Ares earnings call highlights private credit

Los Angeles-based alternatives manager Ares reported in its quarterly earnings call that it ended the quarter with $395 billion in assets under management, and $247 billion in fee-paying AUM. The FPAUM figure is a considerable increase from Q3 2022, when the analogous figure was $218 billion.

Jarrod Phillips, chief financial officer, said during the call that the FPAUM increase has been “driven by deployment across our credit and special opportunities funds and new commitments to funds in our Real Assets group”.

Management fees totalled more than $643 million in Q3 2023, a year-on-year increase of 17 percent.

Ares co-founder and CEO Michael Arougheti started the call off with a sustained reflection on the US private credit market in the Q3 macro context, saying there is “the expectation for rates to stay higher for longer while the underlying economy remained resilient, with robust GDP, a strong labor market and continued modest growth in corporate profits”. In this context, investors are looking for private market assets with defensive characteristics.

The quarter saw, as Arougheti said, the first close for Ares’ third US senior direct lending fund on nearly $6.5 billion in equity commitments and nearly $2 billion in committed leverage.

Overall, the US direct lending business raised $11.6 billion in the quarter, bringing Ares’ total AUM in this strategy to nearly $118 billion.

“Our real estate debt business now exceeds $11 billion, and we believe the [real assets] team is well positioned for further growth due to investor demand and the current acute need for capital in the industry,” Arougheti said.

Ares has 30 funds in the market at present, and by the end of 2023 it expects to hold a first close in its seventh corporate PE fund, its first credit secondaries fund, and its third infrastructure secondary fund. Each of these launched this year.

Investors are attracted, Arougheti said, by “Ares’ credit investing expertise [as well as by] the technological advantages that Aspida is bringing to the annuity market”. Aspida is Ares’ affiliated insurance business.

Ares recently closed a strategic partnership with and investment in Vinci Partners, an alternative asset manager in Latin America. “We believe that the Latin American markets are in the very early stages of shifting capital into the private markets, particularly within private credit,” Arougheti pointed out.

During the Q&A period, Alex Blostein of Goldman Sachs asked Arougheti about fundraising priorities in the months to come. In his reply, Arougheti stressed that Ares will clean up the closings on its large credit funds towards the end of the year. Going further, he said: “And then the big things on the horizon, I think, for next year are going to be our third special ops fund [and] our third junior debt fund [which] are probably the two big ones. And then obviously we’ll be growing into our sixth infrastructure debt fund… [We’re] showing that we can scale vintage after vintage, we’re no longer in this world where we’re just focusing on a handful of flagships.”