Ares closes second junior capital fund at $5.1bn

Global alternative investment manager Ares Management has held a final close of its second junior capital direct lending fund at $5.1 billion, according to a news release.

Ares Private Credit Solutions II, which was launched last June, is 50 percent larger than its 2017 predecessor fund and surpassed its initial $4 billion target by $1.1 billion.

“There has very much been an increased demand for this type of capital,” said Michael Smith, partner and co-head at Ares Credit Group, in an interview with Private Debt Investor regarding the direct lending fund surpassing its target. “We take a partnership approach with our borrowers to provide solutions that help their businesses grow.”

Ares’s fund will focus on junior capital financing for upper middle market companies, it said, investing in directly originated second lien, mezzanine private high-yield debt and preferred equity, while also partaking in common equity co-investments. The fund already has invested 20 percent across nine portfolio companies, Ares said.

“The size of this fund reflects the growing demand from private equity sponsors, along with an active M&A environment,” Smith explained of the size of the fund. “Investors are coming to us as they buy bigger companies and are looking for larger debt financings.”

APCS II’s investors consist of pension funds, sovereign wealth funds, insurance companies, high net worth individuals, family offices, funds-of-funds, endowments and foundations from North America, Europe, Asia and the Middle East. A third of the fund’s limited partners are new to Ares.

“The fund attracted a diverse set of investors,” Smith said. “There was an uptick of investors, from 34 to 51, who reupped on their prior investments. They caught on to what we’re doing with the fund and were interested in the second vintage following the success of PCS I.”

“Most investors in private credit are looking for greater yield compared to traditional credit markets,” said Kipp de Veer, partner and head of Ares Credit Group, in the interview with PDI.

“The key for us is that we are able to provide those excess yields without demonstrating less favorable credit performance; we seek to provide a combination of yield and performance over time,” de Veer added.

The fund saw participation from the Virginia Retirement System, a public pension fund, committing $300 million; the School Employees’ Retirement System of Ohio, another public pension fund, committing $100 million; and Cathay Life Insurance, an insurance company, committing $100 million, according to PDI research.

Ares Management invests in credit, private equity, real estate and infrastructure across operations in North America, Europe and Asia Pacific. Ares’ direct lending team, which is part of the Ares Credit Group, oversees $69 billion of assets under management as of June 30, 2021.