Ares Management’s Fee-Driven Model: A Lesson for Private Equity, According to Leemccabe

In a recent LinkedIn post, Leemccabe offers a compelling analysis of Ares Management’s business model, contrasting it with traditional private equity approaches and drawing lessons for other companies in the alternative asset space. Leemccabe highlights how Ares has achieved significant growth by prioritizing fee-related earnings over performance-based ‘carry,’ a strategy that offers greater predictability and resilience.

The Power of Fee-Related Earnings

Leemccabe begins by drawing a stark comparison between Ares and a hypothetical entity that relies on more volatile income streams. The core of the argument centers on the steady, compounding nature of management fees. Leemccabe points out the dramatic increase in Ares’s fee-related earnings:

“From 2014 to 2025, Ares took fee-related earnings from roughly $150m to $1.8bn. Over the same period, realized net performance income stayed tiny by comparison. Even in the better carry years, it barely changes the story.”

This substantial growth in fee income, as detailed by Leemccabe, underscores a strategic shift in the alternatives industry. Leemccabe argues that this focus on fees makes for a more robust business model.

Predictable Revenue vs. ‘Heroic’ Upside

The analysis delves into why this fee-heavy approach is superior, particularly in uncertain market conditions. Leemccabe suggests that businesses built on predictable revenue are more sustainable than those chasing the ‘sexiest upside story.’ According to Leemccabe:

“The better business is the one where earnings do not require exits, marks, perfect timing, a benevolent Fed, and three investment bankers pretending the buyer’s “strategic rationale” justifies the price.”

This perspective contrasts with traditional private equity, which often relies on successful exits and market timing to generate significant returns. Leemccabe characterizes Ares as a ‘cleaner example of the modern alternatives model. Credit-led. Fee-heavy. Scalable.’

Alternative Models and Their Strengths

While championing Ares’s model, Leemccabe acknowledges the validity of other strategies employed by major players like Apollo, KKR, and Blackstone. These firms have pursued different paths, such as leveraging insurance balance sheets or building perpetual capital bases. However, Leemccabe posits that Ares simply chose a more direct and less ‘theatrical’ route.

The author emphasizes the core of the Ares strategy: raise capital, manage credit, compound management fees, and treat carry as a bonus rather than the primary income source. This is a ‘simpler route,’ as Leemccabe puts it.

Lessons for Private Equity

The implications for private equity-backed companies are clear, according to Leemccabe. The emphasis shifts from high-risk, high-reward scenarios to sustainable, consistent revenue generation. Leemccabe concludes with a powerful statement on business philosophy:

“The best businesses are usually not the ones with the sexiest upside story. They are the ones where the revenue engine keeps working when the market stops clapping. Predictable beats heroic.”

Leemccabe notes that while this pragmatic approach is sound business strategy, it may lead to less exciting discussions on industry panels, a touch of wry observation from the journalist covering the post.

It is important to note that Leemccabe includes a caveat regarding pre-2020 carry figures, stating they are directional estimates due to changes in reporting definitions over time. The overall trend and the strategic point being made are the focus, rather than precise historical figures.