Ares Management has combined its direct lending and tradable credit groups into a single credit platform.
The change creates a more cohesive credit platform for clients and will allow the firm to launch funds that can tactically move between illiquid and liquid credit as opportunities arise, said Ares’ president Michael Arougheti (president). The firm revealed the shift in tandem with its fourth quarter 2015 results yesterday (29 February).
Kipp DeVeer, head of direct lending and chief executive of the Ares Capital Corporation business development company, and Greg Margolies, current head of tradable credit, will run the combined credit group together. They will retain their existing roles.
Chief executive Tony Ressler explained that the trend among investors for consolidating relationships with large asset managers is part of what drove Ares to combing the units.
“What we’re seeing more and more within our global LP base is that people are looking to consolidate their assets and relationships with fewer strategic partners and that’s showing up in the disproportionate growth we’re experiencing,” Ressler said. “The large LPs are beginning to understand, particularly when you have volatile markets, that the ability to move in and out of liquid and illiquid markets or European and US markets is a huge driver of investment performance and long-term value. So part of putting these groups together is to put us in a position as to more efficiently and effectively invest capital,” he continued.
The combined credit group has $62 billion in assets under management and 200 investment professionals across the US and Europe.
The firm as a whole reported a 14.5 percent rise in assets year-over-year to $93.6 billion.
Ares had a record year in 2015 in terms of gross new capital commitments which totalled $23 billion, including $10.6 billion in the fourth quarter.
The firm collected $400 million more in equity commitments towards its Ares Capital Europe III fund. The vehicle now has $2.8 billion, with $1.9 billion in equity commitments and $900 million in debt facilities. Ares is still raising money for the strategy.
Ares’ earnings report showed that economic net income (ENI) fell to $51.4 million in Q4 2015 from $64.7 million in Q4 2014. The decrease was attributed to a $22.5 million decline in net performance fees. For the whole year, ENI was $216.4 million compared to $289.2 million in 2014.
“The decrease in ENI was primarily driven by a decline in net investment income of $73.1 million and net performance fees of $29.4 million,” the firm said.
Speaking about the market environment, Arougheti admitted it’s been challenging, but like many of Ares’ competitors, the firm is looking forward to distressed investment opportunities and the ability to cherry pick good credits while high-yield and leveraged loan indices retreat.
Both the Credit Suisse leveraged loan index and the Bank of America Merrill Lynch high-yield index were negative last year for the first time since 2008, Arougheti pointed out. “The dislocation that started in oil and gas expanded across commodities and is now bleeding into other select factors. In the face of this, we remain cautious and defensively positioned with generally low weight to oil and gas in most of our funds,” Arougheti said.
The firm is particularly keen to seize on distressed opportunities and management said Ares could target those from across its platforms and funds.