Ares continues its hunt for billions

The Los Angeles-headquartered alternative investment firm raised $400m towards a US direct lending fund in Q2. The firm is said to be aiming for $2.5bn.

Ares Management’s credit group is back on the fundraising trail with a new US direct lending vehicle that will aim to do upper mid-market deals outside of the Ares BDC.

The Los Angeles-headquartered asset manager reported pulling in $400 million for the vehicle that would be able to invest across the capital structure. Ares did not state a target, but sources tell PDI the firm is aiming for $2.5 billion.

“We see a big opportunity at the upper end of the middle market to provide larger underwritten solutions and also what I would call middle of the balance sheet capital solutions, in the form of mezzanine and second lien,” said Ares president Michael Arougheti, speaking on an earnings call Tuesday (9 August).

The new capital should help Ares do more large deals like the Qlik transaction the firm recently led, where it backed a Thoma Bravo buyout with a $1 billion debt package. Ares’ co-lead arrangers on the deal were Varagon Capital Partners, Golub Capital and TPG Special Situations Partners. The firms are planning to split about $500 million of the deal four ways and syndicate the rest down, PDI understands.

Ares declined to comment on fundraising outside of comments made on earnings call.

Kipp deVeer, Ares Capital Corporation’s chief executive, also hinted at growing investor demand for private equity-style funds, rather than BDCs in mid-market lending. “We continue to see elevating interest in direct lending from our global investor base, however, most of it is focused on private investments and private funds,” deVeer said on his BDC’s earnings call last week (3 August).

“From this vantage point, we are having trouble reconciling this strong global demand for direct lending assets and the attractive returns they provide versus the tapering demand for investing in high-quality BDC’s holding similar assets,” deVeer added. Many BDCs, including Ares, have lately been challenged with poor valuations, which prevents them from issuing new equity.

The fundraising initiative comes soon after Ares closed a €2.5 billion European direct lending fund, Ares Capital Europe (ACE) III fund, which invests in senior, mezzanine and unitranche debt of mid-market companies.

Commitments to the ACE III fund drove Ares’s $3.9 billion of credit raised in the second quarter, which included $1 billion in LP commitments. The credit group now has about $62.1 billion in assets, the majority of Ares’ AUM overall, which is at $95.3 billion.