Is Ares Management (ARES) Overvalued or Undervalued Amid Volatility and Expansion?

The valuation of Ares Management Corporation (ARES) has become a contentious topic among investors, with intrinsic valuation models producing starkly divergent conclusions. On one hand, the Excess Returns model suggests an intrinsic value of $31.14 per share, implying a 425% overvaluation relative to the current price. On the other, the Narrative Fair Value model projects a fair value of $183.94, suggesting the stock is modestly undervalued. This divergence reflects broader debates about the firm's ability to sustain its recent growth amid macroeconomic headwinds and strategic expansion.

A Resilient Earnings and AUM Growth

Ares' Q3 2025 results underscore its dominance in the alternative asset management space. The firm reported a 35.7% year-over-year revenue increase to $1.14 billion, driven by a 28% surge in assets under management (AUM) to $596 billion. Record fundraising of $30 billion and deployment of $41 billion-55% higher than the prior quarter-highlight its ability to capitalize on demand for private credit and alternative strategies. CEO Michael Arougheti emphasized the firm's "healthy investment pipeline" and $150 billion in dry powder, signaling robust long-term growth potential.

The acquisition of GCP International further amplified Ares' strategic reach, creating a global logistics platform with 600 million square feet of industrial properties and expanding its digital infrastructure capabilities. These moves have diversified Ares' revenue streams and enhanced its vertical integration in high-growth sectors like data centers and logistics.

The Excess Returns Model: A Cautious View

The Excess Returns model, which calculates intrinsic value by capitalizing profits above the cost of equity, paints a grim picture. Ares' current price-to-earnings (PE) ratio of 70.7x far exceeds the Capital Markets industry average of 24.0x and the peer group average of 13.9x. Using a Book Value of $13.68 per share and a Stable EPS of $2.03, the model estimates an intrinsic value of $31.14, implying a 423.7% overvaluation relative to the current price of $163.07. This approach assumes a 20.43% return on equity, which, while strong, does not justify the premium valuation when compared to historical benchmarks.

Critics argue that the model's focus on short-term earnings and cost of capital overlooks Ares' long-term growth drivers, such as its expanding private credit business and recurring fee streams from perpetual capital. However, the model's skepticism is rooted in concerns about margin compression from rising general and administrative expenses post-GCP integration.

The Narrative Fair Value Model: A Growth-Oriented Perspective

In contrast, the Narrative Fair Value model adopts a forward-looking approach, projecting a fair value of $183.60 based on ambitious assumptions about Ares' growth trajectory. This narrative assumes a 50% contribution from perpetual capital to fee-paying AUM, consistent investment performance, and low client redemptions, all of which could drive recurring fee income and margin expansion. The model also incorporates Ares' strategic initiatives, such as its $125 billion AUM target for semi-liquid wealth products and planned 2026 fund launches in Asia and digital infrastructure.

However, this optimistic outlook hinges on several risks. Intensifying competition in private credit, regulatory scrutiny, and potential shifts in retail flows could undermine Ares' ability to maintain its current growth rates. Additionally, the firm's PE ratio of 71x remains a red flag for investors prioritizing earnings-based valuations.

Strategic Moves and Market Sentiment

Ares' recent expansion into logistics and digital infrastructure has bolstered its long-term positioning. The Marq Logistics platform provides geographic diversification in Asia and emerging markets, while its digital infrastructure projects add 1 gigawatt of IT capacity. These moves align with global trends toward industrialization and digitalization, offering Ares a competitive edge.

Yet, market sentiment remains divided. While the firm's earnings and AUM growth justify optimism, its valuation multiples suggest investors are pricing in a high degree of future success. The contrast between the Excess Returns and Narrative models reflects this duality: one emphasizes caution based on current fundamentals, while the other bets on Ares' ability to execute its growth narrative.

Conclusion: Balancing Caution and Optimism

Ares Management's valuation dilemma encapsulates the broader challenges of valuing alternative asset managers in a rapidly evolving market. The Excess Returns model's low intrinsic value underscores the risks of overpaying for growth, particularly in a sector prone to regulatory and competitive pressures. Conversely, the Narrative Fair Value model's higher estimate reflects confidence in Ares' strategic agility and the enduring demand for private credit.

For investors, the key lies in reconciling these perspectives. Ares' recent performance and strategic expansion justify a premium valuation, but only if its growth assumptions hold. Those prioritizing margin stability and earnings visibility may find the current price unjustified, while those betting on the firm's long-term vision could see value in its $183.60 fair value target. Ultimately, Ares' ability to navigate macroeconomic volatility and sustain its AUM growth will determine whether it is overvalued or undervalued.