Ares capitalises on investor need for yield

Ares total AUM hit $99.8bn this quarter, up from $93.6bn in Q1 2016.

Ares Management is almost halfway to its $2.5 billion target for its private junior debt fund, executives for the Los Angeles-based firm said on Monday’s first-quarter earnings call.

The fundraise, which has yielded $1.1 billion so far, comes as the assets under management of Ares’ credit arm help drive growth of the firm-wide AUM,  which was knocking on the $100 billion-mark at the end of the quarter. The firm’s overall credit platform reached $65.2 billion as of 31 March, compared to $58.3 billion the same date last year.

Michael Arougheti, co-founder and president, said on the call that the firm’s growing AUM, which hit $99.8 billion this past quarter, is partly a cause of insurance companies, pensions, and retail investors seeking higher returns and increasing their appetite for alternative investments. That AUM figure is up from $93.6 billion at the same time last year.

A combination of investors searching for yield and changing politics in the US contributed to Ares Management’s private assets and first-quarter earnings growth, executives said on Monday’s earnings call.

The changing political environment in the US, including the new administration’s “pro-business agenda” of infrastructure spending, possible tax and  business development company reform in Congress also contributed, Arougheti also noted.

The credit portfolio showed a net investment income of $2.42 million over the quarter, compared to $3.62 million the same quarter last year, due to “market appreciation in credit opportunities and US and European direct lending funds.”

Meanwhile, Ares’ private equity AUM decreased slightly, dropping from $25.1 billion the first quarter last year to $24.7 billion as of 31 March, earnings results show. However, that segment of the portfolio’s net investment income increased by $19.4 million over the same time period.

Michael McFerran, executive vice president and chief financial officer, said that the current market is “good for fundraising, but deployment can be more challenging, given the amount of liquidity.”

Ares had $3.6 billion in capital deployment for the quarter, of which $2.6 billion was related to its drawdown funds, which encompass corporate and real estate equity as well as direct lending and structured credit, earning results show. This compares to $1.4 billion deployments across the first quarter last year.

The firm made a total of $2.75 billion in new deployments across its credit groups, including direct lending,  collateralised loan obligations, and its new co-mingled junior capital fund.

Regardless of the environment, Ares still expects to increase fundraising and deployment this year, executives said. The firm had $24.2 billion of dry powder as of 31 March.