-consolidated VIEs are as follows:



	As of June 30,		As of December 31,
	2018		2017
Maximum exposure to loss attributable to the Company's investment in non-consolidated VIEs	$	241,231	$	251,376
Maximum exposure to loss attributable to the Company's investment in consolidated VIEs	190,400		175,620
Assets of consolidated VIEs	8,059,640		6,231,245
Liabilities of consolidated VIEs	7,302,896		5,538,054



	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2018		2017			2018		2017
Net income (loss) attributable to non-controlling interests related to consolidated VIEs	$	9,882	$	(8,647	)	$	10,249	$	7,208

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

CONSOLIDATING SCHEDULES

The following supplemental financial information illustrates the consolidating effects of the Consolidated Funds on the Company's financial condition as of June 30, 2018 and December 31, 2017 and results from operations for the three and six months ended June 30, 2018 and 2017 .



	As of June 30, 2018
	Consolidated Company Entities			Consolidated Funds		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	125,448		$	—	$	—		$	125,448
Investments ($985,035 of accrued carried interest)	1,656,647			—		(190,400		)	1,466,247
Due from affiliates	179,200			—		(6,772		)	172,428
Deferred tax asset, net	42,942			—		—			42,942
Other assets	100,183			—		—			100,183
Intangible assets, net	33,999			—		—			33,999
Goodwill	143,848			—		—			143,848
Assets of Consolidated Funds
Cash and cash equivalents	—			836,274		—			836,274
Investments, at fair value	—			6,968,067		—			6,968,067
Due from affiliates	—			13,704		—			13,704
Dividends and interest receivable	—			14,634		—			14,634
Receivable for securities sold	—			225,764		—			225,764
Other assets	—			1,197		—			1,197
Total assets	$	2,282,267		$	8,059,640	$	(197,172	)	$	10,144,735
Liabilities
Accounts payable, accrued expenses and other liabilities	$	73,227		$	—	$	—		$	73,227
Accrued compensation	87,254			—		—			87,254
Due to affiliates	62,344			—		—			62,344
Performance related compensation payable	730,782			—		—			730,782
Debt obligations	370,628			—		—			370,628
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—			69,040		—			69,040
Due to affiliates	—			6,772		(6,772		)	—
Payable for securities purchased	—			744,534		—			744,534
CLO loan obligations, at fair value	—			6,344,112		(10,873		)	6,333,239
Fund borrowings	—			138,438		—			138,438
Total liabilities	1,324,235			7,302,896		(17,645		)	8,609,486
Commitments and contingencies
Preferred equity (12,400,000 shares issued and outstanding)	298,761			—		—			298,761
Non-controlling interest in Consolidated Funds	—			756,744		(179,527		)	577,217
Non-controlling interest in Ares Operating Group entities	316,048			—		—			316,048
Controlling interest in Ares Management, L.P.:
Shareholders' equity (98,398,340 shares issued and outstanding)	349,981			—		—			349,981
Accumulated other comprehensive loss, net of tax	(6,758		)	—		—			(6,758		)
Total controlling interest in Ares Management, L.P.	343,223			—		—			343,223
Total equity	958,032			756,744		(179,527		)	1,535,249
Total liabilities and equity	$	2,282,267		$	8,059,640	$	(197,172	)	$	10,144,735

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



	As of December 31, 2017
	As adjusted
	Consolidated Company Entities			Consolidated Funds		Eliminations			Consolidated
Assets
Cash and cash equivalents	$	118,929		$	—	$	—		$	118,929
Investments ($1,077,236 of accrued carried interest)	1,900,191			—		(175,620		)	1,724,571
Due from affiliates	171,701			—		(5,951		)	165,750
Deferred tax asset, net	8,326			—		—			8,326
Other assets	135,674			—		(5,333		)	130,341
Intangible assets, net	40,465			—		—			40,465
Goodwill	143,895			—		—			143,895
Assets of Consolidated Funds
Cash and cash equivalents	—			556,500		—			556,500
Investments, at fair value	—			5,582,842		—			5,582,842
Due from affiliates	—			15,884		—			15,884
Dividends and interest receivable	—			12,568		—			12,568
Receivable for securities sold	—			61,462		—			61,462
Other assets	—			1,989		—			1,989
Total assets	$	2,519,181		$	6,231,245	$	(186,904	)	$	8,563,522
Liabilities
Accounts payable, accrued expenses and other liabilities	$	81,955		$	—	$	—		$	81,955
Accrued compensation	27,978			—		—			27,978
Due to affiliates	39,184			—		—			39,184
Performance related compensation payable	822,084			—		—			822,084
Debt obligations	616,176			—		—			616,176
Liabilities of Consolidated Funds
Accounts payable, accrued expenses and other liabilities	—			64,316		—			64,316
Due to affiliates	—			11,285		(11,285		)	—
Payable for securities purchased	—			350,145		—			350,145
CLO loan obligations, at fair value	—			4,974,110		(10,916		)	4,963,194
Fund borrowings	—			138,198		—			138,198
Total liabilities	1,587,377			5,538,054		(22,201		)	7,103,230
Commitments and contingencies
Preferred equity (12,400,000 shares issued and outstanding)	298,761			—		—			298,761
Non-controlling interest in Consolidated Funds	—			693,191		(164,703		)	528,488
Non-controlling interest in Ares Operating Group entities	358,186			—		—			358,186
Controlling interest in Ares Management, L.P.:
Shareholders' equity (82,280,033 shares issued and outstanding)	279,065			—		—			279,065
Accumulated other comprehensive loss, net of tax	(4,208		)	—		—			(4,208		)
Total controlling interest in Ares Management, L.P.	274,857			—		—			274,857
Total equity	931,804			693,191		(164,703		)	1,460,292
Total liabilities and equity	$	2,519,181		$	6,231,245	$	(186,904	)	$	8,563,522

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



	For the Three Months Ended June 30, 2018
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $29,866)	$	202,304		$	—		$	(8,272	)	$	194,032
Carried interest allocation	(13,444		)				—			(13,444		)
Incentive fees	11,740						(4,000		)	7,740
Principal investment income	14,722			—			(12,851		)	1,871
Administrative, transaction and other fees	13,964			—			—			13,964
Total revenues	229,286			—			(25,123		)	204,163
Expenses
Compensation and benefits	138,992			—			—			138,992
Performance related compensation	(13,005		)	—			—			(13,005		)
General, administrative and other expense	59,918			—			—			59,918
Expenses of the Consolidated Funds	—			47,382			(12,270		)	35,112
Total expenses	185,905			47,382			(12,270		)	221,017
Other income (expense)
Net realized and unrealized gain on investments	4,438			—			(1,171		)	3,267
Interest and dividend income	2,356			—			—			2,356
Interest expense	(6,076		)	—			—			(6,076		)
Other expense, net	(2,978		)	—			991			(1,987		)
Net realized and unrealized gain on investments of the Consolidated Funds	—			33,819			668			34,487
Interest and other income of the Consolidated Funds	—			92,633			—			92,633
Interest expense of the Consolidated Funds	—			(57,259		)	505			(56,754		)
Total other income (expense)	(2,260		)	69,193			993			67,926
Income before taxes	41,121			21,811			(11,860		)	51,072
Income tax expense	36,834			69			—			36,903
Net income	4,287			21,742			(11,860		)	14,169
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			21,742			(11,860		)	9,882
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	16,062			—			—			16,062
Net loss attributable to Ares Management, L.P.	(11,775		)	—			—			(11,775		)
Less: Preferred equity dividend paid	5,425			—			—			5,425
Net loss attributable to Ares Management, L.P. common shareholders	$	(17,200	)	$	—		$	—		$	(17,200	)

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



	For the Three Months Ended June 30, 2017
	As adjusted
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $19,143)	$	185,560		$	—		$	(4,792	)	$	180,768
Carried interest allocation	333,814			—			(6		)	333,808
Incentive fees	3,728			—			488			4,216
Principal investment income	34,166			—			4,141			38,307
Administrative, transaction and other fees	15,098			—			—			15,098
Total revenues	572,366			—			(169		)	572,197
Expenses
Compensation and benefits	131,219			—			—			131,219
Performance related compensation	261,705			—			—			261,705
General, administrative and other expense	50,751			—			—			50,751
Expenses of the Consolidated Funds	—			8,825			(4,303		)	4,522
Total expenses	443,675			8,825			(4,303		)	448,197
Other income (expense)
Net realized and unrealized loss on investments	(5,044		)	—			(1,544		)	(6,588		)
Interest and dividend income	2,216			—			(754		)	1,462
Interest expense	(5,354		)	—			—			(5,354		)
Other income, net	2,822			—			—			2,822
Net realized and unrealized gain on investments of the Consolidated Funds	—			953			(13,666		)	(12,713		)
Interest and other income of the Consolidated Funds	—			38,326			—			38,326
Interest expense of Consolidated Funds	—			(42,429		)	15,554			(26,875		)
Total other expense	(5,360		)	(3,150		)	(410		)	(8,920		)
Income (loss) before taxes	123,331			(11,975		)	3,724			115,080
Income tax expense	857			396			—			1,253
Net income (loss)	122,474			(12,371		)	3,724			113,827
Less: Net loss attributable to non-controlling interests in Consolidated Funds	—			(12,371		)	3,724			(8,647		)
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	72,596			—			—			72,596
Net income attributable to Ares Management, L.P.	49,878			—			—			49,878
Less: Preferred equity dividend paid	5,425			—			—			5,425
Net income attributable to Ares Management, L.P. common shareholders	$	44,453		$	—		$	—		$	44,453

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



	For the Six Months Ended June 30, 2018
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $58,283)	$	399,130		$	—		$	(15,583	)	$	383,547
Carried interest allocation	40,685			—			—			40,685
Incentive fees	16,811			—			(4,000		)	12,811
Principal investment income	17,430			—			(10,650		)	6,780
Administrative, transaction and other fees	26,429			—			—			26,429
Total revenues	500,485			—			(30,233		)	470,252
Expenses
Compensation and benefits	273,631			—			—			273,631
Performance related compensation	12,873			—			—			12,873
General, administrative and other expense	104,368			—			—			104,368
Expenses of the Consolidated Funds	—			56,011			(19,583		)	36,428
Total expenses	390,872			56,011			(19,583		)	427,300
Other income (expense)
Net realized and unrealized gain on investments	3,260			—			(832		)	2,428
Interest and dividend income	5,703			—			—			5,703
Interest expense	(12,945		)	—			—			(12,945		)
Other expense, net	(2,831		)	—			533			(2,298		)
Net realized and unrealized gain on investments of the Consolidated Funds	—			21,367			35			21,402
Interest and other income of the Consolidated Funds	—			157,055			—			157,055
Interest expense of consolidated Funds	—			(101,977		)	798			(101,179		)
Total other income (expense)	(6,813		)	76,445			534			70,166
Income before taxes	102,800			20,434			(10,116		)	113,118
Income tax expense	24,459			69			—			24,528
Net income	78,341			20,365			(10,116		)	88,590
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			20,365			(10,116		)	10,249
Less: Net income attributable to non-controlling interests in Ares Operating Group entities	49,168			—			—			49,168
Net income attributable to Ares Management, L.P.	29,173			—			—			29,173
Less: Preferred equity dividend paid	10,850			—			—			10,850
Net income attributable to Ares Management, L.P. common shareholders	$	18,323		$	—		$	—		$	18,323

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)



	For the Six Months Ended June 30, 2017
	As Adjusted
	Consolidated Company Entities			Consolidated Funds			Eliminations			Consolidated
Revenues
Management fees (includes ARCC Part I Fees of $52,400)	$	362,341		$	—		$	(9,528	)	$	352,813
Carried interest allocation	386,829			—			(1,014		)	385,815
Incentive fees	8,755			—			(1,374		)	7,381
Principal investment income	47,335			—			(6,441		)	40,894
Administrative, transaction and other fees	29,538			—			—			29,538
Total revenues	834,798			—			(18,357		)	816,441
Expenses
Compensation and benefits	255,558			—			—			255,558
Performance related compensation	302,407			—			—			302,407
General, administrative and other expense	98,089			—			—			98,089
Transaction support expense	275,177			—			—			275,177
Expenses of the Consolidated Funds	—			19,334			(10,901		)	8,433
Total expenses	931,231			19,334			(10,901		)	939,664
Other income (expense)
Net realized and unrealized loss on investments	(1,291		)	—			(4,409		)	(5,700		)
Interest and dividend income	5,059			—			(1,673		)	3,386
Interest expense	(10,233		)	—			—			(10,233		)
Other income, net	19,318			—			—			19,318
Net realized and unrealized gain on investments of the Consolidated Funds	—			31,392			(12,069		)	19,323
Interest and other income of the Consolidated Funds	—			79,818			—			79,818
Interest expense of Consolidated Funds	—			(75,915		)	17,718			(58,197		)
Total other income	12,853			35,295			(433		)	47,715
Income (loss) before taxes	(83,580		)	15,961			(7,889		)	(75,508		)
Income tax expense (benefit)	(33,875		)	864			—			(33,011		)
Net income (loss)	(49,705		)	15,097			(7,889		)	(42,497		)
Less: Net income attributable to non-controlling interests in Consolidated Funds	—			15,097			(7,889		)	7,208
Less: Net loss attributable to non-controlling interests in Ares Operating Group entities	(58,449		)	—			—			(58,449		)
Net income attributable to Ares Management, L.P.	8,744			—			—			8,744
Less: Preferred equity dividend paid	10,850			—			—			10,850
Net loss attributable to Ares Management, L.P. common shareholders	$	(2,106	)	$	—		$	—		$	(2,106	)

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Ares Management, L.P.

Notes to the Unaudited Condensed Consolidated Financial Statements (Continued)

(Dollars in Thousands, Except Share Data and As Otherwise Noted)

16. SUBSEQUENT EVENTS

The Company evaluated all events or transactions that occurred after June 30, 2018 through the date the condensed consolidated financial statements were issued. During this period the Company had the following material subsequent events that require disclosure:

In July 2018 , the board of directors of the Company's general partner declared a quarterly dividend of $0.28 per common share to common shareholders of record at the close of business on September 14, 2018 , with a payment date of September 28, 2018 .

In July 2018 , the board of directors of the Company's general partner declared a quarterly dividend of $0.4375 per preferred equity share to preferred equity shareholders of record at the close of business on September 15, 2018 , with a payment date of September 30, 2018 .

In July 2018, the board of directors of the Company's general partner authorized the repurchase, from time to time in open market purchases, privately negotiated transactions or otherwise, of the Company's Preferred Equity with an aggregate liquidation preference of up to $50.0 million . Such purchases, if any, will depend on the prevailing market conditions and other factors.

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Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Ares Management, L.P. is a Delaware limited partnership treated as a corporation for U.S. federal income tax purposes , formed on November 15, 2013. Unless the context otherwise requires, references to “we,” “us,” “our,” “the Partnership” and “the Company” are intended to mean the business and operations of Ares Management, L.P. and its consolidated subsidiaries. The following discussion analyzes the financial condition and results of operations of the Partnership. “Consolidated Funds” refers collectively to certain Ares‑affiliated funds, related co‑ investment entities and certain CLOs that are required under generally accepted accounting principles in the United States (“GAAP”) to be consolidated in our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q. Additional terms used by the Company are defined in the Glossary and throughout the Management's Discussion and Analysis in this Quarterly Report on Form 10-Q.

The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included in this Quarterly Report on Form 10‑Q and the audited consolidated financial statements and the related notes included in the 2017 Annual Report on Form 10-K of Ares Management, L.P.

Amounts and percentages presented throughout our discussion and analysis of financial condition and results of operations may reflect rounded results in thousands (unless otherwise indicated) and consequently, totals may not appear to sum.

Our Business

We are a leading global alternative asset manager that operates through three distinct but complementary investment groups, which are our reportable segments. Our reportable segments are Credit Group, Private Equity Group and Real Estate Group. For a detailed description of our reportable segments, see Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. During the six months ended June 30, 2018 , we reclassified certain expenses from OMG to our operating segments. Historical results have been modified to conform to the current period presentation.

The focus of our business model is to provide our investment management capabilities through various funds and products that meet the needs of a wide range of institutional and retail investors. Our revenues primarily consist of management fees, carried interest allocation, incentive fees, as well as principal investment income and administrative expense reimbursements and transaction fees. Management fees are generally based on a defined percentage of average fair value of assets, total commitments, invested capital, net asset value, net investment income or par value of the investment portfolios we manage. Carried interest allocation and incentive fees are based on certain specific hurdle rates as defined in the funds' applicable investment management or partnership agreements. Carried interest allocation and incentive fees are collectively referred to as performance income in our segment results and non-GAAP measures. Principal investment income consists of interest and dividend income and net realized and unrealized gain (loss) from the equity method investments that we manage. Other income (expense) typically represents investment income, realized gains (losses) and unrealized appreciation (depreciation) resulting from equity method investments that we do not mange, investments in collateralized loan obligations and common stock as well as investments of the Consolidated Funds. Interest expense is also included within other income (expense). We provide administrative services to certain of our affiliated funds that are presented within administrative, transaction and other fees for GAAP reporting, but are presented net of respective expenses for segment reporting purposes. We also receive transaction fees from certain affiliated funds for activities related to fund transactions, such as loan originations. In accordance with GAAP, we are required to consolidate those funds in which we hold a significant economic interest and substantive control rights. However, for segment reporting purposes, we present revenues and expenses on a combined segment basis, which shows the results of our reportable segments without giving effect to the consolidation of the funds. Accordingly, our segment revenues consist of management fees, other income, realized and unrealized performance income, and net investment income. Our segment expenses consist of compensation and benefits, net of administrative fees, general, administrative and other expenses, net of administrative fees, as well as realized and unrealized performance related compensation.

Trends Affecting Our Business

We believe that our disciplined investment philosophy across our three distinct but complementary investment groups contributes to the stability of our firm’s performance throughout market cycles. Additionally, approximately 71% of our assets under management were in funds with a contractual life of three years or more and approximately 44% were in funds with a contractual life of seven years or more. As of June 30, 2018 , our funds have a stable base of committed capital enabling us to invest in assets with a long-term focus over different points in a market cycle and to take advantage of market volatility. However, our results of operations, including the fair value of our AUM, are affected by a variety of factors, including conditions in the global financial markets and the economic and political environments, particularly in the United States and Western Europe.

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U.S. credit markets were strong in the second quarter of 2018 as a strong fundamental backdrop offset volatility from global trade concerns. The U.S. economy remained fundamentally sound with indicators signaling continued economic expansion and strengthening of the labor market. The Institute for Supply Management PMI increased in the quarter with June’s reading of 60.2 marking the 22nd consecutive month the index increased at an accelerating rate. The unemployment rate remained low throughout the quarter with May’s reading of 3.8% being the lowest level reported since April 2000. Strong indicators on the growth and labor fronts have factored into GDP growth expectations with the New York Federal Reserve Bank predicting the economy will accelerate beyond the 2.2% reported by the Bureau of Economic Analysis for the first quarter of 2018. Corporate earnings contributed to the strong fundamental backdrop as well with S&P 500 companies reporting earnings growth of 24.8% per data released by FactSet. CSLLI, a leveraged loan index, returned 0.78% while ICE BAML High Yield Master II Index, a high yield bonds index, returned 1.0% for the second quarter of 2018. While strong returns were curtailed from intra-quarter peaks as sentiment regarding global trade policy and varying technical factors, an influx of acquisition-related issuance for leveraged loans and interest rate volatility for high yield bonds momentarily weighed on asset prices.

European credit markets diverged from their U.S. counterparts in the second quarter of 2018 as a mixed macroeconomic backdrop, global trade policy and geopolitical developments weighed on investor sentiment in the region. While investors were hopeful that momentum from 2017 would continue, growth estimates for 2018 were reduced from 2.4% to 2.1% by the European Central Bank (“ECB”) in June. Inflation trends in the region were strong, albeit volatile, during the quarter as a decline in April was followed by increases in May and June, culminating with the ECB’s 2% target being reached at quarter-end. Regarding trade policy, tariffs imposed by the U.S. on European steel and aluminum concerned capital market participants as large industries such as the German auto sector, which comprises 14% of Germany’s DAX benchmark index, could be impacted. Political instability persisted in the region as well and was a contributor to the ECB’s reduced growth expectations as developments in Italy and Spain were met with negative sentiment by capital market participants. For the quarter, Credit Suisse Western European Leveraged Loan Index and ICE BAML European Currency High Yield Index had negative returns of 0.07%, and 1.03%, respectively. While negative, business confidence in the region remains positive and trends in the labor market, the May unemployment rate of 8.5% was the lowest level in the Eurozone since December 2008, suggest recent headwinds for the region may not persist.

In the U.S., the S&P 500 Index increased by 3.4% in the second quarter of 2018, following a decrease of 0.8% in the first quarter of 2018. Overall performance still remains strong with a total return of 2.7% in the first half of 2018 and 14.4% over the last twelve months. Outside the U.S., global equity markets declined during the second quarter of 2018 with the MSCI All Country World ex USA Index decreased 2.6% bringing its year to date decline to 3.8%.

These markets and economies have created opportunities, particularly for the Credit Group’s direct lending and liquid alternative credit strategies, which utilize flexible investment mandates to manage portfolios through market cycles. As market conditions shift and default risk and interest rate risk come under greater focus, having the ability to move up and down the capital structure enables the Credit Group to reduce risk and enhance returns. Similarly, given our broad capabilities in leveraged loans, such flexibility enables our Credit Group to reduce sensitivities to changing interest rates by increasing allocations to floating rate leveraged loans. On a market value basis, approximately 78% of the debt assets within our Credit Group are floating rate instruments, which we believe helps mitigate volatility associated with changes in interest rates.

Notwithstanding the potential opportunities represented by market volatility, future earnings, cash flows, dividend payments and distributions are affected by a range of factors, including realizations of our funds’ investments, which are subject to significant fluctuations from period to period.

Change in Our Tax Status Election

Effective March 1, 2018, we filed an election with the Internal Revenue Service (“IRS”) to be treated as a corporation for U.S. federal income tax purposes (collectively, the “Tax Election”). Although we are treated as a corporation for U.S. federal income tax purposes, we remain a limited partnership under state law. In connection with the Tax Election, we amended and restated our partnership agreement to, among other things, reflect our new tax classification and change the name of our common units and preferred units to common shares and preferred shares, respectively. The terms of such common shares and preferred shares, and the associated rights, otherwise remain unchanged.

Asset managers structured as pass-through entities for income tax purposes have historically traded at substantial discounts to asset managers taxed as corporations. Further, we believe that our pass-through tax structure has historically limited our investor universe due to complexities related to this structure. The Tax Election is intended to simplify our tax structure and expand our eligible investor universe and, in turn, enhance our liquidity and trading volume, which may, among other things, provide us with a more liquid and attractive currency for potential strategic transactions to further long-term growth. Moreover, we historically have paid corporate level taxes on our fee related earnings, which has averaged over 80% of total fee income since our initial

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public offering. This fact, combined with a reduction in the statutory federal corporate tax rate from 35% to 21%, also presented compelling reasons to make the Tax Election. The impact of the Tax Election on our reported results is limited to increased tax expense on performance related earnings, which was previously classified as pass-through income. Taxes on performance related earnings consist of current taxes on realized performance income and deferred taxes on unrealized performance related earnings that may change in subsequent periods until such income is realized.

Consolidation and Deconsolidation of Ares Funds

Pursuant to GAAP, we consolidate the Consolidated Funds into our financial results as presented in this Quarterly Report on Form 10‑Q. These funds represented approximately 6.9% of our AUM as of June 30, 2018 , 3.9% of our management fees and 7.0% of our performance income for the six months ended June 30, 2018 . As of June 30, 2018 , we consolidated 12 CLOs and nine private funds, and as of June 30, 2017 , we consolidated seven CLOs and nine private funds.

The consolidation of these funds significantly impacted interest and other income of Consolidated Funds, interest and other expenses of Consolidated Funds, net investment gains (losses) of Consolidated Funds and non-controlling interests in Consolidated Funds, among others, for the three and six months ended June 30, 2018 and 2017 . Further, the consolidation of these funds may impact our management fees, incentive fees and carried interest allocation reported under GAAP to the extent these are eliminated upon consolidation. For the actual impact that consolidation had on our results, see the Consolidating Schedules within Note 15, “Consolidation”, to our condensed consolidated financial statements included herein.

The assets and liabilities of our Consolidated Funds are held within separate legal entities and, as a result, the liabilities of our Consolidated Funds are typically non-recourse to us. Generally, the consolidation of our Consolidated Funds has a significant gross-up effect on our assets, liabilities and cash flows but has no direct net effect on our attributed net income. The net economic ownership interests of our Consolidated Funds, to which we have no economic rights, are reflected as non-controlling interests in the Consolidated Funds in our condensed consolidated financial statements.

We generally deconsolidate funds we advise and CLOs when we are no longer deemed to have a controlling interest in the entity. During the six months ended June 30, 2018 , one entity was liquidated/dissolved, and no non-VIEs experienced a significant change in ownership or control that resulted in deconsolidation during the period.

The performance of our Consolidated Funds is not necessarily consistent with, or representative of, the combined performance trends of all of our funds.

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Managing Business Performance

Non‑GAAP Financial Measures

We use the following non-GAAP measures to assess and track our performance:


•	Economic Net Income (ENI)


•	Fee Related Earnings (FRE)


•	Performance Related Earnings (PRE)


•	Realized Income (RI)

The specific components and calculations of these non‑GAAP measures are discussed in greater detail in Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q. These non‑GAAP financial measures supplement, and should be considered in addition to and not in lieu of, the results of operations, presented and discussed further under “Results of Operations—Consolidated Results of Operations,” which are prepared in accordance with GAAP. For a reconciliation of these measures to the most comparable measure in accordance with GAAP, see Note 14, “Segment Reporting,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Operating Metrics

We monitor certain operating metrics that are common to the alternative asset management industry, which are discussed below.

Assets Under Management

AUM refers to the assets we manage. We view AUM as a metric to measure our investment and fundraising performance as it generally reflects assets at fair value plus available uncalled capital. For our funds other than CLOs, our AUM equals the sum of the following:


•	net asset value (“NAV”) of such funds;


•	the drawn and undrawn debt (at the fund‑level including amounts subject to restrictions); and


•	uncalled committed capital (including commitments to funds that have yet to commence their investment periods).

NAV refers to the fair value of all the assets of a fund less the fair value of all liabilities of the fund.

For funds that are CLOs, our AUM is equal to subordinated notes (equity) plus all drawn and undrawn debt tranches.

The tables below provide the period-to-period rollforwards of our total AUM by segment for the three months ended June 30, 2018 and 2017 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 3/31/2018	$	77,310		$	24,303		$	10,896		$	112,509
Net new par/equity commitments	9,359			350			307			10,016
Net new debt commitments	1,990			—			—			1,990
Distributions	(1,800		)	(1,039		)	(240		)	(3,079		)
Change in fund value	(1		)	(12		)	(53		)	(66		)
Balance at 6/30/2018	$	86,858		$	23,602		$	10,910		$	121,370
Average AUM(1)	$	82,085		$	23,953		$	10,904		$	116,942

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	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 3/31/2017	$	65,231		$	24,653		$	9,941		$	99,825
Net new par/equity commitments	2,083			281			502			2,866
Net new debt commitments	2,267			—			236			2,503
Distributions	(3,446		)	(660		)	(168		)	(4,274		)
Change in fund value	1,312			1,496			281			3,089
Balance at 6/30/2017	$	67,447		$	25,770		$	10,792		$	104,009
Average AUM(1)	$	66,341		$	25,212		$	10,368		$	101,921

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period-to-period rollforwards of our total AUM by segment for the six months ended June 30, 2018 and 2017 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 12/31/2017	$	71,732		$	24,530		$	10,229		$	106,491
Net new par/equity commitments	12,459			363			1,164			13,986
Net new debt commitments	4,745			—			—			4,745
Distributions	(3,136		)	(1,321		)	(531		)	(4,988		)
Change in fund value	1,058			30			48			1,136
Balance at 6/30/2018	$	86,858		$	23,602		$	10,910		$	121,370
Average AUM(1)	$	78,634		$	24,145		$	10,679		$	113,458



	Credit Group			Private Equity Group			Real Estate Group			Total AUM
Balance at 12/31/2016	$	60,466		$	25,041		$	9,752		$	95,259
Acquisitions	3,605			—			—			3,605
Net new par/equity commitments	4,354			323			521			5,198
Net new debt commitments	2,736			—			509			3,245
Distributions	(5,656		)	(1,303		)	(375		)	(7,334		)
Change in fund value	1,942			1,709			385			4,036
Balance at 6/30/2017	$	67,447		$	25,770		$	10,792		$	104,009
Average AUM(1)	$	64,381		$	25,154		$	10,162		$	99,697

(1) Represents the quarterly average of beginning and ending balances.

Please refer to “— Results of Operations by Segment” for a more detailed presentation of AUM by segment for each of the periods presented.

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The graphs below present our Incentive Generating AUM and Incentive Eligible AUM by segment as of June 30, 2018 and 2017 (in millions):



Credit	Private Equity	Real Estate

As of June 30, 2018 and 2017 , our available capital, which we refer to as dry powder, was $33.3 billion and $24.8 billion , respectively, primarily attributable to our funds in the Credit Group and the Private Equity Group.

Fee Paying Assets Under Management

The following components generally comprise our FPAUM:


•	The amount of limited partner, third party capital commitments and debt commitments eligible to pay management fees for certain closed-end funds within the reinvestment period in the Credit Group, funds in the Private Equity Group and certain private funds in the Real Estate Group;


•	The amount of limited partner invested capital for the aforementioned closed-end funds beyond the reinvestment period as well as the structured assets funds in the Credit Group, certain managed accounts within their reinvestment period, the mezzanine fund in the Credit Group, European commingled funds in the Credit Group and co-invest vehicles in the Real Estate Group;


•	The gross amount of aggregate collateral balance, for CLOs, at par, adjusted for defaulted or discounted collateral; and


•	The portfolio value, gross asset value or NAV, adjusted in certain instances for cash or certain accrued expenses, for the remaining funds in the Credit Group, ARCC, certain managed accounts in the Credit Group and certain debt funds in the Real Estate Group.

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The tables below provide the period‑to‑period rollforwards of our total FPAUM by segment for the three months ended June 30, 2018 and 2017 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 3/31/2018	$	51,540		$	16,663		$	6,751		$	74,954
Commitments	1,888			350			97			2,335
Subscriptions/deployment/increase in leverage	1,951			171			280			2,402
Redemptions/distributions/decrease in leverage	(2,109		)	(590		)	(115		)	(2,814		)
Change in fund value	66			(5		)	(50		)	11
Change in fee basis	—			—			—			—
FPAUM Balance at 6/30/2018	$	53,336		$	16,589		$	6,963		$	76,888
Average FPAUM(1)	$	52,439		$	16,627		$	6,858		$	75,924



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 3/31/2017	$	45,696		$	17,182		$	6,357		$	69,235
Commitments	1,251			281			390			1,922
Subscriptions/deployment/increase in leverage	1,265			456			154			1,875
Redemptions/distributions/decrease in leverage	(2,684		)	(570		)	(96		)	(3,350		)
Change in fund value	756			(57		)	85			784
Change in fee basis	225			—			(236		)	(11		)
FPAUM Balance at 6/30/2017	$	46,509		$	17,292		$	6,654		$	70,455
Average FPAUM(1)	$	46,103		$	17,238		$	6,506		$	69,847

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period-to-period rollforwards of our total FPAUM by segment for the six months ended June 30, 2018 and 2017 (in millions):



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 12/31/2017	$	49,450		$	16,858		$	6,189		$	72,497
Commitments	2,818			363			863			4,044
Subscriptions/deployment/increase in leverage	3,915			374			415			4,704
Redemptions/distributions/decrease in leverage	(3,334		)	(1,016		)	(298		)	(4,648		)
Change in fund value	494			10			(2		)	502
Change in fee basis	(7		)	—			(204		)	(211		)
FPAUM Balance at 6/30/2018	$	53,336		$	16,589		$	6,963		$	76,888
Average FPAUM(1)	$	51,443		$	16,703		$	6,635		$	74,781



	Credit Group			Private Equity Group			Real Estate Group			Total
FPAUM Balance at 12/31/2016	$	42,709		$	11,314		$	6,540		$	60,563
Acquisitions	2,789			—			—			2,789
Commitments	1,783			7,922			390			10,095
Subscriptions/deployment/increase in leverage	2,282			837			207			3,326
Redemptions/distributions/decrease in leverage	(4,503		)	(918		)	(270		)	(5,691		)
Change in fund value	1,224			(336		)	71			959
Change in fee basis	225			(1,527		)	(284		)	(1,586		)
FPAUM Balance at 6/30/2017	$	46,509		$	17,292		$	6,654		$	70,455
Average FPAUM(1)	$	44,971		$	15,262		$	6,517		$	66,750

(1) Represents the quarterly average of beginning and ending balances.

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Please refer to “— Results of Operations by Segment” for detailed information by segment of the activity affecting total FPAUM for each of the periods presented.

The charts below present FPAUM by its fee basis as of June 30, 2018 and 2017 (in millions):



FPAUM: $76,888	FPAUM: $70,455

The components of our AUM, including the portion that is FPAUM, are presented below as of June 30, 2018 and 2017 (in millions):



AUM: $121,370	AUM: $104,009

(1) Includes $7.0 billion and $6.4 billion of AUM of funds from which we indirectly earn management fees as of June 30, 2018 and 2017 , respectively.

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Fund Performance Metrics

Fund performance information for our investment funds considered to be “significant funds” is included throughout this discussion with analysis to facilitate an understanding of our results of operations for the periods presented. Our significant funds include those that contributed at least 1% of our total management fees for the six months ended June 30, 2018 or composed of at least 1% of the Company’s total FPAUM as of June 30, 2018 , and for which we have sole discretion for investment decisions within the fund. In addition to management fees, each of our significant funds may generate performance income upon the achievement of performance hurdles. The fund performance information reflected in this discussion and analysis is not indicative of our overall performance. An investment in the Company is not an investment in any of our funds. Past performance is not indicative of future results. As with any investment there is always the potential for gains as well as the possibility of losses. There can be no assurance that any of these funds or our other existing and future funds will achieve similar returns.

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Adoption of New Revenue Guidance and Change in Accounting Principle

Effective January 1, 2018, we adopted the Financial Accounting Standards Board (“FASB") Topic 606 (“ASC 606”) Revenue from Contracts with Customers and implemented a change in accounting principle related to carried interest allocation.

Our adoption of ASC 606 resulted in a change to the recognition of contractual incentive fees and the presentation of these fees within our results. Incentive fees are now presented on the Condensed Consolidated Statements of Operations as a separate line item, and we now only recognize incentive fee revenue when the amount is realized and no longer subject to reversal at the end of the measurement period, which is typically annually. Therefore, we no longer recognize unrealized incentive fees in revenues in the Condensed Consolidated Statements of Operations. We adopted ASC 606 on a modified retrospective basis, as such prior periods have not been adjusted. We recognized the cumulative effect of initially adopting ASC 606 as an adjustment to the opening balances of components of equity as of January 1, 2018. The cumulative effect of the adoption resulted in the reversal of $22.6 million of unrealized incentive fees and is presented as a reduction to the opening balances of components of equity as of January 1, 2018.

Carried interest allocations are now accounted for under the GAAP guidance for equity method investments and presented as a separate line item on the Condensed Consolidated Statements of Operations and within investments on the Condensed Consolidated Statements of Financial Condition. We implemented this change in accounting principle on a full retrospective basis and all prior periods have been modified to conform. The implementation of the change in accounting principle resulted in no change to either our previously reported GAAP or non-GAAP results. Performance income in our results of operations by segment and non-GAAP measures collectively refers to carried interest allocation and incentive fees.

For further detail on our adoption of ASC 606 and change in accounting principles, see Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q.

Components of Consolidated Results of Operations - Post Adoption of New Revenue Guidance and Change in Accounting Principle

As a result of our adoption of new revenue guidance and change in accounting principle described above, the following financial statement captions have been updated in the Consolidated Results of Operations. For descriptions of financial statement line items not included below, see “— Components of Consolidated Results of Operations” within Item 7. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations in the 2017 Annual Report on Form 10-K of Ares Management, L.P.

Carried Interest Allocation. In certain fund structures, typically in private equity and real estate equity funds, carried interest is allocated to the Company based on cumulative fund performance to date, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s governing documents. At the end of each reporting period, a fund will allocate carried interest applicable to the Company based upon an assumed liquidation of that fund's net assets on the reporting date, irrespective of whether such amounts have been realized. Carried interest is recorded to the extent such amounts have been allocated and may be subject to reversal to the extent that the amount allocated ultimately exceeds the amount due to the Company based on a fund’s cumulative investment returns.

Carried interest is realized when an underlying investment is profitably disposed and the fund’s cumulative returns are in excess of the specific hurdle rates as defined in the applicable governing documents. Since carried interest is subject to reversal, the Company may need to accrue for potential repayment of previously received carried interest. This accrual represents all amounts previously distributed to the Company that would need to be repaid to the funds if the funds were to be liquidated based on the current fair value of the underlying funds’ investments as of the reporting date. The actual repayment obligations, however, generally do not become realized until the end of a fund’s life.

Incentive Fees. Incentive fees earned on the performance of certain fund structures, typically in credit funds, are recognized based on the fund’s performance during the period, subject to the achievement of minimum return levels in accordance with the respective terms set out in each fund’s investment management agreement. Incentive fees are realized at the end of a measurement period, typically annually. Once realized, such fees are no longer subject to reversal.

Principal Investment Income. Principal investment income consists of interest and dividend income and net realized and unrealized gain (loss) on equity method investments that we manage. Interest and dividend income are recognized on an accrual basis to the extent that such amounts are expected to be collected. Net gain (loss) from investment activities include realized and unrealized gains and losses from our equity method investment portfolio. A realized gain (loss) is recognized when we redeem all

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or a portion of our investment or when we receive a distribution of capital. Unrealized gains (losses) on investments result from appreciation (depreciation) in the fair value of our investments, as well as reversals of previously recorded unrealized appreciation (depreciation) at the time the gain (loss) on an investment becomes realized.

Performance Related Compensation. Performance related compensation includes compensation directly related to segment performance income, which generally consists of percentage interests of carried interest and incentive fees that we grant to our professionals. Depending on the nature of each fund, the performance income participation is generally structured as a fixed percentage or as an annual award. The liability is calculated based upon the changes to performance income but is not payable until the performance income is realized. We have an obligation to pay our professionals a portion of the performance income earned from certain funds, including performance income from Consolidated Funds that are eliminated in consolidation.

Although changes in performance related compensation are typically directly correlated with changes in performance income reported within our segment results, this correlation does not always exist when our results are reported on a fully consolidated basis in accordance with GAAP. This discrepancy is caused by the fact that incentive fees and carried interest allocation earned from our Consolidated Funds are eliminated upon consolidation while performance related compensation is not eliminated.

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Results of Operations

Consolidated Results of Operations

The following table and discussion sets forth information regarding our consolidated results of operations for the three and six months ended June 30, 2018 and 2017 . We consolidate funds 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' rights, and the creation and termination of funds. The consolidation of these funds had no effect on net income attributable to common and preferred shareholders for the periods presented.



	Three Months Ended June 30,						Favorable (Unfavorable)					Six Months Ended June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Revenues
Management fees (includes ARCC Part I Fees of $29,866, $58,283 and $19,143, $52,400 for the three and six months ended June 30, 2018 and 2017, respectively)	$	194,032		$	180,768		$	13,264		7	%	$	383,547		$	352,813		$	30,734		9	%
Carried interest allocation	(13,444		)	333,808			(347,252		)	NM		40,685			385,815			(345,130		)	(89	)%
Incentive fees	7,740			4,216			3,524			84	%	12,811			7,381			5,430			74	%
Principal investment income	1,871			38,307			(36,436		)	(95	)%	6,780			40,894			(34,114		)	(83	)%
Administrative, transaction and other fees	13,964			15,098			(1,134		)	(8	)%	26,429			29,538			(3,109		)	(11	)%
Total revenues	204,163			572,197			(368,034		)	(64	)%	470,252			816,441			(346,189		)	(42	)%
Expenses
Compensation and benefits	138,992			131,219			(7,773		)	(6	)%	273,631			255,558			(18,073		)	(7	)%
Performance related compensation	(13,005		)	261,705			274,710			NM		12,873			302,407			289,534			96	%
General, administrative and other expenses	59,918			50,751			(9,167		)	(18	)%	104,368			98,089			(6,279		)	(6	)%
Transaction support expense	—			—			—			NM		—			275,177			275,177			NM
Expenses of the Consolidated Funds	35,112			4,522			(30,590		)	NM		36,428			8,433			(27,995		)	NM
Total expenses	221,017			448,197			227,180			51	%	427,300			939,664			512,364			55	%
Other income (expense)
Net realized and unrealized gain (loss) on investments	3,267			(6,588		)	9,855			NM		2,428			(5,700		)	8,128			NM
Interest and dividend income	2,356			1,462			894			61	%	5,703			3,386			2,317			68	%
Interest expense	(6,076		)	(5,354		)	(722		)	(13	)%	(12,945		)	(10,233		)	(2,712		)	(27	)%
Other income (expense), net	(1,987		)	2,822			(4,809		)	NM		(2,298		)	19,318			(21,616		)	NM
Net realized and unrealized gain (loss) on investments of Consolidated Funds	34,487			(12,713		)	47,200			NM		21,402			19,323			2,079			11	%
Interest and other income of the Consolidated Funds	92,633			38,326			54,307			142	%	157,055			79,818			77,237			97	%
Interest expense of Consolidated Funds	(56,754		)	(26,875		)	(29,879		)	(111	)%	(101,179		)	(58,197		)	(42,982		)	(74	)%
Total other income (expense)	67,926			(8,920		)	76,846			NM		70,166			47,715			22,451			47	%
Income (loss) before taxes	51,072			115,080			(64,008		)	(56	)%	113,118			(75,508		)	188,626			NM
Income tax expense (benefit)	36,903			1,253			(35,650		)	NM		24,528			(33,011		)	(57,539		)	NM
Net income (loss)	14,169			113,827			(99,658		)	(88	)%	88,590			(42,497		)	131,087			NM
Less: Net income (loss) attributable to non-controlling interests in Consolidated Funds	9,882			(8,647		)	18,529			NM		10,249			7,208			3,041			42	%
Less: Net income (loss) attributable to non-controlling interests in Ares Operating Group entities	16,062			72,596			(56,534		)	(78	)%	49,168			(58,449		)	107,617			NM
Net income (loss) attributable to Ares Management, L.P.	(11,775		)	49,878			(61,653		)	NM		29,173			8,744			20,429			234	%
Less: Preferred equity dividend paid	5,425			5,425			—			—	%	10,850			10,850			—			—	%
Net income (loss) attributable to Ares Management, L.P. common shareholders	$	(17,200	)	$	44,453		(61,653		)	NM		$	18,323		$	(2,106	)	20,429			NM

NM - Not Meaningful

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The following section discusses the period-over-period fluctuations of our consolidated results of operations for the three and six months ended June 30, 2018 compared to 2017 . Additional details behind the fluctuations attributable to a particular segment are included in “—Results of Operations by Segment” for each of the segments.

Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017

Revenues

Management Fees. Total management fees increased by $13.3 million , or 7% , to $194.0 million , after giving effect to an increase in management fees of $3.5 million that we re eliminated upon consolidation, for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 . Segment management fees attributable to the Credit Group and Real Estate Group increased by $23.2 million and $0.7 million , respectively, and segment management fees attributable to the Private Equity Group decreased by $7.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 .

Total management fees increased by $30.7 million , or 9% , to $383.5 million , after giving effect to an increase in management fees of $6.1 million that we re eliminated upon consolidation, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Segment management fees attributable to the Credit Group, Private Equity Group and Real Estate Group increased by $33.6 million , $3.0 million and $0.2 million , respectively, for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 .

For more detail regarding the fluctuations of management fees within each of the segments see “—Results of Operations by Segment.”

Carried Interest Allocation. Carried interest allocation decreased by $347.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $345.1 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 .

Carried interest allocation for the three and six months ended June 30, 2018 included the following: (i) $25.4 million and $41.5 million of carried interest allocations for the three and six months ended June 30, 2018, respectively, attributable to the Credit Group primarily due to certain European direct lending funds generating returns in excess of their hurdle rates; (ii) $14.4 million and $27.0 million of carried interest allocations for the three and six months ended June 30, 2018, respectively, attributable to the Real Estate Group primarily due to market appreciation of underlying properties across our U.S. and E.U. real estate funds; offset by (iii) reversals of $53.2 million and $27.7 million of carried interest allocations for the three and six months ended June 30, 2018, respectively, attributable to the Private Equity Group primarily due to a reduction in fair value in an ACOF IV industrial portfolio company and by a reduction in fair value in an Ares Energy Investors Fund V, L.P. (“EIF V”) energy portfolio company.

Carried interest allocation for the three and six months ended June 30, 2017 included the following: (i) $293.5 million and $324.7 million of carried interest allocations for the three and six months ended June 30, 2017, respectively, attributable to the Private Equity Group primarily due to significant market appreciation in one of Ares Corporate Opportunities Fund III, L.P.'s (“ACOF III”) publicly traded retail portfolio companies following its initial public offering during the period and to an increased fair value in an Ares Corporate Opportunities Fund IV, L.P. (“ACOF IV”) veterinary portfolio company following a minority sale of the company; (ii) $31.0 million and $44.6 million of carried interest allocations for the three and six months ended June 30, 2017, respectively, attributable to the Real Estate Group primarily due to market appreciation of underlying properties across our U.S. and E.U. real estate funds; and (iii) $9.5 million and $16.4 million of carried interest allocations for the three and six months ended June 30, 2017, respectively, attributable to the Credit Group primarily due to certain European direct lending funds generating returns in excess of their hurdle rates.

Incentive Fees. Incentive fees increased by $3.5 million to $7.7 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $5.4 million to $12.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . As a result of our adoption of ASC 606, using the modified retrospective approach, we now recognize incentive fee revenue only when the amount is realized and no longer subject to reversal and no longer recognize unrealized incentive fees in revenues subsequent to January 1, 2018. This adoption results in the delayed recognition of unrealized incentive fees until they become realized at the end of the measurement period, which is typically annually. During the three and six months ended June 30, 2018 , we realized $7.7 million and $12.8 million, respectively, across our direct lending and credit opportunity funds.

Principal Investment Income. Principal investment income decreased by $36.4 million to $1.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $34.1 million to $6.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decreases were primarily attributable to significant

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market appreciation in one of ACOF III's publicly traded retail portfolio companies following its initial public offering during the prior year periods.

Administrative, Transaction and Other Fees. Administrative fees and other fees decreased by $1.1 million , or 8% , to $14.0 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $3.1 million , or 11% , to $26.4 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Administrative fees decreased by $2.3 million and $5.5 million, for the three and six month comparative periods, respectively, primarily due to higher reimbursements of costs in the prior year periods related to temporary employees assisting with the integration of ACAS into ARCC. These decreases were offset by increases of $1.3 million and $2.3 million in transaction-based fees based on loan originations within certain funds in our Credit Group for the three and six month comparative periods, respectively.

Expenses

Compensation and Benefits. Compensation and benefits expenses increased by $7.8 million , or 6% , to $139.0 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $18.1 million , or 7% , to $273.6 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by merit increases, headcount growth and equity compensation increases for the comparative periods. Equity compensation expense increased by $3.6 million and $9.6 million for the three and six month comparative periods, respectively. The increases in equity compensation expense were primarily due to additional restricted units awarded as part of bonus and retention programs.

Performance Related Compensation. Performance related compensation decreased by $274.7 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $289.5 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decreases in performance related compensation largely correlate with the decreases in carried interest allocation and incentive fees before giving effect to the carried interest allocation and incentive fees earned from our Consolidated Funds eliminated upon consolidation.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $9.2 million , or 18% , to $59.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $6.3 million , or 6% , to $104.4 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The current year periods include an $11.8 million one-time reimbursement to ARCC for certain rent and utilities for the first quarter of 2018 and the years ended 2017, 2016, 2015 and 2014. Beginning April 1, 2018, we incurred these expenses resulting in a $0.9 million increase in occupancy expense for the three and six month comparative periods. Professional service fees increased by $0.9 million and $2.2 million for the three and six month comparative periods, respectively. The increases in professional service fees for both comparative periods were primarily driven by our election to change our tax classification from a partnership to a corporation for U.S. income tax purposes, by an increase in operating expenses from a joint venture distribution platform and by an increase in recruiting fees to support our expanding business. Conversely, placement fees decreased by $4.5 million and $6.3 million for the three and six month comparative periods, respectively, due to the launch of certain funds within our Credit Group during the prior year periods. Additionally, we made a $2.5 million one-time non-income tax payment during the first quarter of 2017.

Transaction Support Expense. Transaction support expense was a one–time payment of $275.2 million that we made, through our subsidiary Ares Capital Management LLC, to ACAS shareholders during the first quarter of 2017 upon the closing of ARCC’s acquisition of ACAS.

Expenses of the Consolidated Funds. Expenses of the Consolidated Funds increased by $30.6 million to $35.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $28.0 million to $36.4 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by fees related to the issuance and refinancing of CLO debt within our Consolidated Funds during the current year periods. These fees were expensed in the period incurred, as CLO debt is recorded at fair value on our Consolidated Statements of Financial Condition. Expenses of the Consolidated Funds increased by $28.7 million related to expenses from two new U.S. CLOs and one new European CLO that we began consolidating during the current year periods and $4.9 million related to expenses from the refinancing of one U.S. CLO during the current year periods. The increases for the three and six month comparative period were offset by $2.5 million reduction of expenses related to the refinancing of one European CLO during the second quarter of 2017. The increase for the six month comparative periods was also offset by reductions in other recurring expenses across our Consolidated funds.

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Other Income (Expense)

When evaluating the changes in other income (expense), we separately analyze the other income generated by the Company from the investment returns generated by our Consolidated Funds.

Net Realized and Unrealized Gain (Loss) on Investments. Net realized and unrealized gain (loss) on investments of the Company increased by $9.9 million from a loss of $6.6 million for the three months ended June 30, 2017 to a gain of $3.3 million for the three months ended June 30, 2018 . Net realized and unrealized gain (loss) on investments of the Company increased by $8.1 million from a loss of $5.7 million for the six months ended June 30, 2017 to a gain of $2.4 million for the six months ended June 30, 2018 . The increases were primarily from an increase of $5.0 million and $6.7 million in net gains for the three and six month comparative periods, respectively, on our non-core fund investments.

Interest and Dividend Income. Interest and dividend income of the Company increased by $0.9 million to $2.4 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $2.3 million to $5.7 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were driven by increases of $0.5 million and $0.9 million in dividend income for the three and six month comparative periods, respectively, from our non-core fund investments and by increases of $0.3 million and $1.3 million in interest income from new CLO investments for the three and six month comparative periods, respectively.

Interest Expense. Interest expense of the Company increased by $0.7 million to $6.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $2.7 million to $12.9 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by borrowings from term loans we entered into subsequent to June 30, 2017 to finance certain investments in CLOs. Interest expense is expected to decrease in future periods as these term loans were paid off during the current year periods.

Other Income (Expense), Net. Other income (expense), net decreased by $4.8 million from net other income of $2.8 million for the three months ended June 30, 2017 to net expenses of $2.0 million for the three months ended June 30, 2018 . The decrease was primarily driven by a $3.1 million decrease in transaction gains from the revaluation of certain assets and liabilities denominated in foreign currencies. Subsequent to the removal of the U.S. risk retention requirements related to open-market CLO managers, we sold $219.3 million of our investments in our CLO securities and used the proceeds to pay off the related term loans and settle a repurchase agreement of $206.0 million, resulting in debt extinguishment costs of $1.7 million during the three months ended June 30, 2018.

Other income (expense), net decreased by $21.6 million from other income of $19.3 million for the six months ended June 30, 2017 to $2.3 million of net expenses for the six months ended June 30, 2018 . The decrease was primarily a result of a $20.3 million reversal of a contingent consideration related to the Energy Investors Funds (“EIF”) acquisition that was reflected as a gain during the first quarter of 2017. Subsequent to the removal of the U.S. risk retention requirements related to open-market CLO managers, we sold $219.3 million of our investments in our CLO securities and used the proceeds to pay off the related term loans and settle a repurchase agreement of $206.0 million, resulting in debt extinguishment costs of $1.7 million during the six months ended June 30, 2018.

Net Realized and Unrealized Gain (Loss) on Investments of the Consolidated Funds. Net gain (loss) on investments of the Consolidated Funds increased by $47.2 million from a net loss of $12.7 million for the three months ended June 30, 2017 to a net gain of $34.5 million for the three months ended June 30, 2018 . The net gain for three months ended June 30, 2018 primarily included the following: (i) $24.3 million in net gains from increased market value of certain investments in an Asian corporate private equity fund; (ii) $25.7 million in net gains from widely traded bank loans held within our consolidated U.S. CLOs primarily driven by market appreciation; offset by (iii) $8.4 million in net losses attributable to a European direct lending fund driven by a change in market value of the fund's sole remaining investment; and (iv) $7.0 million in net losses attributable to decreased market value of certain investments in a commercial finance fund. The net loss for the three months ended June 30, 2017 primarily included a $12.2 million net loss from lower valuations on certain investments in an Asian corporate private equity fund.

Net gain on investments of the Consolidated Funds increased by $2.1 million to $21.4 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The net gain for the six months ended June 30, 2018 primarily included the following: (i) $15.9 million in net gains from increased market value of certain investments in an Asian corporate private equity fund; (ii) $18.1 million in net gains from widely traded bank loans held within our U.S. CLOs primarily driven by market appreciation; offset by (iii) $13.6 million in net losses attributable to a European direct lending fund driven by a change in market value of the fund's sole remaining investment.The net gain for the six months ended June 30, 2017 primarily included the following: (i) $3.5 million of net gains from widely traded bank loans held within our consolidated CLOs primarily driven by market appreciation; (ii) $9.3 million of net gains from a European direct lending fund primarily due to a strengthened Euro against

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the U.S. dollar; (iii) $2.9 million of net gains from increased market value of certain investments in an Asian corporate private equity fund; and (iv) $3.1 million of net gains from increased market value of certain investments in a commercial finance fund.

Interest and Other Income of the Consolidated Funds. Interest and other income of the Consolidated Funds increased by $54.3 million , or 142% , to $92.6 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $77.2 million , or 97% , to $157.1 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by additional interest paying assets from four U.S. CLOs and two European CLOs that we began consolidating subsequent to June 30, 2017 resulting in increases in interest income for the comparative periods.

Interest Expense of the Consolidated Funds. Interest expense of the consolidated funds increased by $29.9 million , or 111% , to $56.8 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $43.0 million , or 74% , to $101.2 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily the result of interest expense from the debt issued for four U.S. CLOs and two European CLOs we began consolidating subsequent to June 30, 2017. The increases were partially offset by the deconsolidation of two funds subsequent to June 30, 2017.

Income Tax Expense (Benefit). Income tax expense increased by $35.7 million to $36.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 . Income tax expense (benefit) decreased by $57.5 million from a tax benefit of $33.0 million for the six months ended June 30, 2017 to tax expense of $24.5 million for the six months ended June 30, 2018 . Income tax expense for the three and six months ended June 30, 2018 was primarily driven by two significant one-time deferred tax items related to our election to be taxed as a corporation for U.S. federal income tax purposes effective March 1, 2018. Income tax expense for the three months ended June 30, 2018 was primarily driven by a $28.9 million valuation allowance recorded during the period against a deferred tax asset, which was established during the three months ended March 31, 2018, effectively eliminating any impact on income tax expense for the six months ended June 30, 2018. Income tax expense for the six months ended June 30, 2018 was primarily driven by a deferred tax liability arising from the embedded net unrealized gains of both carried interest and the investment portfolio that were not previously subject to corporate taxes. Income tax benefit for the six months ended June 30, 2017 was primarily driven by pre-tax losses recognized by AHI, a U.S. taxable entity, resulting from the $275.2 million transaction support payment made in connection with ARCC's acquisition of ACAS.

Non-Controlling Interests. Net income (loss) attributable to non-controlling interests in Ares Operating Group entities represents results attributable to the owners of AOG Units that are not held by Ares Management, L.P. and is allocated based on the weighted average daily ownership of the AOG unitholders.

Net income attributable to non-controlling interests in Ares Operating Group entities decreased by $56.5 million to $16.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 . Net income (loss) attributable to non-controlling interests in Ares Operating Group entities increased from a net loss of $58.4 million for the six months ended June 30, 2017 to net income of $49.2 million for the six months ended June 30, 2018 . The weighted average daily ownership for non-controlling AOG unitholders was 55.1% and 57.5% for the three and six months ended June 30, 2018 , respectively, compared to 61.4% and 61.5% for the three and six months ended June 30, 2017 , respectively. The decreases in non–controlling ownership were primarily driven by our common share offering of 5,000,000 shares and by an affiliate of Alleghany Corporation's exchange of 9,750,000 of its AOG Units into common shares during the first quarter of 2018.

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Segment Analysis

For segment reporting purposes, revenues and expenses are presented excluding the results of our Consolidated Funds. As a result, segment revenues from management fees, performance income and investment income are different than those presented on a consolidated basis in accordance with GAAP because revenues recognized from Consolidated Funds are eliminated in consolidation. 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.

In addition to the three segments, we separately discuss the OMG. This information is used by our management to make operating decisions, assess performance and allocate resources. The results of operations for each of our reportable segments are discussed below.

ENI and Other Measures

The following table sets forth FRE, PRE, ENI and RI by segment for the three and six months ended June 30, 2018 and 2017 . FRE, PRE, ENI and RI are non‑GAAP financial measures our management uses when making resource deployment decisions and in assessing performance of our segments (For definitions of each of these non-GAAP financial measures and how they are being used by management, see the Glossary).



	Three Months Ended						Favorable (Unfavorable)					Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)					June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Fee related earnings:
Credit Group	$	79,792		$	65,109		$	14,683		23	%	$	157,379		$	131,215		$	26,164		20	%
Private Equity Group	26,808			34,032			(7,224		)	(21	)%	53,795			56,775			(2,980		)	(5	)%
Real Estate Group	5,986			3,693			2,293			62	%	11,091			6,832			4,259			62	%
Operations Management Group	(50,548		)	(49,446		)	(1,102		)	(2	)%	(99,770		)	(94,712		)	(5,058		)	(5	)%
Fee related earnings	$	62,038		$	53,388		8,650			16	%	$	122,495		$	100,110		22,385			22	%
Performance related earnings:
Credit Group	$	18,330		$	3,967		14,363			NM		$	41,606		$	11,368		30,238			266	%
Private Equity Group	316			87,249			(86,933		)	(100	)%	(852		)	101,745			(102,597		)	NM
Real Estate Group	3,128			15,075			(11,947		)	(79	)%	9,729			21,462			(11,733		)	(55	)%
Operations Management Group	3,699			(1,626		)	5,325			NM		6,467			(776		)	7,243			NM
Performance related earnings	$	25,473		$	104,665		(79,192		)	(76	)%	$	56,950		$	133,799		(76,849		)	(57	)%
Economic net income:
Credit Group	$	98,122		$	69,076		29,046			42	%	$	198,985		$	142,583		56,402			40	%
Private Equity Group	27,124			121,281			(94,157		)	(78	)%	52,943			158,520			(105,577		)	(67	)%
Real Estate Group	9,114			18,768			(9,654		)	(51	)%	20,820			28,294			(7,474		)	(26	)%
Operations Management Group	(46,849		)	(51,072		)	4,223			8	%	(93,303		)	(95,488		)	2,185			2	%
Economic net income	$	87,511		$	158,053		(70,542		)	(45	)%	$	179,445		$	233,909		(54,464		)	(23	)%
Realized income:
Credit Group	$	97,921		$	73,181		24,740			34	%	$	176,778		$	143,126		33,652			24	%
Private Equity Group	53,408			50,151			3,257			6	%	80,735			72,496			8,239			11	%
Real Estate Group	6,479			5,181			1,298			25	%	20,148			9,769			10,379			106	%
Operations Management Group	(49,754		)	(48,346		)	(1,408		)	(3	)%	(97,534		)	(91,551		)	(5,983		)	(7	)%
Realized income	$	108,054		$	80,167		27,887			35	%	$	180,127		$	133,840		46,287			35	%

NM - Not Meaningful

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Reconciliation of Certain Non-GAAP Measures to Consolidated GAAP Financial Measures

Income before provision for income taxes is the GAAP financial measure most comparable to ENI, RI, FRE and PRE. The following table presents the reconciliation of income before taxes as reported in the Condensed Consolidated Statements of Operations to ENI, RI, FRE, and PRE (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Economic net income
Income (loss) before taxes	$	51,072		$	115,080		$	113,118		$	(75,508	)
Adjustments:
Amortization of intangibles	3,285			5,274			6,572			10,549
Depreciation expense	4,426			2,774			8,315			5,990
Equity compensation expenses	22,507			18,917			43,594			34,006
Acquisition and merger-related expenses	47			756			(272		)	255,844
Placement fees and underwriting costs	1,852			6,383			3,516			9,822
Offering costs	3			(5		)	3			655
Other expense(1)	13,551			—			13,558			—
Expense of non-controlling interests in consolidated subsidiaries	719			623			1,359			623
Income before taxes of non-controlling interests in Consolidated Funds, net of eliminations	(9,951		)	8,251			(10,318		)	(8,072		)
Economic net income	87,511			158,053			179,445			233,909
Unconsolidated performance income - unrealized	124,343			(263,629		)	89,225			(312,890		)
Unconsolidated performance related compensation - unrealized	(100,886		)	208,732			(89,877		)	244,133
Unconsolidated net investment income	(2,914		)	(22,989		)	1,334			(31,312		)
Realized income	108,054			80,167			180,127			133,840
Unconsolidated performance income - realized	(122,608		)	(74,130		)	(145,715		)	(82,935		)
Unconsolidated performance related compensation - realized	87,881			52,973			102,750			58,274
Unconsolidated net investment income	(11,289		)	(5,622		)	(14,667		)	(9,069		)
Fee related earnings	$	62,038		$	53,388		122,495			100,110
Performance related earnings
Economic net income	$	87,511		$	158,053		$	179,445		$	233,909
Less: fee related earnings	(62,038		)	(53,388		)	(122,495		)	(100,110		)
Performance related earnings	$	25,473		$	104,665		$	56,950		$	133,799

(1)

Includes $11.8 million payment to ARCC for rent and utilities for the years ended 2017, 2016, 2015 and 2014, and for the first quarter of 2018. The payment included $0.6 million related to the first quarter of 2018 and $0.6 million and $1.3 million related to the three and six months ended June 30, 2017, respectively. Beginning April 1, 2018, the Company paid these expenses and recorded them as a direct operating expense within G&A, which totaled $0.9 million for the quarter ended June 30, 2018.

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The following table reconciles unconsolidated performance income to our consolidated carried interest allocation and incentive fees reported in accordance with GAAP (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Unconsolidated performance income - realized	$	122,608		$	74,130		$	145,715		$	82,935
Performance income - realized earned from Consolidated Funds	(4,000		)	(4,664		)	(4,000		)	(8,086		)
Performance income - realized reclass(1)	(521		)	(1,200		)	(521		)	(1,200		)
Performance income - realized	118,087			68,266			141,194			73,649
Unconsolidated performance income - unrealized	(124,343		)	263,629			(89,225		)	312,890
Performance income - unrealized earned from Consolidated Funds	—			5,146			—			5,698
Performance income - unrealized reclass(1)	552			983			1,527			959
Performance income - unrealized	(123,791		)	269,758			(87,698		)	319,547
Total GAAP carried interest allocation and incentive fees	$	(5,704	)	$	338,024		$	53,496		$	393,196

(1) Related to performance income for AREA Sponsor Holdings LLC. Changes in value of this investment are reflected within other (income) expense in the Company’s Condensed Consolidated Statements of Operations.

The following table reconciles unconsolidated other income to our consolidated GAAP other income (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Unconsolidated net investment income	$	14,203		$	28,611		$	13,333		$	40,381
Net investment income (loss) from Consolidated Funds	70,186			(3,560		)	76,979			34,862
Performance income - reclass(1)	(31		)	217			(1,006		)	241
Principal investment income	(14,722		)	(34,166		)	(17,430		)	(47,335		)
Change in value of contingent consideration	—			(32		)	—			20,216
Other non-cash expense	(1,715		)	—			(1,722		)	—
Offering costs	(3		)	5			(3		)	(655		)
Other income of non-controlling interests in consolidated subsidiaries	8			5			15			5
Total GAAP other income	$	67,926		$	(8,920	)	$	70,166		$	47,715

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Results of Operations by Segment

Credit Group

The following table sets forth certain statement of operations data and certain other data of our Credit Group segment for the periods presented.



	Three Months Ended						Favorable (Unfavorable)					Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)					June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Management fees (includes ARCC Part I Fees of $29,866, $58,283 and $19,143, $52,400 for the three and six months ended June 30, 2018 and 2017, respectively)	$	135,848		$	112,654		$	23,194		21	%	$	267,614		$	234,001		$	33,613		14	%
Other fees	6,877			5,663			1,214			21	%	12,607			10,166			2,441			24	%
Compensation and benefits	(51,892		)	(45,160		)	(6,732		)	(15	)%	(102,172		)	(96,863		)	(5,309		)	(5	)%
General, administrative and other expenses	(11,041		)	(8,048		)	(2,993		)	(37	)%	(20,670		)	(16,089		)	(4,581		)	(28	)%
Fee Related Earnings	79,792			65,109			14,683			23	%	157,379			131,215			26,164			20	%
Performance income-realized	41,672			7,883			33,789			NM		46,743			16,661			30,082			181	%
Performance income-unrealized	(4,568		)	5,093			(9,661		)	NM		11,524			8,029			3,495			44	%
Performance related compensation-realized	(23,577		)	(1,898		)	(21,679		)	NM		(26,665		)	(7,183		)	(19,482		)	(271	)%
Performance related compensation-unrealized	2,759			(6,079		)	8,838			NM		9,935			(7,537		)	17,472			NM
Net performance income	16,286			4,999			11,287			226	%	41,537			9,970			31,567			NM
Investment income-realized	595			2,525			(1,930		)	(76	)%	1,366			2,843			(1,477		)	(52	)%
Investment income (loss)-unrealized	1,617			(3,450		)	5,067			NM		1,348			1,139			209			18	%
Interest and other investment income	3,428			2,958			470			16	%	5,624			2,939			2,685			91	%
Interest expense	(3,596		)	(3,065		)	(531		)	(17	)%	(8,269		)	(5,523		)	(2,746		)	(50	)%
Net investment income (loss)	2,044			(1,032		)	3,076			NM		69			1,398			(1,329		)	(95	)%
Performance related earnings	18,330			3,967			14,363			NM		41,606			11,368			30,238			266	%
Economic net income	$	98,122		$	69,076		29,046			42	%	$	198,985		$	142,583		56,402			40	%
Realized income	$	97,921		$	73,181		24,740			34	%	$	176,778		$	143,126		33,652			24	%

NM - Not meaningful

Accrued carried interest and incentive fee receivable for the Credit Group include the following:



	As of June 30,		As of December 31,
	2018		2017
	(Dollars in thousands)
CLOs	$	—	$	451
CSF	20,819		28,158
ACE II	26,072		24,090
ACE III	49,734		43,595
Other credit funds	51,836		72,210
Total Credit Group	$	148,461	$	168,504

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The following tables present the components of performance income for the Credit Group. The three and six month periods ended June 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.



	Three Months Ended June 30, 2018								Three Months Ended June 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
CLOs	$	26	$	—		$	26		$	4,680	$	(5,682	)	$	(1,002	)
CSF	—		(2,973		)	(2,973		)	—		(2,123		)	(2,123		)
ACE II	4,071		595			4,666			3,201		(652		)	2,549
ACE III	15,361		(3,298		)	12,063			—		6,350			6,350
Other credit funds	22,214		1,108			23,322			2		7,200			7,202
Total Credit Group	$	41,672	$	(4,568	)	$	37,104		$	7,883	$	5,093		$	12,976



	Six Months Ended June 30, 2018								Six Months Ended June 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
CLOs	$	70	$	—		$	70		$	4,883	$	(4,487	)	$	396
CSF	—		(7,339		)	(7,339		)	—		(7,418		)	(7,418		)
ACE II	4,071		2,328			6,399			3,201		2,558			5,759
ACE III	15,361		7,469			22,830			—		11,542			11,542
Other credit funds	27,241		9,066			36,307			8,577		5,834			14,411
Total Credit Group	$	46,743	$	11,524		$	58,267		$	16,661	$	8,029		$	24,690

The following tables present the components of the change in performance income - unrealized for the Credit Group. The three and six month periods ended June 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.



	Three Months Ended June 30, 2018											Three Months Ended June 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
CLOs	$	—		$	—	$	—		$	—		$	(4,680	)	$	233	$	(1,235	)	$	(5,682	)
CSF	—			—		(2,973		)	(2,973		)	—			—		(2,123		)	(2,123		)
ACE II	(4,071		)	4,666		—			595			(3,201		)	2,549		—			(652		)
ACE III	(15,361		)	12,063		—			(3,298		)	—			6,350		—			6,350
Other credit funds	(10,501		)	11,837		(228		)	1,108			(2		)	7,982		(780		)	7,200
Total Credit Group	$	(29,933	)	$	28,566	$	(3,201	)	$	(4,568	)	$	(7,883	)	$	17,114	$	(4,138	)	$	5,093



	Six Months Ended June 30, 2018											Six Months Ended June 30, 2017
	Performance income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
CLOs	$	—		$	—	$	—		$	—		$	(4,883	)	$	897	$	(501	)	$	(4,487	)
CSF	—			—		(7,339		)	(7,339		)	—			—		(7,418		)	(7,418		)
ACE II	(4,071		)	6,399		—			2,328			(3,201		)	5,759		—			2,558
ACE III	(15,361		)	22,830		—			7,469			—			11,542		—			11,542
Other credit funds	(10,501		)	19,939		(372		)	9,066			(8,577		)	14,700		(289		)	5,834
Total Credit Group	$	(29,933	)	$	49,168	$	(7,711	)	$	11,524		$	(16,661	)	$	32,898	$	(8,208	)	$	8,029

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Credit Group— Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017

Fee Related Earnings:

Fee related earnings increased by $14.7 million , or 23% , to $79.8 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $26.2 million , or 20% , to $157.4 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Fee related earnings were impacted by fluctuations of the following components:

Management Fees. Total management fees increased by $23.2 million , or 21% , to $135.8 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $33.6 million , or 14% , to $267.6 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Additional invested capital into existing funds increased management fees by $10.1 million and $26.1 million for the three and six month comparative periods, respectively. The formation of 26 new funds with FPAUM of $7.3 billion subsequent to June 30, 2017 increased management fees by $8.3 million and $14.0 million for the three and six month comparative periods, respectively. ARCC Part I Fees increased by $10.7 million to $29.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $5.9 million to $58.3 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily due to ARCC recognizing increased interest income from the growth in the size of its portfolio combined with higher yields from recent increases in LIBOR as well as an increase in capital structuring fees from a greater number of new investment commitments. The increase for the six month comparative periods was partially offset by a $10 million quarterly ARCC Part I Fee waiver that commenced in the second quarter of 2017. The increases were also offset by the liquidation of 18 funds with FPAUM of $4.5 billion subsequent to June 30, 2017 decreasing management fees by $5.9 million and $12.8 million for the three and six month comparative periods, respectively.

The effective management fee rate increased from 0.97% for the three months ended June 30, 2017 to 1.02% for the three months ended June 30, 2018 . ARCC Part I Fees' contribution towards the total effective management fee rate of the Credit Group increased from 0.16% for the three months ended June 30, 2017 to 0.23% for the three months ended June 30, 2018 . The increase in the effective management fee rate for the three month comparative periods was primarily due to increased ARCC Part I fees and new direct lending funds with higher effective fee rates. The effective management fee rate remained consistent at 1.03% for the six months ended June 30, 2018 and 2017. ARCC Part I Fees' contribution towards the total effective management fee rate of the Credit Group decreased from 0.23% for the six months ended June 30, 2017 to 0.22% for the six months ended June 30, 2018 . The effective management fee rate remained consistent for the six month comparative periods due to the impact of increased ARCC Part I Fees and new direct lending funds with higher effective fee rates being offset by the $10 million quarterly ARCC Part I Fee waiver.

Other Fees. Other fees increased by $1.2 million , or 21% , to $6.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $2.4 million , or 24% , to $12.6 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by transaction fees generated from a growing volume of loans funded from certain direct lending funds.

Compensation and Benefits. Compensation and benefits expenses increased by $6.7 million , or 15% , to $51.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $5.3 million , or 5% , to $102.2 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by higher compensation expense related to ARCC Part I Fees. Compensation and benefits expenses represented 38.2% of management fees for both the three and six months ended June 30, 2018 compared to 40.1% and 41.4% for the three and six months ended June 30, 2017 , respectively.

General, Administrative and Other Expenses. General, administrative and other expenses increased by $3.0 million , or 37% , to $11.0 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $4.6 million , or 28% , to $20.7 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by marketing expenses to support expanding distribution and fundraising efforts, including our joint venture distribution platform. Additionally, occupancy costs increased by $0.9 million related to costs previously paid by ARCC for certain rent and utilities for the three and six months ended June 30, 2018 that we expect to continue.

Performance Related Earnings:

Performance related earnings increased by $14.4 million to $18.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $30.2 million to $41.6 million for the six months ended June 30, 2018

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compared to the six months ended June 30, 2017 . Performance related earnings were impacted by fluctuations of the following components:

Net Performance Income. Net performance income includes realized and unrealized performance income, net of realized and unrealized performance related compensation. The impact of reversals of previously recognized performance income and the corresponding performance related compensation expense is reflected as a reduction in unrealized performance income and unrealized performance related compensation.

Net performance income increased by $11.3 million to $16.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $31.6 million to $41.5 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by an increased capital base of certain direct lending funds generating returns in excess of their hurdle rates for both of the comparative periods. Net performance income for the six month period ended June 30, 2018 included a $13.7 million expense reduction from the reversal of unrealized performance related compensation payable balance at December 31, 2017. During the first quarter of 2018 we determined that the liability balance as of December 31, 2017 was no longer probable of payment based on the terms of the payment arrangement as payment is not required until revenue is realized.

Net Investment Income (Loss). Net investment income (loss) increased by $3.1 million from a net investment loss of $1.0 million for the three months ended June 30, 2017 to net investment income of $2.0 million for the three months ended June 30, 2018 . The increase was primarily due to higher market appreciation across our credit portfolio for the three month comparative period.

Net investment income decreased by $1.3 million to $0.1 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decrease was primarily due to lower market appreciation in our investments in our syndicated loan funds for the six month comparative period, offset by higher market appreciation in our investments in our U.S. direct lending funds for the six month comparative period.

Realized Income:

Realized income increased by $24.7 million , or 34% , to $97.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $33.7 million , or 24% , to $176.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily attributable to increases in FRE of $14.7 million and $26.2 million for the three and six month comparative periods, respectively, and to increases in net realized performance income of $12.1 million and $10.6 million for the three and six month comparative periods, respectively. Increases in net realized performance income were primarily from increased distributions generated on a growing capital base within certain direct lending funds that are generating returns in excess of their hurdle rates for the comparative periods. These increases were offset by reductions in net realized investment and other income of $2.1 million and $3.1 million for the three and six month comparative periods, respectively, primarily from our syndicated loan funds in the prior year period.

Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income increased by $29.0 million , or 42% , to $98.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $56.4 million , or 40% , to $199.0 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 as a result of the fluctuations described above.

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Credit Group—Assets Under Management

The tables below provide the period‑to‑period rollforwards of AUM for the Credit Group for the three months ended June 30, 2018 and 2017 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending(2)			Total Credit Group
Balance at 3/31/2018	$	17,413		$	4,582		$	3,161		$	4,905		$	34,560		$	12,689		$	77,310
Net new par/ equity commitments	27			56			36			914			1,210			7,116			9,359
Net new debt commitments	457			—			—			—			1,533			—			1,990
Distributions	(172		)	(295		)	(297		)	(73		)	(862		)	(101		)	(1,800		)
Change in fund value	(98		)	38			31			7			397			(376		)	(1		)
Balance at 6/30/2018	$	17,627		$	4,381		$	2,931		$	5,753		$	36,838		$	19,328		$	86,858
Average AUM(1)	$	17,520		$	4,482		$	3,046		$	5,329		$	35,699		$	16,009		$	82,085



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit		U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
Balance at 3/31/2017	$	16,761		$	4,693		$	3,366		$	4,260	$	26,293		$	9,858		$	65,231
Net new par/ equity commitments	465			53			(35		)	169		1,431			—			2,083
Net new debt commitments	881			—			—			—		815			571			2,267
Distributions	(1,699		)	(341		)	(15		)	—		(1,094		)	(297		)	(3,446		)
Change in fund value	181			97			35			82		282			635			1,312
Balance at 6/30/2017	$	16,589		$	4,502		$	3,351		$	4,511	$	27,727		$	10,767		$	67,447
Average AUM(1)	$	16,675		$	4,598		$	3,359		$	4,386	$	27,010		$	10,313		$	66,341


(1)	Represents the quarterly average of beginning and ending balances.


(2)	Includes $6.5 billion related to the first close of ACE IV, which had its final close in July 2018 of an additional $1.1 billion to reach its hard cap of $7.6 billion.

The tables below provide the period‑to‑period rollforwards of AUM for the Credit Group for the six months ended June 30, 2018 and 2017 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending(2)			Total Credit Group
Balance at 12/31/2017	$	16,530		$	4,630		$	3,333		$	4,791		$	30,640		$	11,808		$	71,732
Net new par/ equity commitments	130			200			39			974			3,781			7,335			12,459
Net new debt commitments	1,574			—			—			—			2,925			246			4,745
Distributions	(580		)	(453		)	(473		)	(76		)	(1,331		)	(223		)	(3,136		)
Change in fund value	(27		)	4			32			64			823			162			1,058
Balance at 6/30/2018	$	17,627		$	4,381		$	2,931		$	5,753		$	36,838		$	19,328		$	86,858
Average AUM(1)	$	17,190		$	4,531		$	3,142		$	5,150		$	34,013		$	14,608		$	78,634



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
Balance at 12/31/2016	$	17,260		$	4,978		$	3,304		$	4,254		$	21,110		$	9,560		$	60,466
Acquisitions	—			—			—			—			3,605			—			3,605
Net new par/ equity commitments	519			110			(28		)	169			3,370			214			4,354
Net new debt commitments	1,290			—			—			—			875			571			2,736
Distributions	(2,716		)	(766		)	(29		)	(114		)	(1,559		)	(472		)	(5,656		)
Change in fund value	236			180			104			202			326			894			1,942
Balance at 6/30/2017	$	16,589		$	4,502		$	3,351		$	4,511		$	27,727		$	10,767		$	67,447
Average AUM(1)	$	16,870		$	4,724		$	3,340		$	4,342		$	25,043		$	10,062		$	64,381


(1)	Represents the quarterly average of beginning and ending balances.


(2)	Includes $6.5 billion related to the first close of ACE IV, which had its final close in July 2018 of an additional $1.1 billion to reach its hard cap of $7.6 billion.

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Credit Group—Fee Paying AUM

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Credit Group for the three months ended June 30, 2018 and 2017 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 3/31/2018	$	15,592		$	4,578		$	2,621		$	3,515		$	18,158		$	7,076		$	51,540
Commitments	1,721			56			1			35			45			30			1,888
Subscriptions/deployment/increase in leverage	—			—			25			60			1,134			732			1,951
Redemptions/distributions/decrease in leverage	(163		)	(293		)	(307		)	(188		)	(890		)	(268		)	(2,109		)
Change in fund value	(6		)	39			29			10			186			(192		)	66
Change in fee basis	—			—			—			—			—			—			—
FPAUM Balance at 6/30/2018	$	17,144		$	4,380		$	2,369		$	3,432		$	18,633		$	7,378		$	53,336
Average FPAUM(1)	$	16,368		$	4,479		$	2,495		$	3,474		$	18,396		$	7,227		$	52,439



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 3/31/2017	$	15,564		$	4,693		$	2,784		$	3,176		$	14,273		$	5,206		$	45,696
Commitments	1,068			49			—			80			54			—			1,251
Subscriptions/deployment/increase in leverage	—			3			18			112			791			341			1,265
Redemptions/distributions/decrease in leverage	(1,704		)	(341		)	(36		)	(40		)	(300		)	(263		)	(2,684		)
Change in fund value	134			99			31			86			227			179			756
Change in fee basis	—			—			—			—			—			225			225
FPAUM Balance at 6/30/2017	$	15,062		$	4,503		$	2,797		$	3,414		$	15,045		$	5,688		$	46,509
Average FPAUM(1)	$	15,313		$	4,598		$	2,791		$	3,295		$	14,659		$	5,447		$	46,103

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Credit Group for the six months ended June 30, 2018 and 2017 (in millions):



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 12/31/2017	$	15,251		$	4,629		$	2,809		$	3,434		$	16,869		$	6,458		$	49,450
Commitments	2,425			189			4			95			75			30			2,818
Subscriptions/deployment/increase in leverage	—			12			25			149			2,373			1,356			3,915
Redemptions/distributions/decrease in leverage	(566		)	(451		)	(499		)	(289		)	(1,136		)	(393		)	(3,334		)
Change in fund value	38			4			30			43			452			(73		)	494
Change in fee basis	(4		)	(3		)	—			—			—			—			(7		)
FPAUM Balance at 6/30/2018	$	17,144		$	4,380		$	2,369		$	3,432		$	18,633		$	7,378		$	53,336
Average FPAUM(1)	$	15,996		$	4,529		$	2,600		$	3,460		$	17,887		$	6,971		$	51,443



	Syndicated Loans			High Yield			Credit Opportunities			Structured Credit			U.S. Direct Lending			E.U. Direct Lending			Total Credit Group
FPAUM Balance at 12/31/2016	$	15,998		$	4,978		$	2,705		$	3,128		$	11,292		$	4,608		$	42,709
Acquisitions	—			—			—			—			2,789			—			2,789
Commitments	1,523			96			3			80			81			—			1,783
Subscriptions/deployment/increase in leverage	—			14			42			147			1,165			914			2,282
Redemptions/distributions/decrease in leverage	(2,630		)	(766		)	(49		)	(131		)	(612		)	(315		)	(4,503		)
Change in fund value	171			181			96			190			330			256			1,224
Change in fee basis	—			—			—			—			—			225			225
FPAUM Balance at 6/30/2017	$	15,062		$	4,503		$	2,797		$	3,414		$	15,045		$	5,688		$	46,509
Average FPAUM(1)	$	15,541		$	4,725		$	2,762		$	3,239		$	13,537		$	5,167		$	44,971

(1) Represents the quarterly average of beginning and ending balances.

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The charts below present FPAUM for the Credit Group by its fee basis as of June 30, 2018 and 2017 (in millions):



FPAUM: $53,336	FPAUM: $46,509

The components of our AUM, including the portion that is FPAUM, for the Credit Group are presented below as of June 30, 2018 and 2017 (in millions):



AUM: $86,858	AUM: $67,447

(1) Includes $7.0 billion and $6.4 billion of AUM of funds for which we indirectly earn management fees as of June 30, 2018 and 2017 , respectively.

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Credit Group—Fund Performance Metrics as of June 30, 2018

The Credit Group managed 152 funds as of June 30, 2018 across the liquid and illiquid credit strategies. ARCC contributed approximately 55% of the Credit Group’s total management fees for the six months ended June 30, 2018 . In addition to ARCC, four significant funds contributed approximately 8% of the Credit Group’s management fees for the six months ended June 30, 2018 . Our significant non-drawdown funds are ARCC; one sub-advised fund; and one separately managed account over which we exercise sole investment discretion. Our significant drawdown funds are Ares Capital Europe II, L.P. (“ACE II”), a 2013 vintage commingled fund; and Ares Capital Europe III, L.P. (“ACE III”), a 2015 vintage commingled fund, both of which focus on direct lending to European middle market companies.

The following table presents the performance data for our significant funds in the Credit Group that are not drawdown funds:



		As of June 30, 2018
				Returns(%)(1)
	Year of	AUM		Current Quarter		Year-To-Date				Since Inception(2)		Primary Investment Strategy
Fund	Inception	(in millions)		Gross	Net	Gross		Net		Gross	Net	Primary Investment Strategy
ARCC(3)	2004	$	15,020	N/A	3.5	N/A		7.0		N/A	11.9	U.S. Direct Lending
Sub-advised Client A(4)	2007	618		1.2	1.1	0.2		—		7.6	7.2	High Yield
Separately Managed Account Client B(4)	2016	718		0.4	0.3	(1.0	)	(1.1	)	4.7	4.4	High Yield


(1)	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.


(2)	Since inception returns are annualized.


(3)	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 financial statements filed with the SEC, which are not part of this report.


(4)	Gross returns do not reflect the deduction of management fees or any other expenses. Net returns are calculated by subtracting the applicable management fee from the gross returns on a monthly basis.

The following table presents the performance data of our significant drawdown funds:



				As of June 30, 2018 (Dollars in millions)
	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)		Primary Investment Strategy
Fund	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		Gross(3)	Net(4)	Gross(5)	Net(6)	Primary Investment Strategy
ACE II(7)	2013	$	1,427	$	1,216	$	968	$	577	$	699	$	1,276	1.4x	1.3x	10.4	7.7	E.U. Direct Lending
ACE III(8)	2015	5,060		2,822		3,068		235		3,347		3,582		1.2x	1.2x	17.8	13.5	E.U. Direct Lending


(1)	Realized proceeds represent 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 performance income. The gross MoIC is before giving effect to management fees, performance income as applicable and other expenses.


(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 performance income. The net MoIC is after giving effect to management fees, performance income as applicable and other expenses.

(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 performance income. The cash flow dates used in the gross IRR calculation are based on the actual dates of the cash flows. Gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses.

(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 performance income. 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, performance income as applicable, and other expenses. The funds may utilize a credit facility during the investment

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period and for general cash management purposes. Net fund-level IRRs would likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)

ACE II is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net IRR and gross and net MoIC presented in the chart are for the U.S. dollar denominated feeder fund as that is the larger of the two feeders. The gross and net IRR for the Euro denominated feeder fund are 12.3% and 9.3%, respectively. The gross and net MoIC for the Euro denominated feeder fund are 1.5x and 1.4x, 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 II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate. The variance between the gross and net MoICs and the net IRRs for the U.S. dollar denominated and Euro denominated feeder funds is driven by the U.S. GAAP mark-to-market reporting of the foreign currency hedging program in the U.S. dollar denominated feeder fund. The feeder fund will be holding the foreign currency hedges until maturity, and therefore is expected to ultimately recognize a gain while mitigating the currency risk associated with the initial principal investments.

(8)

ACE III is made up of two feeder funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC presented in the chart are for the Euro denominated feeder fund as that is the larger of the two feeders. The gross and net IRR for the U.S. dollar denominated feeder fund are 16.4% and 12.1%, respectively. The gross and net MoIC for the U.S. dollar denominated feeder fund are 1.2x and 1.2x, 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.

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Private Equity Group

The following table sets forth certain statement of operations data and certain other data of our Private Equity Group segment for the periods presented.



	Three Months Ended						Favorable (Unfavorable)					Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)					June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Management fees	$	49,318		$	56,427		$	(7,109	)	(13	)%	$	99,205		$	96,246		$	2,959		3	%
Other fees	337			338			(1		)	—	%	677			678			(1		)	—	%
Compensation and benefits	(18,672		)	(18,388		)	(284		)	(2	)%	(37,871		)	(31,606		)	(6,265		)	(20	)%
General, administrative and other expenses	(4,175		)	(4,345		)	170			4	%	(8,216		)	(8,543		)	327			4	%
Fee Related Earnings	26,808			34,032			(7,224		)	(21	)%	53,795			56,775			(2,980		)	(5	)%
Performance income-realized	80,415			64,780			15,635			24	%	84,813			64,780			20,033			31	%
Performance income-unrealized	(133,605		)	228,747			(362,352		)	NM		(112,539		)	260,984			(373,523		)	NM
Performance related compensation-realized	(64,311		)	(50,914		)	(13,397		)	(26	)%	(67,871		)	(50,914		)	(16,957		)	(33	)%
Performance related compensation-unrealized	106,912			(184,021		)	290,933			NM		88,218			(209,526		)	297,744			NM
Net performance income	(10,589		)	58,592			(69,181		)	NM		(7,379		)	65,324			(72,703		)	NM
Investment income-realized	9,016			2,717			6,299			232	%	9,687			3,296			6,391			194	%
Investment income (loss)-unrealized	290			25,354			(25,064		)	(99	)%	(3,860		)	33,900			(37,760		)	NM
Interest and other investment income	3,039			1,983			1,056			53	%	3,368			2,135			1,233			58	%
Interest expense	(1,440		)	(1,397		)	(43		)	(3	)%	(2,668		)	(2,910		)	242			8	%
Net investment income	10,905			28,657			(17,752		)	(62	)%	6,527			36,421			(29,894		)	(82	)%
Performance related earnings	316			87,249			(86,933		)	(100	)%	(852		)	101,745			(102,597		)	NM
Economic net income	$	27,124		$	121,281		(94,157		)	(78	)%	$	52,943		$	158,520		(105,577		)	(67	)%
Realized income	$	53,408		$	50,151		3,257			6	%	$	80,735		$	72,496		8,239			11	%

NM - Not meaningful

Accrued carried interest for the Private Equity Group includes the following:



	As of June 30,		As of December 31,
	2018		2017
	(Dollars in thousands)
ACOF III	$	510,993	$	570,578
ACOF IV	184,204		217,354
EIF V	—		16,215
Other funds	7,671		11,260
Total Private Equity Group	$	702,868	$	815,407

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Performance income for the Private Equity Group includes the following:



	Three Months Ended June 30, 2018								Three Months Ended June 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
ACOF III	$	80,415	$	(90,234	)	$	(9,819	)	$	4,263	$	206,293		$	210,556
ACOF IV	—		(41,578		)	(41,578		)	55,853		41,203			97,056
ACOF V	—		—			—			—		(5,719		)	(5,719		)
EIF V	—		—			—			—		(2,477		)	(2,477		)
Other funds	—		(1,793		)	(1,793		)	4,664		(10,553		)	(5,889		)
Total Private Equity Group	$	80,415	$	(133,605	)	$	(53,190	)	$	64,780	$	228,747		$	293,527



	Six Months Ended June 30, 2018								Six Months Ended June 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
ACOF III	$	83,209	$	(59,584	)	$	23,625		$	4,263	$	183,526		$	187,789
ACOF IV	1,604		(33,150		)	(31,546		)	55,853		96,026			151,879
ACOF V	—		—			—			—		—			—
EIF V	—		(16,215		)	(16,215		)	—		(2,439		)	(2,439		)
Other funds	—		(3,590		)	(3,590		)	4,664		(16,129		)	(11,465		)
Total Private Equity Group	$	84,813	$	(112,539	)	$	(27,726	)	$	64,780	$	260,984		$	325,764

The following tables present the components of the change in performance income - unrealized for the Private Equity Group:



	Three Months Ended June 30, 2018											Three Months Ended June 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
ACOF III	$	(80,415	)	$	—	$	(9,820	)	$	(90,235	)	$	(4,263	)	$	210,556	$	—		$	206,293
ACOF IV	—			—		(41,578		)	(41,578		)	(55,853		)	97,056		—			41,203
ACOF V	—			—		—			—			—			—		(5,719		)	(5,719		)
EIF V	—			—		—			—			—			—		(2,477		)	(2,477		)
Other funds	—			—		(1,792		)	(1,792		)	(4,664		)	5		(5,894		)	(10,553		)
Total Private Equity Group	$	(80,415	)	$	—	$	(53,190	)	$	(133,605	)	$	(64,780	)	$	307,617	$	(14,090	)	$	228,747



	Six Months Ended June 30, 2018											Six Months Ended June 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
ACOF III	$	(83,209	)	$	23,625	$	—		$	(59,584	)	$	(4,263	)	$	187,789	$	—		$	183,526
ACOF IV	(1,604		)	—		(31,546		)	(33,150		)	(55,853		)	151,879		—			96,026
ACOF V	—			—		—			—			—			—		—			—
EIF V	—			—		(16,215		)	(16,215		)	—			—		(2,439		)	(2,439		)
Other funds	—			961		(4,551		)	(3,590		)	(4,664		)	1,014		(12,479		)	(16,129		)
Total Private Equity Group	$	(84,813	)	$	24,586	$	(52,312	)	$	(112,539	)	$	(64,780	)	$	340,682	$	(14,918	)	$	260,984

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Private Equity Group— Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017

Fee Related Earnings:

Fee related earnings decreased by $7.2 million , or 21% , to $26.8 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $3.0 million , or 5% , to $53.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Fee related earnings were impacted by fluctuations of the following components:

Management Fees. Total management fees decreased by $7.1 million , or 13% , to $49.3 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 . The decrease was primarily driven by the impact of a $5.5 million one-time catch-up fee related to the final close of EIF V recognized during the three months ended June 30, 2017. Additionally, ACOF III, U.S. Power Fund III, L.P. (“USPF III”) and U.S. Power Fund IV, L.P. (“USPF IV”) sold investments subsequent to June 30, 2017 resulting in a $2.5 million decrease in management fees for the three month comparative periods, as these funds are no longer in their reinvestment periods with management fees based on invested capital. Conversely, capital deployment in Ares Special Situations Fund IV, L.P. (“SSF IV”) increased its fee basis and management fees by $1.5 million for the three month comparative periods.

Total management fees increased by $3.0 million , or 3% , to $99.2 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increase for the six month comparative periods was primarily driven by an $18.5 million increase in management fees for the six month comparative periods from Ares Corporate Opportunities Fund V, L.P. (“ACOF V”), which began generating fees in March 2017 and by a $2.4 million increase in management fees for the six month comparative periods attributable to increased invested capital in SSF IV in the current year period. Conversely, management fees from ACOF IV decreased by $8.4 million for the six month comparative periods due to a reduced fee rate and change in fee basis in connection with the launch of ACOF V. Additionally offsetting the increase was $5.8 million of one-time catch-up fees related to the final closings of EIF V recognized during the six months ended June 30, 2017. ACOF III, USPF III and USPF IV sold investments subsequent to June 30, 2017, reducing invested capital and resulting in a $4.3 million decrease in management fees for the six month comparative periods.

The effective management fee rate, excluding the effect of one-time catch-up fees, increased from 1.18% for the three months ended June 30, 2017 to 1.19% for the three months ended June 30, 2018 . The effective management fee rate, excluding the effect of one-time catch-up fees, decreased from 1.20% for the six months ended June 30, 2017 to 1.19% for the six months ended June 30, 2018 . The decrease for the six month comparative period was primarily the result of a reduced fee rate at ACOF IV.

Compensation and Benefits. Compensation and benefits expenses increased by $0.3 million , or 2% , to $18.7 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $6.3 million , or 20% , to $37.9 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increase for the six month comparative periods was primarily due to additional headcount to expand our capabilities within the special situations strategy and to support an increasing asset base and pool of investments within our corporate opportunity strategy, as well as an increase in incentive compensation. Compensation and benefits expenses represented 37.9% and 38.2% of management fees for the three and six months ended June 30, 2018 compared to 32.6% and 32.8% for the three and six months ended June 30, 2017 .

Performance Related Earnings:

Performance related earnings decreased by $86.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $102.6 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Performance related earnings were impacted by fluctuations of the following components:

Net performance income decreased by $69.2 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $72.7 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Net performance income for the three months ended June 30, 2018 primarily included an $8.3 million reversal of net performance income due to a reduction in fair value of one of ACOF IV’s industrial portfolio companies. Net performance income for the six months ended June 30, 2018 included the following: (i) $6.3 million reversal of net performance income due to a

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reduction in fair value of one of ACOF IV’s industrial portfolio companies; (ii) $4.9 million reversal of net performance income attributable to EIF V primarily due to a reduction in fair value of one of its energy portfolio companies; offset by (iii) $4.7 million of net performance income attributable to ACOF III primarily due to market appreciation of one of its publicly traded retail portfolio companies.

Net performance income for the three and six months ended June 30, 2017 included the following: (i) $42.1 million and $37.6 million, respectively, of net performance income attributable to ACOF III primarily due to significant market appreciation of one of its publicly traded retail portfolio companies following the company's initial public offering; and (ii) $19.4 million and $30.4 million, respectively, of net performance income attributable to ACOF IV primarily due to an increased fair value of one of its veterinary portfolio companies following a minority sale of the company.

Net Investment Income. Net investment income decreased by $17.8 million to $10.9 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $29.9 million to $6.5 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decreases were primarily driven by lower net gains of $39.4 million and $31.1 million for the three and six month comparative periods, respectively, on our investment in ACOF III attributable to one of the fund’s publicly traded retail portfolio companies following its initial public offering in the prior year period. Offsetting the decrease was an increase in market appreciation of $17.9 million on our investment in our Asian corporate private equity fund primarily due to an increased valuation as a result of a recent round of fundraising of one the fund's portfolio companies for the three months ended June 30, 2018 compared to the three months ended June 30, 2017.

Realized Income:

Realized income increased by $3.3 million , or 6% , to $53.4 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $8.2 million , or 11% , to $80.7 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by increases in net realized investment and other income of $8.2 million and $8.1 million for the three and six month comparative periods, respectively, and by increases in net realized performance fees of $2.2 million and $3.1 million for the three and six month comparative periods, respectively. Increases in realized performance fees and realized investment income were primarily due to realizations and related distributions from ACOF III's partial sale of its position in a publicly traded retail portfolio company. Conversely, FRE decreased by $7.2 million and $3.0 million for the three and six month comparative periods, respectively.

Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income decreased by $94.2 million to $27.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $105.6 million to $52.9 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 , as a result of the fluctuations described above.

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Private Equity Group—Assets Under Management

The tables below provide the period‑to‑period rollforwards of AUM for the Private Equity Group for the three months ended June 30, 2018 and 2017 (in millions):



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
Balance at 3/31/2018	$	18,728		$	4,061		$	1,514		$	24,303
Net new equity commitments	—			350			—			350
Distributions	(485		)	(545		)	(9		)	(1,039		)
Change in fund value	(157		)	117			28			(12		)
Balance at 6/30/2018	$	18,086		$	3,983		$	1,533		$	23,602
Average AUM(1)	$	18,407		$	4,022		$	1,524		$	23,953



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
Balance at 3/31/2017	$	18,384		$	4,574		$	1,695		$	24,653
Net new equity commitments	(3		)	284			—			281
Distributions	(535		)	(32		)	(93		)	(660		)
Change in fund value	1,624			(100		)	(28		)	1,496
Balance at 6/30/2017	$	19,470		$	4,726		$	1,574		$	25,770
Average AUM(1)	$	18,927		$	4,650		$	1,635		$	25,212


(1)	Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of AUM for the Private Equity Group for the six months ended June 30, 2018 and 2017 (in millions):



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
Balance at 12/31/2017	$	18,557		$	4,423		$	1,550		$	24,530
Net new equity commitments	13			350			—			363
Distributions	(509		)	(763		)	(49		)	(1,321		)
Change in fund value	25			(27		)	32			30
Balance at 6/30/2018	$	18,086		$	3,983		$	1,533		$	23,602
Average AUM(1)	$	18,457		$	4,156		$	1,532		$	24,145



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
Balance at 12/31/2016	$	18,162		$	5,143		$	1,736		$	25,041
Net new equity commitments	23			300			—			323
Distributions	(553		)	(609		)	(141		)	(1,303		)
Change in fund value	1,838			(108		)	(21		)	1,709
Balance at 6/30/2017	$	19,470		$	4,726		$	1,574		$	25,770
Average AUM(1)	$	18,672		$	4,814		$	1,668		$	25,154


(1)	Represents the quarterly average of beginning and ending balances.

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Private Equity Group—Fee Paying AUM

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Private Equity Group for the three months ended June 30, 2018 and 2017 (in millions):



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
FPAUM Balance at 3/31/2018	$	12,104		$	3,634		$	925		$	16,663
Commitments	—			350			—			350
Subscriptions/deployment/increase in leverage	94			33			44			171
Redemptions/distributions/decrease in leverage	(66		)	(500		)	(24		)	(590		)
Change in fund value	(5		)	—			—			(5		)
FPAUM Balance at 6/30/2018	$	12,127		$	3,517		$	945		$	16,589
Average FPAUM(1)	$	12,116		$	3,576		$	935		$	16,627



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
FPAUM Balance at 3/31/2017	$	12,720		$	3,865		$	597		$	17,182
Commitments	(3		)	284			—			281
Subscriptions/deployment/increase in leverage	230			9			217			456
Redemptions/distributions/decrease in leverage	(510		)	(24		)	(36		)	(570		)
Change in fund value	—			(53		)	(4		)	(57		)
FPAUM Balance at 6/30/2017	$	12,437		$	4,081		$	774		$	17,292
Average FPAUM(1)	$	12,579		$	3,973		$	686		$	17,238

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Private Equity Group for the six months ended June 30, 2018 and 2017 (in millions):



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
FPAUM Balance at 12/31/2017	$	12,073		$	4,019		$	766		$	16,858
Commitments	13			350			—			363
Subscriptions/deployment/increase in leverage	123			34			217			374
Redemptions/distributions/decrease in leverage	(80		)	(886		)	(50		)	(1,016		)
Change in fund value	(2		)	—			12			10
FPAUM Balance at 6/30/2018	$	12,127		$	3,517		$	945		$	16,589
Average FPAUM(1)	$	12,101		$	3,723		$	879		$	16,703



	Corporate Private Equity			Private Equity - EIF			Special Situations			Total Private Equity Group
FPAUM Balance at 12/31/2016	$	6,454		$	4,232		$	628		$	11,314
Commitments	7,622			300			—			7,922
Subscriptions/deployment/increase in leverage	409			169			259			837
Redemptions/distributions/decrease in leverage	(521		)	(332		)	(65		)	(918		)
Change in fund value	—			(288		)	(48		)	(336		)
Change in fee basis	(1,527		)	—			—			(1,527		)
FPAUM Balance at 6/30/2017	$	12,437		$	4,081		$	774		$	17,292
Average FPAUM(1)	$	10,537		$	4,059		$	666		$	15,262


(1)	Represents the quarterly average of beginning and ending balances.

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The charts below present FPAUM for the Private Equity Group by its fee basis as of June 30, 2018 and 2017 (in millions):



FPAUM: $16,589	FPAUM: $17,292

The components of our AUM, including the portion that is FPAUM, for the Private Equity Group are presented below as of June 30, 2018 and 2017 (in millions):



AUM: $23,602	AUM: $25,770

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Private Equity Group—Fund Performance Metrics as of June 30, 2018

The Private Equity Group managed 23 commingled funds and related co-investment vehicles as of June 30, 2018 . ACOF III, ACOF IV, ACOF V, SSF IV, USPF III, USPF IV and EIF V, each considered a significant fund, combined for approximately 96% of the Private Equity Group’s management fees for the six months ended June 30, 2018 . Our Corporate Private Equity funds focus on majority or shared-control investments, principally in under-capitalized companies in North America, Europe and Asia. Our special situations funds invest opportunistically across a broad spectrum of distressed or mispriced investments. Our U.S. power and energy infrastructure funds focus on generating long-term, stable cash-flowing investments in the power generation, transmission and midstream energy sector. ACOF III. ACOF IV, USPF III and USPF IV are in harvest mode, meaning they are generally not seeking to deploy capital into new investment opportunities, while ACOF V, SSF IV and EIF V are in deployment mode. We do not present fund performance metrics for significant funds with less than two years of historical information, except for those significant funds that pay management fees on invested capital, in which case performance is shown at the earlier of (i) the one year anniversary of the fund's first investment or (ii) such time the fund is 50% or more invested.

The following table presents the performance data for our significant funds in the Private Equity Group, all of which are drawdown funds:



				As of June 30, 2018 (Dollars in millions)
	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)				Primary Investment Strategy
Fund	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		Gross(3)	Net(4)	Gross(5)		Net(6)		Primary Investment Strategy
USPF III	2007	$	481	$	1,350	$	1,808	$	2,110	$	448	$	2,558	1.4x	1.4x	7.4		4.9		U.S. Power and Energy Infrastructure
ACOF III	2008	4,208		3,510		3,867		6,662		3,889		10,551		2.7x	2.3x	30.7		22.9		Corporate Private Equity
USPF IV	2010	1,771		1,688		1,859		933		1,608		2,541		1.4x	1.3x	10.1		6.6		U.S. Power and Energy Infrastructure
ACOF IV	2012	5,295		4,700		4,107		2,520		4,427		6,947		1.7x	1.5x	20.4		13.7		Corporate Private Equity
EIF V	2015	787		801		505		146		418		564		1.1x	1.0x	12.0		(1.2	)	U.S. Power and Energy Infrastructure
SSF IV(7)	2015	1,367		1,515		1,693		774		801		1,576		0.9x	0.9x	(7.2	)	(8.9	)	Special Situations
ACOF V	2017	7,838		7,850		2,943		118		3,015		3,133		1.1x	1.0x	NA		NA		Corporate Private Equity


(1)	Realized proceeds represent the sum of all cash dividends, interest income, other fees and cash proceeds from realizations of interests in portfolio investments.


(2)	Unrealized value represents the fair market value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations indicated.


(3)	The gross MoIC is calculated at the investment-level and is based on the interests of all partners. The gross MoIC is before giving effect to management fees, performance fees as applicable and other expenses.

(4)

The net MoIC for the U.S. power and energy infrastructure and special situation funds is calculated at the fund-level. The net MoIC for the corporate private equity funds is calculated at the investment-level. For all funds, the net MoIC 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 who does not pay management fees or performance income. The net MoIC is after giving effect to management fees, performance income as applicable and other expenses.

(5)

The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. Cash flows used in the gross IRR calculation are assumed to occur at month-end. The gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses.

(6)

The net IRR for the U.S. power and energy infrastructure and special situation funds 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. The cash flow dates used in the net IRR calculations are based on the actual dates of the cash flows. The net IRR for the corporate private equity funds is an annualized since inception net internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility. Cash flows used in the net IRR calculations are assumed to occur at month end. For all funds, the net IRRs are calculated after giving effect to management fees, performance income 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. Including the timing on contribution and distributions to and from the corporate private equity funds, net investor IRRs since inception for ACOF III is 22.2% and for ACOF IV is 12.9%.

(7)

In January 2017, a new team assumed portfolio management of SSF IV. In addition to presenting the cumulative performance measure by SSF IV, we have also adopted a new performance measurement called “SSF IV 2.0”. SSF IV 2.0 is a subset of SSF IV positions and is intended to provide insight into the new team’s cumulative investment performance. SSF IV 2.0 investments represent (i) existing and re-underwritten positions by the new team on January 1, 2017 and (ii) all new investments made by the new team since January 1, 2017. As part of the re-underwriting process, each liquid investment in the SSF IV portfolio was evaluated and a determination was made whether to continue to hold such investment in the SSF IV portfolio or dispose of such investment. At the same time, legacy illiquid investments have been excluded from the SSF IV 2.0 track record as it was not possible to dispose of such investments in the near-term due to their private, illiquid nature. Since January 2017, SSF IV 2.0 has generated gross and net (realized and unrealized) internal rates of return of 15.6% and 10.8%, respectively, through June 30, 2018.

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Real Estate Group

The following table sets forth certain statement of operations data and certain other data of our Real Estate Group segment for the periods presented.



	Three Months Ended						Favorable (Unfavorable)					Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)					June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Management fees	$	17,138		$	16,479		$	659		4	%	$	32,311		$	32,094		$	217		1	%
Other fees	7			19			(12		)	(63	)%	10			10			—			—	%
Compensation and benefits	(8,768		)	(9,714		)	946			10	%	(16,407		)	(19,450		)	3,043			16	%
General, administrative and other expenses	(2,391		)	(3,091		)	700			23	%	(4,823		)	(5,822		)	999			17	%
Fee Related Earnings	5,986			3,693			2,293			62	%	11,091			6,832			4,259			62	%
Performance income-realized	521			1,467			(946		)	(64	)%	14,159			1,494			12,665			NM
Performance income-unrealized	13,830			29,789			(15,959		)	(54	)%	11,790			43,877			(32,087		)	(73	)%
Performance related compensation-realized	7			(161		)	168			NM		(8,214		)	(177		)	(8,037		)	NM
Performance related compensation-unrealized	(8,785		)	(18,632		)	9,847			53	%	(8,276		)	(27,070		)	18,794			69	%
Net performance income	5,573			12,463			(6,890		)	(55	)%	9,459			18,124			(8,665		)	(48	)%
Investment income (loss)-realized	(250		)	373			(623		)	NM		3,100			2,156			944			44	%
Investment income (loss)-unrealized	(525		)	1,134			(1,659		)	NM		(1,757		)	690			(2,447		)	NM
Interest and other investment income (expense)	(1,218		)	1,534			(2,752		)	NM		(201		)	1,353			(1,554		)	NM
Interest expense	(452		)	(429		)	(23		)	(5	)%	(872		)	(861		)	(11		)	(1	)%
Net investment income (loss)	(2,445		)	2,612			(5,057		)	NM		270			3,338			(3,068		)	(92	)%
Performance related earnings	3,128			15,075			(11,947		)	(79	)%	9,729			21,462			(11,733		)	(55	)%
Economic net income	$	9,114		$	18,768		(9,654		)	(51	)%	$	20,820		$	28,294		(7,474		)	(26	)%
Realized income	$	6,479		$	5,181		1,298			25	%	$	20,148		$	9,769		10,379			106	%

NM - Not Meaningful

Accrued carried interest and incentive fee receivable for the Real Estate Group include the following:



	As of June 30,		As of December 31,
	2018		2017
	(Dollars in thousands)
US VIII	$	37,706	$	32,940
EF IV	51,905		50,801
Other real estate funds	44,117		37,528
Subtotal	133,728		121,269
Other fee generating funds(1)	13,313		15,362
Total Real Estate Group	$	147,041	$	136,631


(1)	Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

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The following tables present the components of performance income for the Real Estate Group. The three and six month periods ended June 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.



	Three Months Ended June 30, 2018								Three Months Ended June 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
US VIII	$	—	$	436		$	436		$	—	$	4,074		$	4,074
EF IV	—		11,012			11,012			—		18,964			18,964
Other real estate funds	—		2,934			2,934			267		7,734			8,001
Subtotal	—		14,382			14,382			267		30,772			31,039
Other fee generating funds(1)	521		(552		)	(31		)	1,200		(983		)	217
Total Real Estate Group	$	521	$	13,830		$	14,351		$	1,467	$	29,789		$	31,256



	Six Months Ended June 30, 2018								Six Months Ended June 30, 2017
	Realized		Unrealized			Total			Realized		Unrealized			Total
	(Dollars in thousands)
US VIII	$	—	$	4,766		$	4,766		$	—	$	8,134		$	8,134
EF IV	12,396		1,104			13,500			—		28,055			28,055
Other real estate funds	1,242		7,447			8,689			294		8,647			8,941
Subtotal	13,638		13,317			26,955			294		44,836			45,130
Other fee generating funds(1)	521		(1,527		)	(1,006		)	1,200		(959		)	241
Total Real Estate Group	$	14,159	$	11,790		$	25,949		$	1,494	$	43,877		$	45,371


(1)	Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

The following tables present the components of the change in performance income - unrealized for the Real Estate Group. The three and six month periods ended June 30, 2017 include unrealized incentive fees, which are no longer recognized following our adoption of the new revenue recognition standard.



	Three Months Ended June 30, 2018											Three Months Ended June 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
US VIII	$	—		$	436	$	—		$	436		$	—		$	4,074	$	—		$	4,074
EF IV	—			11,012		—			11,012			—			18,964		—			18,964
Other real estate funds	—			4,875		(1,941		)	2,934			(267		)	8,117		(116		)	7,734
Subtotal	—			16,323		(1,941		)	14,382			(267		)	31,155		(116		)	30,772
Other fee generating funds(1)	(521		)	337		(368		)	(552		)	(1,200		)	827		(610		)	(983		)
Total Real Estate Group	$	(521	)	$	16,660	$	(2,309	)	$	13,830		$	(1,467	)	$	31,982	$	(726	)	$	29,789



	Six Months Ended June 30, 2018											Six Months Ended June 30, 2017
	Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized			Performance Income - Realized			Increases		Decreases			Performance Income - Unrealized
	(Dollars in thousands)
US VIII	$	—		$	4,766	$	—		$	4,766		$	—		$	8,134	$	—		$	8,134
EF IV	(12,396		)	13,500		—			1,104			—			28,055		—			28,055
Other real estate funds	(1,242		)	10,801		(2,112		)	7,447			(294		)	9,456		(515		)	8,647
Subtotal	(13,638		)	29,067		(2,112		)	13,317			(294		)	45,645		(515		)	44,836
Other fee generating funds(1)	(521		)	302		(1,308		)	(1,527		)	(1,200		)	1,149		(908		)	(959		)
Total Real Estate Group	$	(14,159	)	$	29,369	$	(3,420	)	$	11,790		$	(1,494	)	$	46,794	$	(1,423	)	$	43,877


(1)	Relates to investment income from AREA Sponsor Holdings LLC that is reclassified for segment reporting to align with the character of the underlying income generated.

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Real Estate Group— Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017

Fee Related Earnings:

Fee related earnings increased by $2.3 million , or 62% , to $6.0 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $4.3 million , or 62% , to $11.1 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Fee related earnings were impacted by fluctuations of the following components:

Management Fees. Total management fees increased by $0.7 million , or 4% , to $17.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $0.2 million , or 1% , to $32.3 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Management fees for the three and six months ended June 30, 2018 included $2.1 million and $2.6 million, respectively, from the launch of our new flagship E.U. real estate equity fund that began generating management fees during the first quarter of 2018. Additionally, a recently launched flagship U.S. real estate equity fund increased management fees by $1.8 million and $3.0 million for the three and six month comparative periods, respectively, of which $0.9 million and $1.1 million were attributable to one-time catch up fees for the three and six month comparative periods, respectively. These increases were primarily offset by decreases of $0.7 million and $1.4 million caused by the liquidation of one of our European real estate equity funds for the three and six month comparative periods, respectively, combined with the sale of investments within certain of other real estate equity funds nearing the end of their fund terms.

The effective management fee rate, excluding the effect of one-time catch-up fees, decreased from 0.97% for the three and six months ended June 30, 2017 to 0.92% for the three months ended June 30, 2018 and to 0.93% for the six months ended June 30, 2018 . Fluctuations in effective management fee rates between periods are primarily due to a change in composition of committed capital to invested capital across our real estate funds, where the fee rate on committed capital increases as capital is invested.

Compensation and Benefits. Compensation and benefits expenses decreased by $0.9 million , or 10% , to $8.8 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $3.0 million , or 16% , to $16.4 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decreases were primarily driven by reductions in incentive based compensation. Compensation and benefits expenses represented 51.2% and 50.8% of management fees for the three and six months ended June 30, 2018 compared to 58.9% and 60.6% for the three and six months ended June 30, 2017 .

General, Administrative and Other Expenses. General, administrative and other expenses decreased by $0.7 million , or 23% , to $2.4 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $1.0 million , or 17% , to $4.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decreases were primarily due to fundraising and related travel incurred in the prior year periods related to the launch of our new flagship U.S. real estate equity fund.

Performance Related Earnings:

Performance related earnings decreased by $11.9 million , or 79% , to $3.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $11.7 million , or 55% , to $9.7 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Performance related earnings were impacted by fluctuations of the following components:

Net performance income decreased by $6.9 million , or 55% , to $5.6 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $8.7 million , or 48% , to $9.5 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decreases were primarily due to greater market appreciation of U.S. and E.U. equity funds' investments in the prior year periods compared to the current year periods.

Net Investment Income (Loss). Net investment income (loss) decreased by $5.1 million from net investment income of $2.6 million for the three months ended June 30, 2017 to a net investment loss of $2.4 million for the three months ended June 30, 2018 . Net investment income decreased by $3.1 million to $0.3 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Transaction gains from the revaluation of certain assets and liabilities denominated in foreign

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currencies of $1.3 million and $1.0 million for the three and six months ended June 30, 2017 decreased by $3.2 million and $2.1 million, respectively, to transaction losses of $1.9 million and $1.1 million, for the three and six months ended June 30, 2018, respectively. Additionally, investments in our U.S. and E.U. equity funds experienced decreases in net gains of $2.2 million and $1.5 million for the three and six month comparative periods, respectively, as a result of lower appreciation in property values during the current year periods compared to the prior year periods.

Realized Income:

Realized income increased by $1.3 million , or 25% , to $6.5 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $10.4 million , or 106% , to $20.1 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increase for the three month comparative periods was primarily driven by an increase in FRE of $2.3 million , offset by a decrease in net realized performance income of $0.8 million and by a decrease in net realized investment and other income of $0.2 million. The increase for the six month comparative periods was primarily driven by an increase in FRE of $4.3 million , by an increase in net realized performance income of $4.6 million and by an increase in net realized investment and other income of $1.5 million. Distributions from Ares European Real Estate Fund IV L.P. (“EF IV”) of investment income and performance income for the six months ended June 30, 2018 exceeded distributions of the prior year comparative period.

Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income decreased by $9.7 million , or 51% , to $9.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $7.5 million , or 26% , to $20.8 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 , as a result of the fluctuations described above.

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Real Estate Group—Assets Under Management

The tables below provide the period‑to‑period rollforwards of AUM for the Real Estate Group for the three months ended June 30, 2018 and 2017 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 3/31/2018	$	4,505		$	3,388		$	3,003		$	10,896
Net new equity commitments	110			197			—			307
Distributions	(133		)	(99		)	(8		)	(240		)
Change in fund value	72			(135		)	10			(53		)
Balance at 6/30/2018	$	4,554		$	3,351		$	3,005		$	10,910
Average AUM(1)	$	4,530		$	3,370		$	3,004		$	10,904



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 3/31/2017	$	4,136		$	3,050		$	2,755		$	9,941
Net new equity commitments	502			—			—			502
Net new debt commitments	—			—			236			236
Distributions	(74		)	(86		)	(8		)	(168		)
Change in fund value	95			179			7			281
Balance at 6/30/2017	$	4,659		$	3,143		$	2,990		$	10,792
Average AUM(1)	$	4,398		$	3,097		$	2,873		$	10,368

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of AUM for the Private Equity Group for the six months ended June 30, 2018 and 2017 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 12/31/2017	$	4,578		$	2,704		$	2,947		$	10,229
Net new equity commitments	144			965			55			1,164
Distributions	(267		)	(248		)	(16		)	(531		)
Change in fund value	99			(70		)	19			48
Balance at 6/30/2018	$	4,554		$	3,351		$	3,005		$	10,910
Average AUM(1)	$	4,546		$	3,148		$	2,985		$	10,679



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
Balance at 12/31/2016	$	4,106		$	3,100		$	2,546		$	9,752
Net new equity commitments	521			—			—			521
Net new debt commitments	—			—			509			509
Distributions	(93		)	(204		)	(78		)	(375		)
Change in fund value	125			247			13			385
Balance at 6/30/2017	$	4,659		$	3,143		$	2,990		$	10,792
Average AUM(1)	$	4,300		$	3,098		$	2,764		$	10,162

(1) Represents the quarterly average of beginning and ending balances.

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Real Estate Group—Fee Paying AUM

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Real Estate Group for the three months ended June 30, 2018 and 2017 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 3/31/2018	$	3,008		$	2,729		$	1,014		$	6,751
Commitments	97			—			—			97
Subscriptions/deployment/increase in leverage	14			240			26			280
Redemptions/distributions/decrease in leverage	(67		)	(40		)	(8		)	(115		)
Change in fund value	7			(67		)	10			(50		)
FPAUM Balance at 6/30/2018	$	3,059		$	2,862		$	1,042		$	6,963
Average FPAUM(1)	$	3,034		$	2,796		$	1,028		$	6,858



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 3/31/2017	$	2,758		$	2,484		$	1,115		$	6,357
Commitments	390			—			—			390
Subscriptions/deployment/increase in leverage	153			—			1			154
Redemptions/distributions/decrease in leverage	(62		)	(26		)	(8		)	(96		)
Change in fund value	—			78			7			85
Change in fee basis	(236		)	—			—			(236		)
FPAUM Balance at 6/30/2017	$	3,003		$	2,536		$	1,115		$	6,654
Average FPAUM(1)	$	2,881		$	2,510		$	1,115		$	6,506

(1) Represents the quarterly average of beginning and ending balances.

The tables below provide the period‑to‑period rollforwards of fee paying AUM for the Real Estate Group for the six months ended June 30, 2018 and 2017 (in millions):



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 12/31/2017	$	3,062		$	2,064		$	1,063		$	6,189
Commitments	126			737			—			863
Subscriptions/deployment/increase in leverage	51			338			26			415
Redemptions/distributions/decrease in leverage	(148		)	(83		)	(67		)	(298		)
Change in fund value	5			(27		)	20			(2		)
Change in fee basis	(37		)	(167		)	—			(204		)
FPAUM Balance at 6/30/2018	$	3,059		$	2,862		$	1,042		$	6,963
Average FPAUM(1)	$	3,043		$	2,552		$	1,040		$	6,635



	Real Estate Equity - U.S.			Real Estate Equity - E.U.			Real Estate Debt			Total Real Estate Group
FPAUM Balance at 12/31/2016	$	2,891		$	2,531		$	1,118		$	6,540
Commitments	390			—			—			390
Subscriptions/deployment/increase in leverage	204			—			3			207
Redemptions/distributions/decrease in leverage	(198		)	(46		)	(26		)	(270		)
Change in fund value	—			51			20			71
Change in fee basis	(284		)	—			—			(284		)
FPAUM Balance at 6/30/2017	$	3,003		$	2,536		$	1,115		$	6,654
Average FPAUM(1)	$	2,884		$	2,517		$	1,116		$	6,517

(1) Represents the quarterly average of beginning and ending balances.

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The charts below present FPAUM for the Real Estate Group by its fee basis as of June 30, 2018 and 2017 (in millions):



FPAUM: $6,963	FPAUM: $6,654

(1) Market value/other includes ACRE fee paying AUM, which is based on ACRE's stockholders' equity.

The components of our AUM, including the portion that is FPAUM, for the Real Estate Group are presented below as of June 30, 2018 and 2017 (in millions):



AUM: $10,910	AUM: $10,792

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Real Estate Group—Fund Performance Metrics as of June 30, 2018

The Real Estate Group managed 43 funds in real estate debt and in real estate equity as of June 30, 2018 . Two funds in our Real Estate Group, each considered a significant fund, combined for approximately 25% of the Real Estate Group’s management fees for the six months ended June 30, 2018 : EF IV, a commingled fund focused on real estate assets located in Europe, primarily in the United Kingdom, France and Germany; and Ares European Property Enhancement Program II, L.P. (“EPEP II”), a commingled equity fund focused on real estate assets located in Europe.

The following table presents the performance data for our significant funds in the Real Estate Group, each of which are drawdown funds:



				As of June 30, 2018 (Dollars in millions)
	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		MoIC		IRR(%)		Primary Investment Strategy
Fund	Year of Inception	AUM		Original Capital Commitments		Cumulative Invested Capital		Realized Proceeds(1)		Unrealized Value(2)		Total Value		Gross(3)	Net(4)	Gross(5)	Net(6)	Primary Investment Strategy
EF IV(7)	2014	$	990	$	1,302	$	1,103	$	534	$	1,029	$	1,563	1.4x	1.2x	20.8	13.6	E.U. Real Estate Equity
EPEP II(8)	2015	680		747		342		132		289		422		1.2x	1.1x	18.4	21.3	E.U. Real Estate Equity


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


(2)	Unrealized value represents the fair market value of remaining investments. There can be no assurance that unrealized investments will be realized at the valuations indicated.


(3)	The gross MoIC is calculated at the investment level and is based on the interests of all partners. The gross MoIC for all funds is before giving effect to management fees, performance income as applicable and other expenses.

(4)

The net MoIC is calculated at the fund-level and is based on the interests of the fee-paying partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner who does not pay management fees or performance income or has such fees rebated outside of the fund. The net MoIC is after giving effect to management fees, performance income as applicable and other expenses.

(5)

The gross IRR is an annualized since inception gross internal rate of return of cash flows to and from investments and the residual value of the investments at the end of the measurement period. Gross IRRs reflect returns to all partners. Cash flows used in the gross IRR calculation are assumed to occur at quarter-end. The gross IRRs are calculated before giving effect to management fees, performance income as applicable, and other expenses.

(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 partners and, if applicable, excludes interests attributable to the non fee-paying partners and/or the general partner who does not pay management fees or performance income or has such fees rebated outside of the fund. 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, performance income as applicable, and other expenses. The funds may utilize a credit facility during the investment period and for general cash management purposes. Net fund-level IRRs would likely have been lower had such fund called capital from its limited partners instead of utilizing the credit facility.

(7)

EF IV is made up of two parallel funds, one denominated in U.S. dollars and one denominated in Euros. The gross and net MoIC and gross and net IRRs presented in the chart are for the U.S. dollar denominated parallel fund as that is the larger of the two funds. The gross and net IRRs for the Euro denominated parallel fund are 21.1% and 14.2%, respectively. The gross and net MoIC for the Euro denominated parallel fund are 1.4x and 1.2x, 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 EF IV are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

(8)

EPEP II is made up of dual currency investors and Euro currency investors. The gross and net MoIC presented in the chart are for dual currency investors as dual currency investors represent the largest group of investors in the fund. Multiples exclude foreign currency gains and losses since dual currency investors fund capital contributions and receive distributions in local deal currency (GBP or EUR) and therefore, do not realize foreign currency gains or losses. The gross and net IRRs for the euro currency investors, which include foreign currency gains and losses, are 17.9% and 20.3%, respectively. The gross and net MoIC for the Euro currency investors, which include foreign currency gains and losses, 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 fund's closing. All other values for EPEP II are for the combined fund and are converted to U.S. dollars at the prevailing quarter-end exchange rate.

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Operations Management Group

The following table sets forth certain statement of operations data and certain other data of the OMG on a standalone basis for the periods presented.



	Three Months Ended						Favorable (Unfavorable)					Six Months Ended						Favorable (Unfavorable)
	June 30,						Favorable (Unfavorable)					June 30,						Favorable (Unfavorable)
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change
	(Dollars in thousands)
Compensation and benefits	$	(31,059	)	$	(30,584	)	$	(475	)	(2	)%	$	(61,665	)	$	(56,537	)	$	(5,128	)	(9	)%
General, administrative and other expenses	(19,489		)	(18,862		)	(627		)	(3	)%	(38,105		)	(38,175		)	70			—	%
Fee Related Earnings	(50,548		)	(49,446		)	(1,102		)	(2	)%	(99,770		)	(94,712		)	(5,058		)	(5	)%
Investment income-realized	798			1,340			(542		)	(40	)%	1,636			3,199			(1,563		)	(49	)%
Investment income (loss)-unrealized	2,866			(2,728		)	5,594			NM		4,097			(4,135		)	8,232			NM
Interest and other investment income	623			225			398			177	%	1,870			1,099			771			70	%
Interest expense	(588		)	(463		)	(125		)	(27	)%	(1,136		)	(939		)	(197		)	(21	)%
Net investment income (loss)	3,699			(1,626		)	5,325			NM		6,467			(776		)	7,243			NM
Performance related earnings	3,699			(1,626		)	5,325			NM		6,467			(776		)	7,243			NM
Economic net income	$	(46,849	)	$	(51,072	)	4,223			8	%	$	(93,303	)	$	(95,488	)	2,185			2	%
Realized income	$	(49,754	)	$	(48,346	)	(1,408		)	(3	)%	$	(97,534	)	$	(91,551	)	(5,983		)	(7	)%

NM - Not Meaningful

Operations Management Group— Three and Six Months Ended June 30, 2018 Compared to Three and Six Months Ended June 30, 2017

Fee Related Earnings:

Fee related earnings decreased by $1.1 million , or 2% , for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $5.1 million , or 5% , for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . Fee related earnings were impacted by the following:

Compensation and Benefits. Compensation and benefits expenses increased by $0.5 million , or 2% , to $31.1 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $5.1 million , or 9% , to $61.7 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were primarily driven by annual merit increases and headcount growth for the comparative periods.

Performance Related Earnings:

Net Investment Income (loss). Net investment income (loss) increased by $5.3 million from a net investment loss of $1.6 million for the three months ended June 30, 2017 to net investment income of $3.7 million for the three months ended June 30, 2018. Net investment income (loss) increased by $7.2 million from a net investment loss of $0.8 million for the six months ended June 30, 2017 to net investment income of $6.5 million for the six months ended June 30, 2018. The increases were primarily due to increases in net gains of $5.0 million and $6.7 million from our non-core fund investments for the three and six month comparative periods, respectively.

Realized Income:

Realized income decreased by $1.4 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $6.0 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The decreases were primarily driven by decreases in FRE of $1.1 million and $5.1 million for the three and six month comparative periods, respectively, and by decreases in net realized investment and other income of $0.3 million and $0.9 million for the three and six month comparative periods, respectively.

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Economic Net Income:

Economic net income is composed of fee related earnings and performance related earnings. Economic net income increased by $4.2 million for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and by $2.2 million for the six months ended June 30, 2018 compared to the six months ended June 30, 2017 . The increases were a result of the fluctuations described above.

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Liquidity and Capital Resources

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, which are collected monthly, quarterly or semi-annually, and net realized performance income, which is unpredictable as to amount and timing, (4) fund distributions related to our investments that are also unpredictable as to amount and timing and (5) net borrowing from the Credit Facility. As of June 30, 2018 , our cash and cash equivalents were $125.4 million and we had $125.0 million of borrowings outstanding under our Credit Facility. Our ability to draw from the Credit Facility is subject to debt covenants. 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 for the foreseeable future.

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 a portion of our investment commitments, (3) provide capital to facilitate our expansion into businesses that are complementary to our existing investment management businesses, (4) pay operating expenses, including cash compensation to our employees and payments under the tax receivable agreement (“TRA”), (5) fund capital expenditures, (6) service our debt, (7) pay income taxes and (8) make dividend payments to our common and preferred shareholders in accordance with our dividend policy.

In the normal course of business, we intend to pay dividends from core operations, which we define as FRE. If cash flows from core operations were insufficient to fund dividends over a sustained period of time, we expect that we would suspend paying such dividends. Unless quarterly dividends have been declared and paid (or declared and set apart for payment) on the preferred shares, we may not declare or pay or set apart payment for dividends on any common shares during the period. Dividends on the preferred shares are not cumulative and the preferred shares are not convertible into common shares or any other security.

Net realized performance income also provides a source of liquidity. Performance income is realized when a portfolio investment is profitably monetized and the fund’s cumulative returns are in excess of the preferred return or hurdle rate. Performance income is typically realized at the end of each fund’s measurement period when investment performance exceeds a stated benchmark or hurdle rate.

Our accrued carried interest by segment as of June 30, 2018 is set forth below.



	As of June 30, 2018
	Accrued Carried Interest		Eliminations(1)		Consolidated Accrued Carried Interest
Segment	(Dollars in thousands)
Credit Group	$	148,461	$	—	$	148,461
Private Equity Group	702,868				702,868
Real Estate Group	133,728		—		133,728
Total	$	985,057	$	—	$	985,057


(1)	Amounts represent accrued performance income earned from Consolidated Funds that are eliminated in consolidation.

Our condensed consolidated financial statements reflect the cash flows of our operating businesses as well as the results 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 when required to be consolidated into our condensed consolidated financial statements, (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 treated as investment companies for financial accounting purposes under GAAP; therefore, Consolidated Funds' investment activities are presented as cash flows from operations.

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Cash Flows

The significant captions and amounts from our consolidated financial statements, which include the effects of our Consolidated Funds in accordance with GAAP, are summarized below. Negative amounts represent a net outflow, or use of cash.



	Six Months Ended June 30,
	2018			2017
	(Dollars in millions)
Statements of cash flows data
Net cash used in operating activities	(1,288		)	(304		)
Net cash used in investing activities	(7		)	(21		)
Net cash provided by financing activities	1,293			108
Effect of foreign exchange rate change	8			12
Net change in cash and cash equivalents	$	6		$	(205	)

Operating Activities

Our net cash flows used in operating activities was $1.3 billion for the six months ended June 30, 2018 compared to $304.2 million for the six months ended June 30, 2017 . For the six months ended June 30, 2018 , net purchases of investments were $1.4 billion compared to $143.7 million for the six months ended June 30, 2017 . The change in cash used in operating activities was primarily driven by a $1.6 billion increase in net purchases of investments of our Consolidated Funds for the comparative periods due to the launch of two new U.S. CLOs and one new European CLO and the refinancing of one U.S. CLO during the six months ended June 30, 2018. Conversely, net proceeds from the sale of investments of the Company increased by $257.3 million for the comparative periods primarily due to the sale of CLO securities during the six months ended June 30, 2018. Subsequent to the removal of the U.S. risk retention requirements related to open-market CLO managers, we sold $206.0 million of CLO securities and used the proceeds to pay off the related term loans and settle our repurchase agreement during the six months ended June 30, 2018.

Our increasing working capital needs reflect 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. The movements within our Consolidated Funds do not adversely impact our liquidity or earnings trends. We believe that our ability to generate cash from operations, as well as the capacity under the Credit Facility, provides us with the necessary liquidity to manage short-term fluctuations in working capital and to meet our short-term commitments.

Investing Activities

Our investing activities generally reflect cash used for certain acquisitions and purchases of fixed assets. Purchases of fixed assets were $7.1 million and $21.2 million for the six months ended June 30, 2018 and 2017 , respectively. The decrease for the comparative periods was primarily driven by furniture, fixtures, equipment and leasehold improvements purchased for a new office location in Los Angeles during the six months ended June 30, 2017.

Financing Activities

Net cash provided by financing activities was $1.3 billion for the six months ended June 30, 2018 compared to $108.1 million for the six months ended June 30, 2017 . For the six months ended June 30, 2018 , net cash inflows were primarily due to net borrowings on debt facilities of our Consolidated Funds and net proceeds from our common share issuance offset by net repayments on debt facilities of the Company and distributions to AOG unitholders and common shareholders. For the six months ended June 30, 2017 , net cash inflows were primarily from net borrowings on debt facilities of the Company and our Consolidated Funds partially offset by distributions to AOG unitholders and common shareholders.

Net repayments of our debt obligations were $247.0 million for the six months ended June 30, 2018 compared to net borrowings of $205.0 million for the six months ended June 30, 2017 . During the six months ended June 30, 2018, we had net repayments under the Credit Facility, paid off our term loans and settled our repurchase agreement. During the six months ended June 30, 2017, net borrowings under the Credit Facility were used to support payments of 2016 annual bonuses, whereas 2017 annual bonuses were paid in 2017. Our Consolidated Funds had net borrowings of $1.6 billion and $26.6 million for the six months ended June 30, 2018 and 2017 , respectively. The increase was primarily driven by net borrowings from the launch of two new U.S. CLOs and one new European CLO and the refinancing of one U.S. CLO during the six months ended June 30, 2018.

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Distributions to our preferred, AOG and common shareholders were $192.4 million for the six months ended June 30, 2018 compared to $113.2 million for the six months ended June 30, 2017 . The increase in distributions was primarily driven by a change in the timing of dividend payments to common shareholders as a result of our election to be treated as a corporation for U.S. federal income tax purposes. Dividends paid in the first quarter of 2017 reflected a portion of realized income generated in the fourth quarter of 2016, whereas dividends paid in the first quarter of 2018 reflected a portion of realized income generated in the five months ended on February 28, 2018, the last day we were treated as a partnership for U.S. federal income tax purposes. For our Consolidated Funds, net contributions were $35.7 million and $0.4 million for the six months ended June 30, 2018 and 2017 , respectively.

Capital Resources

The following table summarizes the Company's debt obligations (in thousands):



					As of June 30, 2018			December 31, 2017
	Debt Origination Date	Maturity	Original Borrowing Amount		Carrying Value		Interest Rate	Carrying Value		Interest Rate
Credit Facility(1)	Revolver	2/24/2022	N/A		$	125,000	3.63%	$	210,000	3.09%
Senior Notes(2)	10/8/2014	10/8/2024	$	250,000	245,628		4.21%	245,308		4.21%
2015 Term Loan(3)	9/2/2015	7/29/2026	$	—	—		N/A	35,037		2.86%
2016 Term Loan(4)	12/21/2016	1/15/2029	$	—	—		N/A	25,948		3.08%
2017 Term Loan A(4)	3/22/2017	1/22/2028	$	—	—		N/A	17,407		2.90%
2017 Term Loan B(4)	5/10/2017	10/15/2029	$	—	—		N/A	35,062		2.90%
2017 Term Loan C(4)	6/22/2017	7/30/2029	$	—	—		N/A	17,078		2.88%
2017 Term Loan D(4)	11/16/2017	10/15/2030	$	—	—		N/A	30,336		2.77%
Total debt obligations					$	370,628		$	616,176

(1)


(2)	The Senior Notes were issued in October 2014 by Ares Finance Co. LLC, a subsidiary of the Company, at 98.268% of the face amount with interest paid semi-annually. The Company may redeem the Senior Notes prior to maturity, subject to the terms of the indenture .

(3)

(4)

Subsequent to the removal of the U.S. risk retention requirements related to open-market CLO managers, we sold $219.3 million of CLO securities and used the proceeds to pay off the related 2015-2017 Term Loans and settle a repurchase agreement of $206.0 million during the three months ended June 30, 2018. The resulting loss from the debt extinguishment was immaterial.

As of June 30, 2018 , we were in compliance with all covenants under our debt obligations.

We intend to use a portion of our available liquidity to make cash dividends to our preferred and common shareholders on a quarterly basis in accordance with our dividend policies. Our ability to make cash dividends to our preferred and common shareholders 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.

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We are required to maintain minimum net capital balances for regulatory purposes for our United Kingdom subsidiary and for our broker-dealer subsidiary. These net capital requirements are met in part by retaining cash, cash‑equivalents and investment securities. As a result, we may be restricted in our ability to transfer cash between different operating entities and jurisdictions. As of June 30, 2018 , we were required to maintain approximately $26.8 million in liquid 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 Ares Management, L.P. common shares on a one-for-one basis. Subsequent exchanges may result in increases in the tax basis of the tangible and intangible assets of Ares Management, L.P. that otherwise would not have been available. These increases in tax basis may increase depreciation and amortization for U.S. federal income tax purposes and thereby reduce the amount of tax that Ares Management, L.P. would otherwise be required to pay in the future. We and our wholly owned subsidiaries are parties to the tax receivable agreement (“TRA”), which 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 Ares Management, L.P. actually realizes as a result of such increases in tax basis, including increases in tax basis attributable to payments under the TRA and certain interest accrued thereon. This payment obligation is an obligation of Ares Management, L.P. or its wholly owned subsidiaries. Future payments under the TRA in respect of subsequent exchanges are expected to be substantial.

Common Share Offering

On March 12, 2018, we and AREC Holdings Ltd., a wholly owned subsidiary of Abu Dhabi Investment Authority (collectively, “ADIA”), completed a public offering of 15,000,000 common shares. In connection with this offering, ADIA sold 10,000,000 of its previously issued and outstanding common shares from which we received no proceeds. Additionally, we issued 5,000,000 common shares from which we received $105.9 million in gross proceeds. We incurred approximately $0.5 million of expenses in connection with this offering. The expenses have been treated as a reduction of the proceeds received from the offering and are presented on a net basis with the proceeds from the offering in shareholders' equity in the Condensed Consolidated Statements of Changes in Equity.

In April 2018, the underwriters in the offering exercised a portion of their option to purchase 1,130,000 additional common shares from ADIA. We did not receive any of the proceeds from the underwriters' exercise. The expenses incurred by us related to the option exercise have been included in other income (expense), net in the Condensed Consolidated Statements of Operations. ADIA paid the underwriting discounts and commissions and/or similar charges incurred for the sale of the common shares.

Preferred Equity

As of June 30, 2018 and December 31, 2017 , we had 12,400,000 shares of Series A Preferred Equity (the “Preferred Equity”) outstanding. When, as and if declared by our board of directors, distributions on the Preferred Equity are paid quarterly at a rate per annum equal to 7.00%. The Preferred Equity may be redeemable at our option, in whole or in part, at any time on or after June 30, 2021, at a price of $25.00 per share.

Cash dividends to our common shareholders may be impacted by any corporate tax liability owed by us. In connection with the Preferred Equity issuance, the Ares Operating Group issued mirror preferred units (“GP Mirror Units”) to our wholly owned subsidiaries, which pay the same 7.00% rate per annum. Although income allocated to our wholly owned subsidiaries in respect of distributions on the GP Mirror Units is subject to tax, cash dividends to our preferred shareholders will not be reduced on account of any income taxes owed by us. As a result, the amounts ultimately distributed by us to our common shareholders may be reduced by any corporate taxes imposed on us.

In July 2018, the board of directors of the general partner authorized the repurchase, from time to time in open market purchases, privately negotiated transactions or otherwise, of our Preferred Equity with an aggregate liquidation preference of up to $50 million. Such purchases, if any, will depend on the prevailing market conditions and other factors.

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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. For a summary of our significant accounting policies, see Note 2, “Summary of Significant Accounting Policies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10‑Q and in our Annual Report on Form 10-K. For a summary of our critical accounting estimates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates" in our Annual Report on Form 10-K.

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,” in the “Notes to the Condensed Consolidated Financial Statements” included in this Quarterly Report on Form 10‑Q and in our Annual Report on Form 10-K.

Off‑Balance Sheet Arrangements

In the normal course of business, we engage in off‑balance sheet arrangements, including transactions in derivatives, guarantees, commitments, indemnifications and potential contingent repayment obligations. See Note 8, “Commitments and Contingencies,” to our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

Commitments and Contingencies

Capital Commitments

As of June 30, 2018 and December 31, 2017 , we had aggregate unfunded commitments of $284.5 million and $285.7 million , respectively, including commitments to both non-consolidated funds and Consolidated Funds. Total unfunded commitments included $16.3 million and $16.5 million in unfunded commitments to funds not managed by us as of June 30, 2018 and December 31, 2017 , respectively.

ARCC Fee Waiver

In conjunction with ARCC's acquisition of American Capital, Ltd. (“ACAS”), the Company agreed to waive up to $10 million per quarter of ARCC's Part I Fees for ten calendar quarters, which began in the second quarter of 2017. ARCC Part I Fees will only be waived to the extent they are paid. The maximum amount of fees that may be waived in a quarter is $10 million, and if ARCC Part I Fees are less than $10 million in any single quarter, the shortfall will not carryover to subsequent quarters. As of June 30, 2018 , there are five remaining quarters as part of the fee waiver agreement, with a maximum of $50 million in potential waivers. ARCC Part I Fees are reported net of the fee waiver.

Indemnifications

Consistent with standard business practices in the normal course of business, we enter into contracts that contain indemnities for our affiliates, persons acting on our behalf or such affiliates and third parties. The terms of the indemnities vary from contract to contract and the maximum exposure under these arrangements, if any, cannot be determined and has not been recorded in our consolidated financial statements. As of June 30, 2018 , we have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.

Contingent Obligations

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The partnership documents governing our funds generally include a contingent repayment provision that, if triggered, may give rise to a contingent obligation that may require the general partner to return amounts to the fund for distribution to investors. Therefore, performance income, generally, is subject to reversal in the event that the funds incur future losses. These losses are limited to the extent of the cumulative performance income recognized to date. Due in part to our investment performance and the fact that our performance income is generally determined on a liquidation basis, if the funds were liquidated at their fair values as of June 30, 2018, there would have been $0.2 million of contingent repayment obligation or liability. No contingent repayment obligation existed as of December 31, 2017. There can be no assurance that we will not incur additional contingent repayment obligation in the future. If all of the existing investments were deemed worthless, the amount of cumulative revenues that have been recognized would be reversed. We believe that the possibility of all of the existing investments becoming worthless is remote. At June 30, 2018 and December 31, 2017 , had we assumed all existing investments were worthless, the amount of carried interest, net of tax, subject to contingent repayment would have been approximately $472.9 million and $476.1 million , respectively, of which approximately $367.5 million and $370.0 million , respectively, would be reimbursable to the Company by certain professionals who are the recipients of such carried interest.

Performance income is also affected by changes in the fair values of the underlying investments in the funds that we advise. Valuations, on an unrealized basis, can be significantly affected by a variety of external factors including, but not limited to, bond yields and industry trading multiples.

Our senior professionals who have received carried interest distributions are responsible for funding their proportionate share of any contingent repayment obligations. However, the governing agreements of certain of our funds provide that if a current or former professional does not fund his or her respective share for such fund, then we may have to fund additional amounts beyond what we received in carried interest, although we will generally retain the right to pursue any remedies that we have under such governing agreements against those carried interest recipients who fail to fund their obligations.

Additionally, at the end of the life of the funds there could be a payment due to a fund by us if we have recognized more performance income than was ultimately earned. The general partner obligation amount, if any, will depend on final realized values of investments at the end of the life of the fund.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our primary exposure to market risk is related to our role as general partner or investment adviser to our investment funds and the sensitivity to movements in the fair value of their investments, including the effect on management fees, performance income and investment income.

The market price of investments may significantly fluctuate during the period of investment. Investments may decline in value due to factors affecting securities markets generally or particular industries represented in the securities markets. The value of an investment may decline due to general market conditions not specifically related to such investment, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates or adverse investor sentiment generally. It may also decline due to factors that affect a particular industry or industries, such as labor shortages or increased production costs and competitive conditions within an industry.

Our credit orientation has been a central tenet of our business across our debt and equity investment strategies. Our investment professionals benefit from our independent research and relationship networks in approximately 60 industries and insights from our portfolio of active investments. We believe the combination of high-quality proprietary information flow and a consistent, rigorous approach to managing investments across our strategies has been, and we believe will continue to be, a major driver of our strong risk-adjusted returns and the stability and predictability of our income.

There have been no material changes in our market risks for the six months ended June 30, 2018 . For additional information on our market risks, refer to our Annual Report on Form 10-K for the year ended December 31, 2017 , which is accessible on the SEC's website at sec.gov.

Item 4. Controls And Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as that term is defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our co-principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2018 . Based upon that evaluation and subject to the foregoing, our principal executive officers and principal financial officer concluded that, as of June 30, 2018 , the design and operation of our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a‑15(f) and 15d‑15(f) under the Exchange Act) during the quarter ended June 30, 2018 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II.

Item 1. Legal Proceedings

From time to time we are involved in various legal proceedings, lawsuits and claims incidental to the conduct of our business, some of which may be material. As of June 30, 2018 and December 31, 2017 , we were not subject to any material pending legal proceedings. Our businesses are also subject to extensive regulation, which may result in regulatory proceedings against us.

Item 1A. Risk Factors

For a discussion of our other potential risks and uncertainties, see the information under “Item 1A. Risk Factors” in our Annual Report on Form 10‑K for the year ended December 31, 2017 , which is accessible on the SEC’s website at www.sec.gov. There have been no material changes to the risk factors disclosed in our 2017 Form 10‑K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

In accordance with applicable SEC rules, the foregoing is intended to satisfy the Company’s Item 5.02 Form 8-K reporting obligations by making timely disclosure in accordance with Item 5(a) of Form 10-Q.

Effective January 1, 2018, Michael J Arougheti was appointed as Chief Executive Officer of the Company. Mr. Arougheti also continues to serve as the Co-Founder and the President of the Company. In recognition of Mr. Arougheti’s appointment as CEO of the Company, on July 31, 2018 the board of directors of the Company’s general partner, Ares Management GP LLC, approved a grant of two million restricted units to Mr. Arougheti (the “Restricted Units”). The Restricted Units are eligible to vest as follows: 666,666 restricted units will vest in four equal installments on January 1 of each of 2020, 2021, 2022 and 2023, subject to Mr. Arougheti’s continued service through the applicable vesting date (the “Service Vesting Units”); 666,667 restricted units will vest if, over all trading days that occur during any 30 consecutive calendar day period, the volume weighted average price per Company common share is at least $35.00; and 666,667 restricted units will vest if, over all trading days that occur during any 30 consecutive calendar day period, the volume weighted average price per Company common share is at least $45.00, in each case subject to Mr. Arougheti’s continued service through the applicable vesting date. Any unvested restricted units will be forfeited upon the earlier of Mr. Arougheti’s termination of service (subject to accelerated or continued vesting, as applicable, if Mr. Arougheti’s service with the Company is terminated without cause, due to death or disability, or on account of his resignation for good reason, including following a change in control event, in each case as described in the restricted unit agreement) and January 1, 2028. Following vesting, Mr. Arougheti will be entitled to receive one Company common share in respect of each vested restricted unit. At any time that the Company makes a cash distribution in respect of its common shares, Mr. Arougheti will be entitled to receive a corresponding distribution equivalent payment in respect of each then-outstanding Service Vesting Unit. No other Restricted Units accrue dividend equivalent payments.

The foregoing is qualified in its entirety by reference to the terms of the Restricted Unit Agreement, which is filed herewith as Exhibit 10.1 and is incorporated by reference.

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Item 6. Exhibits, Financial Statement Schedules

(a) Exhibits.

The following is a list of all exhibits filed or furnished as part of this report.



Exhibit No.		Description
3.1		Certificate of Limited Partnership of Ares Management, L.P. (incorporated by reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2015 (File No. 001-36429, filed with the SEC on February 29, 2016).
3.2		Third Amended and Restated Limited Partnership Agreement of Ares Management, L.P. dated March 1, 2018 (incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017 (File No. 001-36429, filed with the SEC on March 1, 2018).
10.1*		Restricted Unit Agreement, dated as of July 31, 2018, by and between Michael J Arougheti and Ares Management, L.P.
31.1*		Certification of the Chief Executive Officer pursuant to Rule 13a‑14(a).
31.2*		Certification of the Chief Financial Officer pursuant to Rule 13a‑14(a).
32.1*		Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith.

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SIGNATURES



	ARES MANAGEMENT, L.P.


	By:		Ares Management GP LLC, its general partner

Dated: August 6, 2018	By:		/s/ Michael J Arougheti
		Name:	Michael J Arougheti
		Title:	Co‑Founder, Chief Executive Officer & President (Principal Executive Officer)


Dated: August 6, 2018	By:		/s/ Michael R. McFerran
		Name:	Michael R. McFerran
		Title:	Chief Financial Officer & Chief Operating Officer (Principal Financial and Accounting Officer)

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Exhibit 10.1

1. RESTRICTED UNIT AGREEMENT
PURSUANT TO THE
ARES MANAGEMENT, L.P. 2014 EQUITY INCENTIVE PLAN

THIS AGREEMENT (the “ Agreement ”) is entered into as of July 31, 2018 (the “ Grant Date ”), by and between Ares Management, L.P., a Delaware limited partnership (including any successor entity thereto, the “ Partnership ”), and Michael J Arougheti (“ Participant ”). Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Ares Management, L.P. 2014 Equity Incentive Plan, as amended (the “ Plan ”).

W I T N E S S E T H :

WHEREAS , the Partnership has adopted the Plan, a copy of which has been delivered to Participant, which is administered by the Committee; and

WHEREAS , pursuant to Article VII of the Plan, the Committee may grant Other Share-Based Awards to Service Providers under the Plan, including restricted units that represent the right to receive Common Shares; and

WHEREAS , Participant is a Service Provider under the Plan.

NOW, THEREFORE , the parties agree as follows:

2. Grant of Restricted Units . Subject to the restrictions and other conditions set forth herein, the Committee hereby grants to Participant the right to receive 2,000,000 Common Shares (the “ Restricted Units ”) as of the Grant Date, of which:

(a) 666,667 Restricted Units shall be “ Tranche 1 Performance Units ”;

(b) 666,667 Restricted Units shall be “ Tranche 2 Performance Units ”; and

Each Restricted Unit is an Other Share-Based Award under the Plan that represents an unfunded, unsecured right of Participant to receive a Common Share subject to the Vesting Conditions specified in Section 2 .

3. Vesting and Payment .

(a) Vesting Conditions . Except as expressly provided in Sections 2(b) and 2(c) , the Restricted Units shall vest subject to the following conditions (the “ Vesting Conditions ”):

i. If, over all trading days that occur during any 30 consecutive calendar day period beginning on the Grant Date and ending on January 1, 2028 (the “ Final Measurement Date ”), the volume-weighted average price per share of the Common Shares is $35.00 or more (the “ Tranche

1 Performance Hurdle ”) then, subject to Participant’s continued employment or service with the Partnership or its Affiliates from the Grant Date through the last calendar day of such 30-day period (the “ Tranche 1 Performance Hurdle Date ”), the Tranche 1 Performance Units shall vest in full on the Tranche 1 Performance Hurdle Date. If the Tranche 1 Performance Hurdle is not attained on or before the Final Measurement Date, the Tranche 1 Performance Units shall be forfeited without payment therefor effective as of the Final Measurement Date. Except as expressly provided in Sections 2(b) and 2(c) , upon Participant’s Termination for any reason, any then-unvested Tranche 1 Performance Units will be forfeited without payment therefor effective as of the date of Participant’s Termination.

ii. If, over all trading days that occur during any 30 consecutive calendar day period beginning on the Grant Date and ending on the Final Measurement Date, the volume-weighted average price per share of the Common Shares is $45.00 or more (the “ Tranche 2 Performance Hurdle ”) then, subject to Participant’s continued employment or service with the Partnership or its Affiliates from the Grant Date through the last calendar day of such 30-day period (the “ Tranche 2 Performance Hurdle Date ”), the Tranche 2 Performance Units shall vest in full on the Tranche 2 Performance Hurdle Date. If the Tranche 2 Performance Hurdle is not attained on or before the Final Measurement Date, the Tranche 2 Performance Units shall be forfeited without payment therefor effective as of the Final Measurement Date. Except as expressly provided in Sections 2(b) or 2(c) , upon Participant’s Termination for any reason, any then-unvested Tranche 2 Performance Units will be forfeited without payment therefor effective as of the date of Participant’s Termination.

iii. The Service-Based Restricted Units shall vest as to 25% of the Service-Based Restricted Units on January 1 of each of 2020, 2021, 2022 and 2023 (each such date, a “ Service Vesting Date ”), subject in each case to Participant’s continued employment or service with the Partnership or its Affiliates through such date. Except as expressly provided in Sections 2(b) and 2(c) , upon Participant’s Termination for any reason, any then-unvested Service-Based Restricted Units will be forfeited without payment therefor effective as of the date of Participant’s Termination.

(b) Acceleration Event . Upon an Acceleration Event (as defined below), subject to Participant (or Participant’s estate, if applicable) executing and not revoking a separation and release agreement with the Partnership (or its designated affiliate) in the standard form then in effect (a “ Release ”) within 30 days following such Acceleration Event:

i. 50% of the Tranche 1 Performance Units outstanding and unvested as of such Acceleration Event shall remain outstanding and eligible to vest in accordance with Section 2(a)(i) through the earlier of the first anniversary of such Acceleration Event and the Final Measurement Date (the “ Acceleration Event Final Measurement Date ”). If the Tranche 1 Performance Hurdle is not attained on or before the Acceleration Event Final Measurement Date, such Tranche 1 Performance Units will be forfeited without payment therefor effective as of the Acceleration Event Final Measurement Date.

ii. 50% of the Tranche 2 Performance Units outstanding and unvested as of such Acceleration Event shall remain outstanding and eligible to vest in accordance with Section 2(a)(ii)

through the Acceleration Event Final Measurement Date. If the Tranche 2 Performance Hurdle is not attained on or prior to the Acceleration Event Final Measurement Date, such Tranche 2 Performance Units will be forfeited without payment therefor effective as of the Acceleration Event Final Measurement Date.

iii. Except as otherwise provided in Section 2(c) , 50% of the Service-Based Restricted Units that are outstanding and unvested as of such Acceleration Event (if any) shall vest immediately upon such Acceleration Event.

(c) Qualifying Termination Following Change in Control Event . Notwithstanding anything to the contrary in Section 2(b)(iii) , if Participant incurs a Termination by the Partnership without Cause (other than due to Participant’s death or Disability) or on account of Participant’s resignation for Good Reason, in either case, within three months following a Change in Control Event, subject to Participant executing and not revoking a Release within 30 days following Participant’s date of Termination, any Service-Based Restricted Units that are outstanding and unvested as of such Termination shall vest in full effective immediately upon such Termination.

(d) Payment . The Partnership shall, on or within 30 days following a Vesting Date (but in all events prior to March 15 ^th of the calendar year following the calendar year in which the applicable Vesting Date occurs) with respect to any Restricted Unit, deliver (or cause to be delivered) to the Participant one Common Share with respect to each such vested Restricted Unit, as settlement of such Restricted Unit and each such Restricted Unit shall thereafter be cancelled.

4. Distribution Equivalents .

(a) The Tranche 1 Performance Units and the Tranche 2 Performance Units shall not be entitled to receive any distributions with respect to Common Shares covered by the Tranche 1 Performance Units or the Tranche 2 Performance Units.

(b) With respect to cash distributions in respect of Common Shares covered by any outstanding Service-Based Restricted Units, Participant will have the right to receive an amount in cash equal to (i) the amount of any distribution paid with respect to a Common Share, multiplied by (ii) the number of Common Shares covered by such Service-Based Restricted Units, payable at the time such distributions are paid to holders of Common Shares generally (a “ Distribution Equivalent Payment ”). In no event shall a Distribution Equivalent Payment be made that would result in Participant receiving both the Distribution Equivalent Payment and the actual distribution with respect to the same Service-Based Restricted Unit and corresponding Common Share.

5. Restricted Unit Transfer Restrictions .

Unless otherwise determined by the Committee, Restricted Units may not be Transferred by Participant other than by will or by the laws of descent and distribution, and any other purported Transfer shall be void and unenforceable against the Partnership and its Affiliates.

6. Change in Control .

The Restricted Units shall not accelerate and vest solely upon the occurrence of a Change in Control unless otherwise determined by the Committee. In the event of a Change in Control, the provisions in the Plan regarding Change in Control shall apply to the Restricted Units.

7. Definitions .

(a) “ Acceleration Event ” means Participant’s Termination by the Partnership without Cause or due to Participant’s death or Disability, or Participant’s Termination on account of the Participant’s resignation for Good Reason.

(b) “ Ares Entities ” means, collectively, (i) Ares Management, L.P., a Delaware limited partnership, (ii) Ares Management GP LLC, a Delaware limited liability company, (iii) Ares Voting LLC, a Delaware limited liability company, (iv) any entity that is or becomes part of the Ares Operating Group, and (v) any entity in which any of the foregoing directly or indirectly owns a majority interest or which any of the foregoing controls, or through which any of the foregoing directly or indirectly manages, directs or invests in a fund, investment vehicle or account, but excluding any fund, investment vehicle or account. For the avoidance of doubt, any reference in this Agreement to an Ares Entity shall include any successor entity of such Ares Entity.

(c) “ Ares Operating Group ” means, collectively, (i) Ares Investments, L.P., a Delaware limited partnership, (ii) Ares Holdings, L.P., a Delaware limited partnership, (iii) Ares Offshore Holdings, L.P., a Cayman exempted limited partnership, and (iv) any future entity designated by Ares Management GP LLC in its discretion as an Ares Operating Group Entity for purposes of the Third Amended and Restated Limited Liability Company Agreement of Ares Partners Holdco LLC (as may be amended or restated from time to time). For the avoidance of doubt, any reference in this Agreement to an Ares Operating Group entity shall include any successor entity of such Ares Operating Group entity.

(d) “ Cause ” means the occurrence of any of the following events or occurrences. For purposes of the definition of Cause, acts or failures to act on Participant’s part shall be deemed “willful” if done, or omitted to be done, by Participant not in good faith and without reasonable belief that Participant’s action or omission was in the best interest of the Ares Entities; provided , that any mistake in judgment made by Participant in good faith on the advice of legal counsel, any activities taken or omitted by Participant in accordance with the direction of the investment committee of any Ares Entity, or the making of an approved portfolio investment whether or not successful, in each case, shall not be deemed a willful act or failure to act on Participant’s part for purposes of determining whether Cause exists. Notwithstanding any other definition of “cause” (or term of similar import) in any other agreements between the Participant and any Ares Entity, the following definition of Cause shall control in all events with respect to the Restricted Units.

i. Participant’s failure to devote substantially all of Participant’s working time and efforts to the business and affairs of the Ares Entities and any fund, investment vehicle or account

directly or indirectly managed, directed or invested by an Ares Entity (collectively, the “ Funds ”) on a full-time basis, other than reasonable vacation time and personal days, in each case that do not interfere in any material respect with Participants’ duties to the Ares Entities or to the Funds.

ii. Participant becoming convicted of, or pleading guilty or no contest to, a felony;

iii. Participant becoming subject to any order, judgment or decree (whether entered by consent or after trial or adjudication) of any court, governmental agency or regulatory authority (including, without limitation, the Securities and Exchange Commission or state securities commissions) involving a material violation of federal or state securities laws or any rules or regulations thereunder that materially censures or imposes any material sanctions on the Participant in connection with investment advisory securities related activities or that enjoins, bars, disqualifies, suspends or otherwise limits the Participant from engaging in any investment-related or securities-related activities (an “ Order ”);

iv. Participant’s dishonesty, bad faith, gross negligence, willful misconduct, fraud or willful or reckless disregard of the Participant’s duties in connection with the performance of any service for or on behalf of any Ares Entity or for or on behalf of any Fund that materially injures the reputation, business or a business relationship of any Ares Entity;

v. Participant’s intentional failure to comply with any lawful and written (including via email) material directive of Ares Partners Holdco LLC or Board of Directors of Ares Management GP LLC, or any successor(s) thereto, an investment committee of any Ares Entity;

vi. Participant’s (x) material violation of the Code of Ethics for any Ares Entity, or (y) taking of any improper action or the intentional omission to take any proper action, in each case, which has the effect of materially injuring the reputation, business or a business relationship of an Ares Entity;

vii. Participant’s violation of any material written policies adopted by any Ares Entity governing the conduct of executives performing services on behalf of such Ares Entity, which violation materially injures the reputation, business or business relationship of any Ares Entity; or

viii. Participant’s material breach of any material agreement entered into between the Participant and any Ares Entity (including the Fair Competition Agreement, dated on or about May 1, 2014, by and between the Partnership and Participant).

(e) “ Change in Control Event ” means (i) the consummation of a transaction or series of related transactions with another Person, including one or more related parties or group of Persons (any such Person, a “ Third Party ”), resulting in (x) the sale of all or substantially all of the assets of the Partnership or any successor to a Third Party, (y) the sale of all or substantially all of the assets or the business activities of the Partnership’s direct lending group to a Third Party or (z) a Third Party obtaining majority economic and voting control of the Partnership or any successor, or (ii) the occurrence of a Change in Control. For the avoidance of doubt, the conversion of the Partnership to

a corporation, or other corporate reorganization or organizational change that does not result in any of the circumstances described in subclauses (x), (y) or (z) of the immediately preceding sentence, does not constitute a Change in Control Event.

(f) “ Disability ” means Participant’s inability to substantially perform his essential duties with the applicable Ares Entities for a period of 90 consecutive days or for a total of 90 days (including weekends and holidays) during any 12-month period as a result of any mental or physical illness, disability, or incapacity, whether totally or partially. Any question as to the existence of Participant’s Disability as to which Participant and the applicable Ares Entity cannot agree shall be determined in writing by a qualified independent physician mutually acceptable to Participant and the applicable Ares Entity.

(g) “ Good Reason ” means any of the following events or occurrences, in each case, without Participant’s written consent (each or any a “ Good Reason Trigger ”):

i. A material diminution of Participant’s title, duties, responsibilities or authorities as Chief Executive Officer and President of Ares Management GP LLC;

ii. A material breach of this Agreement by the Partnership; or

iii. The relocation of Participant’s principal office outside the area that comprises a 35 mile radius from New York City.

In order for an event or occurrence to qualify as a Good Reason Trigger, Participant must (x) give the Partnership a signed written notice of the existence of Good Reason and the particular circumstances constituting the basis for Participant’s resignation or right to resign, as applicable, with Good Reason within 30 calendar days after Participant obtains actual knowledge of any circumstance having occurred, (y) allow the Partnership 30 calendar days from receipt of such notice to cure the same, and (z) if the Partnership fails to cure such circumstance, if applicable, resign Participant’s employment no later than (1) if the Partnership provides notice that it will not cure such circumstance, the 15 ^th calendar day following such notice, and (2) otherwise, the 75 ^th calendar day after Participant first obtains knowledge of such circumstance.

(h) “ Vesting Date ” means the applicable date that a Restricted Unit becomes vested pursuant to Section 2(a) , Section 2(b) , or Section 2(c) , as applicable.

8. Rights as a Shareholder .

The Participant shall have no rights as a shareholder with respect to Common Shares covered by Restricted Units.

9. Provisions of Plan Control .

This Agreement is subject to all the terms, conditions and provisions of the Plan and to such rules, regulations and interpretations relating to the Plan as may be adopted by the Committee and as may be in effect from time to time. The Plan is incorporated herein by reference. If and to the

extent that this Agreement conflicts or is inconsistent with the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly. Any amendment or other modification of the terms of the Restricted Units granted hereunder shall be subject to the terms of the Plan; provided, that, notwithstanding any provision of the Plan to the contrary, in no event shall any such amendment or other modification adversely affect the rights of Participant without Participation’s consent.

10. Notices .

All notices, demands or requests made pursuant to, under or by virtue of this Agreement must be in writing and sent to the party to which the notice, demand or request is being made:

(a) unless otherwise specified by the Partnership in a notice delivered by the Partnership in accordance with this section, any notice required to be delivered to the Partnership shall be properly delivered if delivered to:

Ares Management, L.P.
2000 Avenue of the Stars, 12th Floor
Los Angeles, CA 90067
Attention: Executive Vice President, Chief Legal Officer & Secretary

E-mail: weiner@aresmgmt.com

(b) If to the Participant, to the address on file with the Partnership.

Any notice, demand or request, if made in accordance with this section shall be deemed to have been duly given: (i) when delivered in person; (ii) when sent by electronic mail, (iii) three days after being sent by United States mail, or foreign equivalent; or (iv) on the first business day following the date of deposit if delivered by a nationally or internationally recognized overnight delivery service.

11. No Right to Employment or Services .

This Agreement is not an agreement of employment or services. None of this Agreement, the Plan or the grant of Restricted Units shall (a) obligate the Partnership to employ or otherwise retain, or to continue to employ or otherwise retain, the Participant for any specific time period or (b) modify or limit in any respect the Partnership’s or its Affiliates’ right to terminate or modify the Participant’s employment, services or compensation.

12. Transfer of Personal Data .

The Participant authorizes, agrees and unambiguously consents to the transmission by the Partnership of any personal data information related to the Restricted Units awarded under this Agreement, for legitimate business purposes (including, without limitation, the administration of the Plan) out of the Participant’s home country and including to countries with less data protection than

the data protection provided by the Participant’s home country. This authorization/consent is freely given by the Participant.

13. Withholding .

The Participant hereby authorizes the Partnership, or an Affiliate thereof to which the Participant provides services, to satisfy applicable income tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items (“ Tax-Related Items ”), with respect to any issuance, transfer, or other taxable event under this Agreement or the Plan by withholding from the proceeds of the sale of Common Shares acquired upon settlement of the Restricted Units either through a voluntary sale authorized by the Partnership or through a mandatory sale arranged by the Partnership or any of its Affiliates on the Participant’s behalf pursuant to this authorization, to cover the amount of such Tax Related Items. The Participant further authorizes the Partnership or the applicable Affiliate to take such action as may be necessary in the opinion of the Partnership or the applicable Affiliate to withhold from any compensation or other amount owing to the Participant to satisfy all obligations for the payment of such Tax-Related Items. Without limiting the foregoing, the Committee may, from time to time, permit the Participant to make arrangements prior to any Vesting Date described herein to pay the applicable Tax-Related Items in a manner prescribed by the Committee prior to the applicable Vesting Date, including by cash, check, bank draft or money order. The Participant acknowledges that, regardless of any action taken by the Partnership or any of its Affiliates the ultimate liability for all Tax-Related Items, is and remains the Participant’s responsibility and may exceed the amount actually withheld by the Partnership or any of its Affiliates. The Partnership may refuse to issue or deliver the Common Shares or the proceeds from the sale of Common Shares, if the Participant fails to comply with his or her obligations in connection with the Tax-Related Items.

14. Dispute Resolution .

(a) The exclusive remedy for determining any and all disputes, claims or causes of action, in law or equity, arising out of or related to this Agreement, or the breach, termination, enforcement, interpretation or validity thereof will, to the fullest extent permitted by law, be determined by: (i) the dispute resolution provisions in any employment, consulting agreement, or similar agreement, between the Partnership or any of its Affiliates and the Participant or, if none, (ii) the Partnership’s or any of its Affiliates’ mandatory dispute resolution procedures as may be in effect from time to time with respect to matters arising out of or relating to Participant’s employment or service with the Partnership or, if none, (iii) by final, binding and confidential arbitration in New York, New York, before one arbitrator, conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“ JAMS ”), or its successor. If disputes are settled pursuant to clause (iii) of this Section 13(a) , Section 13(b) shall apply.

(b) Disputes shall be resolved in accordance with the Federal Arbitration Act, 9 U.S.C. §§1–16, and JAMS’ Employment Arbitration Rules and Procedures then in effect. The arbitrator will have the same, but no greater, remedial authority than would a court of law and shall issue a written decision including the arbitrator’s essential findings and conclusions and a statement of the award.

Judgment upon the award rendered by the arbitrator may be entered by any court having jurisdiction thereof. This agreement to resolve any disputes by binding arbitration extends to claims by or against the Partnership or any of its Affiliates or any of their respective past or present representatives and applies to claims arising out of federal, state and local laws, including claims of alleged discrimination on any basis, as well as to claims arising under the common law. The prevailing party in any such arbitration proceeding, as determined by the arbitrator, or in any proceeding to enforce the arbitration award, will be entitled, to the extent permitted by law, to reimbursement from the other party for all of the prevailing party’s costs (including the arbitrator’s compensation), expenses and attorneys’ fees. If no party entirely prevails in such arbitration or proceeding, the arbitrator or court shall apportion an award of such fees based on the relative success of each party. In the event of a conflict between this provision and any provision in the applicable rules of JAMS, the provisions of this Agreement will prevail.

15. Section 409A .

The Restricted Units are intended to be exempt from or comply with the applicable requirements of Section 409A and shall be limited, construed and interpreted in accordance with such intent; provided , that the Partnership does not guarantee to the Participant any particular tax treatment of the Restricted Units. In no event whatsoever shall the Partnership be liable for any additional tax, interest or penalties that may be imposed on the Participant by Section 409A or any damages for failing to comply with Section 409A. Distribution Equivalent Payments shall be treated separately from the Service-Based Restricted Units and the rights arising in connection therewith for purposes of the designation of time and form of payments required by Section 409A.

16. Miscellaneous .

(a) Successors . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, legal representatives, successors and assigns.

(b) Governing Law . All matters arising out of or relating to this Agreement and the transactions contemplated hereby, including its validity, interpretation, construction, performance and enforcement, shall be governed by and construed in accordance with the internal laws of the State of Delaware, without giving effect to its principles of conflict of laws.

(c) Counterparts; Electronic Acceptance . This Agreement may be executed in one or more counterparts (including by facsimile or electronic transmission), all of which taken together shall constitute one contract. Alternatively, this Agreement may be granted to and accepted by the Participant electronically.

(d) Interpretation . Unless a clear contrary intention appears: (i) the defined terms herein shall apply equally to both the singular and plural forms of such terms; (ii) reference to any Person includes such Person’s successors and assigns but, if applicable, only if such successors and assigns are not prohibited by the Plan or the Agreement, and reference to a Person in a particular capacity

excludes such Person in any other capacity or individually; (iii) any pronoun shall include the corresponding masculine, feminine and neuter forms; (iv) reference to any agreement, document or instrument means such agreement, document or instrument as amended or modified and in effect from time to time in accordance with the terms thereof; (v) reference to any law, rule or regulation means such law, rule or regulation as amended, modified, codified, replaced or reenacted, in whole or in part, and in effect from time to time, including rules and regulations promulgated thereunder, and reference to any section or other provision of any law, rule or regulation means that provision of such law, rule or regulation from time to time in effect and constituting the substantive amendment, modification, codification, replacement or reenactment of such section or other provision; (vi) “hereunder,” “hereof,” “hereto,” and words of similar import shall be deemed references to the Agreement as a whole and not to any particular article, section or other provision hereof; (vii) numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of the Agreement; (viii) “including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term; (ix) “or” is used in the inclusive sense of “and/or”; (x) references to documents, instruments or agreements shall be deemed to refer as well to all addenda, exhibits, schedules or amendments thereto; and (xi) reference to dollars or $ shall be deemed to refer to U.S. dollars.

(e) No Strict Construction . This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

(f) Waiver . The failure of any party hereto at any time to require performance by another party of any provision of this Agreement shall not affect the right of such party to require performance of that provision, and any waiver by any party of any breach of any provision of this Agreement shall not be construed as a waiver of any continuing or succeeding breach of such provision, a waiver of the provision itself, or a waiver of any right under this Agreement.

17. NO ACQUIRED RIGHTS .

THE PARTICIPANT ACKNOWLEDGES AND AGREES THAT: (A) THE PARTNERSHIP MAY TERMINATE OR AMEND THE PLAN AT ANY TIME; (B) THE AWARD OF RESTRICTED UNITS MADE UNDER THIS AGREEMENT IS COMPLETELY INDEPENDENT OF ANY OTHER AWARD OR GRANT AND IS MADE AT THE SOLE DISCRETION OF THE PARTNERSHIP; (C) NO PAST GRANTS OR AWARDS (INCLUDING THE RESTRICTED UNITS AWARDED HEREUNDER) GIVE THE PARTICIPANT ANY RIGHT TO ANY GRANTS OR AWARDS IN THE FUTURE WHATSOEVER; (D) THE PLAN AND THE AGREEMENT DO NOT FORM PART OF THE TERMS OF THE PARTICIPANT’S EMPLOYMENT; AND (E) BY PARTICIPATING IN THE PLAN AND RECEIVING AN AWARD PURSUANT TO THIS AGREEMENT, THE PARTICIPANT WAIVES ALL RIGHTS TO COMPENSATION FOR ANY LOSS IN RELATION TO THE PLAN OR THIS AGREEMENT, INCLUDING ANY LOSS OF RIGHTS IN ANY CIRCUMSTANCES INCLUDING TERMINATION OF EMPLOYMENT.

[ Remainder of This Page Intentionally Left Blank ]

IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.

ARES MANAGEMENT, L.P.

By: Ares Management GP LLC, its general partner

By:     /s/ Antony P. Ressler
Name:     Antony P. Ressler
Title:     Co-Founder and Executive Chairman

/s/ Michael J Arougheti
Participant Name: Michael J Arougheti
Date Accepted: July 31, 2018

Exhibit 31.1

Certification of Chief Executive Officer

of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d- 14(a)

I, Michael J Arougheti , certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ares Management, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2018



/s/ Michael J Arougheti
Name:	Michael J Arougheti
Title:	Co‑Founder, Chief Executive Officer & President (Principal Executive Officer)

Exhibit 31.2

Certification of Chief Financial Officer

of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

I, Michael R. McFerran, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Ares Management, L.P.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2018



/s/ Michael R. McFerran
Name:	Michael R. McFerran
Title:	Chief Financial Officer & Chief Operating Officer (Principal Financial and Accounting Officer)

Exhibit 32.1

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to

18 U.S.C. Section 1350

In connection with the Quarterly Report on Form 10-Q of Ares Management, L.P. (the “Company”) for the quarter ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael J Arougheti, as Chief Executive Officer of the Company, and Michael R. McFerran, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 6, 2018



/s/ Michael J Arougheti
Name:	Michael J Arougheti
Title:	Co‑Founder, Chief Executive Officer & President (Principal Executive Officer)

/s/ Michael R. McFerran
Name:	Michael R. McFerran
Title:	Chief Financial Officer & Chief Operating Officer (Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Ares Management, L.P and will be retained by Ares Management, L.P. and furnished to the Securities and Exchange Commission or its staff upon request.