ARES Management (ARES 1.90%) has been investing other people's money for over 20 years. In that time, the company has gained significant expertise identifying good investment opportunities, and it thinks it's identified a new market that could grow to $90 trillion over the next 30 years -- "climate infrastructure." As it applies its investment prowess to renewable energy, its investing track record and recent successes tell a compelling growth story -- but for investors, its dividend yield may be the icing on the cake.
ARES sees a $90 trillion opportunity in climate infrastructure. Image source: Getty Images.
How ARES creates shareholder value
ARES focuses on what it calls "alternative investments," and it receives a fee as these investments make a profit. For example, it may act as a "private equity investor" by buying a stake in a private company; it may finance the purchase of certain types of real estate; or it may provide capital to a company developing an energy project. In some cases, it collects an interest payment; in others, it improves an asset and sells it for a profit; and in other cases, it operates the assets -- for example, an electric power plant -- for a period of time and generates cash flows. As these investments prove successful, it produces returns for its investors and collects management fees in the process.
While ARES has a track record that goes back to 1997, it only became a public company in April 2014. There have been some bumps on the road, but in a little over six years, the company has roughly tripled its market capitalization -- a testament to its investment savvy and its ability to "originate" or identify good opportunities. At this time, the company manages assets valued at $165 billion and has relationships with over 1,000 institutional investors.
ARES's rapid pivot into renewables
ARES acquired Energy Infrastructure Partners in 2014, which quickly positioned it at a respectable No. 60 among the top 100 U.S. power producers in 2015 -- higher than many traditional regional U.S. utilities at the time. ARES debuted on the list with only 1% of its generation capacity coming from renewable sources such as solar and wind. A short three years later, ARES ranked as the 46th leading electricity generator in the U.S., with 10% of its power coming from renewables. In 2019, the company's focus on renewables earned it a number of industry accolades, such as Renewables Deal of the Year and Renewables Investor of the Year for its participation in the 525MW Aviator wind project in Texas, which provides clean energy to Facebook's data centers.
To put this into perspective, while ARES increased the portion of energy it generated from renewable sources by 1,000% between 2015 and 2019, renewable energy leader NextEra (NEE 2.42%) increased its renewable portfolio by only around 40% in the same timeframe, going from 17% of its capacity to 23%. And some smaller utilities stayed at 0% renewable energy in the same period.
Of course, it's easy to increase something by a large amount when one starts with a small number. However, a key advantage ARES has in the renewable energy space is that it is not a regulated utility. As such, it is not saddled with an obligation to maintain a certain generating capacity, provide energy reliably to its end customers, or have a complex retail billing operation, for example. It can instead focus entirely on investing in the most profitable generation projects, and it can divest, or get rid of, underperforming assets without worrying about keeping the lights on in a service territory.
A diversified investor with lots of upside and a solid dividend
ARES invests across a wide variety of sectors and opportunities, with renewables being only a small portion of its portfolio at this time. Its overall investments into infrastructure and power -- the segment where its renewable investments live -- for 2019 were less than $200 million of a total $27 billion invested across all of its opportunities. ARES's performance as an expert investor and asset manager resulted not only in significant stock appreciation, but also a solid 4% dividend yield.
While stock appreciation with a solid dividend may be reason enough to consider investing in ARES, Fools following the growing renewable energy sector should also pay attention to upcoming earnings reports to see how ARES continues to grow the proportion of capital it devotes to the sector. Given its experience and track record as an energy investor, its rapid adoption of renewables, its international presence, and its appetite for "alternative investments," ARES appears well positioned to become a key player in the transition to renewable energy.
