Ares assets grow 12.8% year-on-year

The Los Angeles-headquartered firm has raised $3.2 billion in gross capital commitments in the first quarter and $14.5 billion over the last twelve months.

Ares Management’s assets grew to $86.9 billion at the end of the first quarter, representing a 12.8 percent increase year-on-year (y-o-y). The firm collected $3.2 billion in capital in the three months ended 31 March 2015 and $14.5 billion over the last twelve months. Economic net income also grew to $82.9 million for the three months ended 31 March, representing a 7.1 percent increase from the first quarter in 2014, the firm’s Q1 earnings report said.

The firm’s net investment income dropped by 68 percent to $7.6 million in the first quarter this year from $23.7 million in the same period a year earlier. Michael McFerran, Ares’ newly minted chief financial officer, said on the firm’s earnings call that the drop was attributable to two factors: “First, in the first quarter of 2014, we experienced higher appreciation on more seasoned fund investments, including some positions that were realized. This past quarter reflects a comparatively lower level of asset appreciation with a portion of our portfolio and less seasoned investments.”

The firm’s fee earning AUM increased by about $4.3 billion to $65.7 billion, said president Michael Arougheti (pictured) during the call, a 65.7 percent rise y-o-y. Arougheti also touted good performance across the firm’s various credit strategies. Its long-only loan and high-yield composite investments returned 2.4 percent and 3.1 percent in the quarter, respectively. Its special situations and alternative credit fund has generated gross IRR of 19 percent since inception. The Ares Capital Europe funds have collectively delivered gross IRR of 12 percent since inception, while the Ares Capital Corporation BDC has generated annualized returns to shareholders of about 12 percent since inception.

Capital raising in the first quarter was mainly driven by the tradable credit group, and included the firm’s 33rd CLO which closed at $613 million, as well as $1.2 billion raised across structured products and an additional $235 million collected for the special situations fund. Ares closed that fund at $1.5 billion last month, as PDI previously reported.

The firm is still raising money for its third European direct lending fund and has brought the capital in its commercial finance vehicle up to $700 million, with the First Capital Holdings acquisition. All in all, Arougheti estimated the firm has $18.9 billion in dry powder across its various strategies and platforms. “We continue to be highly selective, leveraging our platform advantages to invest opportunistically with a broad market view,” Arougheti said.

 He added that the firm’s public listing has helped it make more acquisitions and Ares is in talks about more purchases. “Not surprisingly a year after going public, as you’d expect with an enhanced brand, a more global platform and a strong balance sheet, the amount of M&A dialogue that we are having on a consistent basis is pretty high. That being said, you should assume we are applying a very rigorous filter to everything we are looking at as a potential acquisition, whether it’s people, assets or platforms,” he said.

He also reiterated what several alternative lenders have said about the GE Capital sale; it is an opportunity. “I view the GE announcement as a continuation of this trend of banks and regulated institutions exiting attractive markets to our benefit because of regulatory cost of capital, regulatory burdens, etc. At a high level, GE exiting the business is a very good thing for Ares. We expect that it will create opportunities within direct lending in the US and Europe.”