Ares closes European direct lending fund at €6.5bn hard cap

Ares Management has held the final close of its fourth European direct lending fund at its hard cap of €6.5 billion.

The Ares Capital Europe IV vehicle is the largest European direct lending fund raised so far, according to Ares, and was significantly oversubscribed relative to its initial €4.5 billion hard cap. Including leverage, the fund will have approximately €10 billion to invest.

The fund is much larger than its predecessor vehicle, Ares Capital Europe III, which held a final close in May 2016 on €2.5 billion.

A total of 125 investors committed to the fund including 59 investors that were new to Ares. Institutional commitments came from a diverse mix of pension funds, insurance companies, sovereign wealth funds, endowments, private banks and family offices. Approximately 70 percent of commitments came from existing Ares investors.

Ares Capital Europe IV is the first Ares European vehicle to offer a unlevered sleeve, a structure for investors who are unable to invest in leveraged private debt, which enabled it to bring on some first time investors.

Despite the size of the fund, we will continue to focus on a broad range of target companies ranging from €10 million-€75 million in EBITDA, Kipp deVeer, partner and global head of Ares’ credit group, told Private Debt Investor. The fund will allow Ares to hold up to €500 million for one transaction.

“While in the beginning capital could be a constraint, as our firm has grown, we find it easier to provide better solutions for our borrowers,” deVeer said.

He also noted Ares has recently seen much stronger deal flow out of its three offices on continental Europe, making the firm “less dependent on our office in London, which also has seen continued growth.”

“We think the opportunities over there are good,” he said, adding that recent political and economic developments will make deploying capital less straightforward though. “I think it’s going to be a complicated couple of years, but the banks will still be constrained, which is good for our business.”

“With the increased scale of our platform, we can lead increasingly larger transactions to support the growth, acquisitions and changing needs of European middle market companies,” said Michael Dennis, co-head of the Ares European direct lending strategy, said in a statement. “However, we remain very active in the lower end of the market as well.

“Approximately half of our investments last year were in companies with EBITDA of €15 million or less, as our large capital base gives us the ability to support their financing needs beyond our initial debt investment.”

Ares has more than 40 investment professionals active in Europe across offices in London, Paris, Stockholm and Frankfurt and its team has invested €12 billion since inception. Over the past year it has invested €4 billion in 25 new transactions and 25 add-ons. Ares Capital Europe IV has already committed to several investments.