Ares sounds fundraising bell

President Michael Arougheti calls GE Capital’s exit from the market “a net positive” during the firm’s second quarter results call.

Michael Arougheti (pictured), president of Ares Management, brushed aside any concerns over the unwinding of its partnership with GE Capital by declaring the firm is at the beginning of a 12-month fundraising cycle.

Arougheti announced the Los Angeles-headquartered firm is raising capital across its flagship successor funds, all with targets greater than their predecessors, during a call on the firm’s second quarter results.

The firm has held a first close of around €1.4 billion on its third European direct lending fund, Ares Capital Europe III, after three months on the road and is targeting €2 billion overall, Arougheti said. The figure is not reflected in the quarterly results, as it closed after 30 June. The amount stands at 40 percent more than where the lender was at after the same period of marketing for its predecessor. Launched in 2013, Ares Capital Europe II raised €1.5 billion and additional capital in separate account mandates, PDI understands. Roughly half the capital committed to the third fund is from new investors, Arougheti explained.

Management also highlighted that Ares priced its third largest CLO in the firm's history in July totalling $813 million with a closing expected in September. In other strategies, the lender closed on €1.5 billion for its fourth special situations fund in April, as previously reported by PDI. It also closed on a commercial finance commingled fund on around $500 million in the past quarter.

Addressing the sale of GE Capital and the subsequent break-up of their joint ventures, Arougheti said that while discussions were ongoing it was difficult to reveal any more than what was said during the firm’s call on its business development company ARCC last week. However, he explained that he thought GE’s exit from the market would prove “a net positive” for the BDC and its direct lending franchise in both the US and Europe. He said that the firm will now be able to benefit from certain parts of the market that it previously forewent, as a result of its partnership with GE, such as the traditional and lower yielding first-lien bank loan market, where he'd seen “noticeable and meaningful increases in the amount of senior debt underwriting and distribution we've been able to take, which I think bodes well for future ROIs and value creation within the BDC”.

Ares, which listed on the NYSE last year, declared a second quarter distribution of $0.26 per common unit compared to $0.18 for the second quarter of 2014. Earnings for the three months ended 30 June marginally increased to $76 million compared to $75.1 million for the comparable period last year.

Total assets under management increased to $87.5 billion, a 10.5 percent rise year-on-year. The firm also grew its fee-related AUM by around 11.4 percent y-o-y, reaching $66 billion. “We expect growth in our AUM and fee-related earnings, as we raise new flagship funds and deploy capital selectively over time, including our existing $10.1 billion in AUM not yet earning fees,” Arougheti, also co-head of direct lending, said in a statement.

Direct lending has been an important area of growth for the manager and after extending the strategy from the US into Europe in 2007, it has generated around $6 billion in assets under management for the firm in the region. Separate account mandates in both Europe and US in various strategies total $3 billion. In all, the firm has $18.3 billion in dry powder, which gives Ares the ability to deploy capital even in times of volatility, Arougheti added on the call.

Management also said the firm is well-position against any uncertainty over macro-economic factors and volatility, particularly in terms of impending interest rate rises from the Federal Reserve in the US, saying that around 81 percent of their debt assets within tradable credit are floating rate and about 92 percent of its direct lending investments are also floating rate.