It’s been nearly four months since I last checked on Ares Management (ARES), and since then, the shares haven’t really budged at all. Since June 8th, the shares have returned about 2%, when dividends are factored in. While this performance may not be inspiring for some, I don’t believe it tells the full story.

As seen below, Ares Management is a relatively low-beta stock, which means that its stock price has swung relatively little compared to the rest of the market. For this reason, I believe Ares is a relatively good place for investors who are seeking a place to park cash, while remaining in equity market. In addition, I see upside potential from where the stock trades today; so let’s get started.

(Source: YCharts)

A Look Into Ares Management

Ares Management is a leading investment manager that has shown resiliency and an ability to thrive during recessions and the current pandemic-induced downturn. It was founded in 1997 that operates in the three segments of Credit, Private Equity, and Real Estate.

Ares currently has $106 billion in total FPAUM (fee-paying AUM), with about 75% of assets in credit-related investments, 16% in private equity assets, and the remaining 9% in Real Estate. It has a stable and high-quality investor base that includes pension funds, insurance companies, banks, sovereign wealth funds, and university endowments.

What I find impressive is that the Ares continued to grow FPAUM both sequentially and YoY, by 3.4% and 18%, respectively, in the latest quarter. This translated into a 26% YoY growth in FRE (fee-related earnings), as many of Ares’ funds are mature, and therefore have lower administrative and setup costs than newer funds. This translates into higher profitability, which is why FRE grew faster than FPAUM.

(Source: Company Earnings Presentation)

Overall, I see Ares as

Focus of Article:

The focus of this two-part article is a very detailed analysis comparing Ares Capital Corp. (ARCC) to some of the company’s business development company (“BDC”) peers (all sector peers I currently cover). I am writing this two-part article due to the continued requests that such an analysis be specifically performed on ARCC and some of the company’s BDC peers at periodic intervals. For readers who just want the summarized conclusions/results, I would suggest to scroll down to the “Conclusions Drawn” section at the bottom of each part of the article.

PART 1 of this article analyzed ARCC’s recent quarterly results and compared several of the company’s metrics to fourteen BDC peers. PART 1 helps lead to a better understanding of the topics and analysis that will be discussed in PART 2. The link to PART 1’s analysis is provided below:

Ares Capital’s NAV, Dividend, And Valuation Vs. 14 BDC Peers (Post Q2 2020 Earnings – Very Attractive Valuation)

PART 2 of this article compares ARCC’s recent dividend per share rates, yield percentages, and several other highly unique dividend sustainability metrics to fourteen BDC peers. This analysis will show recent past data with supporting documentation within Table 3 below. This article will also project each company’s dividend sustainability for the calendar fourth quarter of 2020 which is partially based on the metrics shown in Table 3 and several additional metrics shown in Table 4 below.

By analyzing these metrics, one will better understand which BDC generally has a safer dividend rate going forward versus other peers who have a higher risk for a dividend decrease or a higher probability of a dividend increase and/or a special periodic dividend being declared. This is not the only data that should be examined to initiate a position within a particular stock/sector