Ares raises $1.4bn for debut US direct lending private fund

The southern California-based alternative lender raised $11.4bn for its credit platform, aided by the close of its latest European direct lending fund.

Ares Management has held an initial close on its debut direct lending private fund, which represents the firm’s latest credit product expansion after the firm raised its first closed-end commingled fund targeting junior debt last year.

The Los Angeles-based credit behemoth closed on $1.44 billion for its Ares Senior Direct Lending Fund. The vehicle is a complement to its business development company and separately managed accounts, the vehicles through which Ares has done its US direct lending.

On the whole, Ares’ credit group once again dominated the firm’s fundraising efforts for the quarter, raising $11.4 billion of the total $12.06 billion raised for the firm.

That credit total was significantly boosted by the first close on its Ares Capital Europe IV fund, locking down €5.6 billion, or $6.46 billion, smashing its initial €4.5 billion target. The firm has raised an additional €963 million since the second quarter ended, bringing that total to €6.5 billion, or $7.6 billion. The firm held a final close for the vehicle in July.

Its European direct lending strategy posted quarterly returns of 3.6 percent, while its syndicated loans and high yield funds showed returns of 0.7 percent and 1.2 percent, respectively. The firm’s BDC, Ares Capital Corporation (ARCC), reported 3.5 percent in net internal rates of return.

Ares also expects a big boost in management fees in the near future, as shadow assets under management increased to $24 billion as of 30 June, an 84.6 percent increase from the same time last year. That would amount to an extra $218 million in management fees annually.

In addition, the firm expects to see an increase in management fees from ARCC. That vehicle recently approved an increase in its target leverage, following the passage of a US law increase the borrowings a BDC can tap.

If ARCC reached the mid-point of its new target leverage range, around 1.08x, the firm could see an additional annual $100 million in management fees and performance fees associated with its investment income. An additional $40 million-$50 million in management fees could be realised once a fee waiver associated with the American Capital acquisition expires.

Ares’ AUM reached $121.4 billion at the end of the second quarter, and at $86.9 billion, the firm’s credit strategy makes up the bulk of that number. Private equity and real estate reported $24.3 billion and $10.9 billion of AUM, respectively. Ares expects to oversee more than $125 billion in assets by the end of the year.