Ares’s credit group collects $3.9bn in Q2

The US alternative investment firm reported fundraising across its European and US direct lending strategies, high-yield and structured credit during the quarter.  

Ares Management reported gross new capital commitments of $3.9 billion in its credit segment in the second quarter, far outpacing the firm’s other business lines.

In stark contrast, private equity raised $35 million in that quarter while real estate collected $501 million. President Michael Arougheti (pictured) said on Ares earnings call today (9 August) that he was pleased with Ares’ ability to drive strong fundraising and returns amid a backdrop of market volatility.

The largest capital came through additional commitments to its Ares Capital Europe (ACE) III fund, at about $1 billion in LP commitments. The vehicle, which also uses $1.2 billion in leverage, held a final close on €2.5 billion in June. The credit group brought in $868 million in high-yield mandates, $578 in structured credit and $400 million toward a new US direct-lending mandate, as well.

“The US markets are increasingly being viewed as a safe haven with their relatively low growth and low rates, as compared to no growth and no rates in foreign markets,” Arougheti said. He mentioned about 4.7 percent of the firm’s assets across its corporate credit and real estate debt businesses is invested in UK companies or properties, though the investments are denominated in British sterling, providing a currency hedge against Brexit’s impact on the pound.

“It’s too early to determine the long-term impact of Brexit, but we have significant dry powder to deploy to opportunities that might arise in Europe,” Arougheti said. In general, he highlighted Ares’ long-term locked-up capital as being well placed to seize on opportunities that arise in times of volatility.

Ares’ fundraising initiatives, as well as deployment on some of the funds led to an increase in fee-paying assets for Ares. These assets grew to $41.4 billion at the end of the second quarter from $39 billion at the same time last year.

Fee-paying, as opposed to fee-earning, AUM is a new measure at Ares that takes into account fees earned directly by Ares in its funds, said chief financial officer Michael McFerran speaking on the call. The measure excludes legacy assets in the Ares Capital Corporation’s Senior Secured Loan Programme (SSLP), a former lending partnership with Antares Capital that’s in the process of winding down.

The credit segment’s economic net income (ENI) rose 32 percent year-over-year from performance fees and net investment income (NII) growth driven mainly by appreciation in syndicated loans and special situations.

The debt group’s total assets came in at $62.1 billion, about flat from the same quarter last year, when they were at $62.9 billion. The Los Angeles-headquartered firm combined its direct lending and tradable credit groups earlier this year to be able to offer broad separate accounts to clients that can invest across its debt strategies and funds.

Overall, Ares reported $95.3 billion in assets under management, an 8.8 percent rise year-over-year. These include the credit group’s $62.1 billion, $23 billion in private equity and $10.1 billion in real estate.