Ares IPO marked by tepid demand

Ares Management shares priced at $19 on Friday, well off the $21-$23 range the firm had projected. 

Ares Management’s initial public offering failed to deliver on the firm’s expectations on Friday, with shares pricing well below the projected range set in the firm’s April S-1 filing with the US Securities and Exchange Commission.

The firm originally projected its shares to trade between $21 and $23 on the New York Stock Exchange, which would have raised approximately $237.5 million. The stock opened Friday at $19 per share under the symbol “ARES” and had since fallen to $18.52 as of press time. The sale raised $216 million for the firm.

Ares had roughly $74 billion in AUM, according to its S-1, $55 billion of which is managed through its direct lending and tradable credit platforms. The firm also maintains a $10 billion private equity strategy and a $9 billion real estate strategy.

Market reaction to the IPO was surprisingly tepid given the role tradable credit and direct lending strategies play in Ares’ investment strategy. The return profiles offered by each of those platforms tend to be more reliable than those offered by private equity or real estate, and it was thought that Ares’ reliance upon those investments would buffer the firm against the chilly reception that has greeted many alternative asset management firms’ public offerings.

The 100 funds managed across the tradable credit and direct lending platforms comprise approximately 73 percent of Ares’ fee revenues, and 55 percent of the firm’s performance fee income in 2013 came from contractual interest payments on debt investments and dividends received by its funds, according to the S-1.

“As a result, we believe that our performance fees are more predictable and less volatile than investment managers predominantly focused on private equity style investment strategies, in which performance fees are typically based on market gains and losses,” according to Ares S-1 filing.