Credit fundraising for Ares driven by CLO activity

The firm pushed its AUM up to $136.7bn on the back of another quarter of robust fundraising.

Ares Management continued its rapid pace of credit capital collecting in the first quarter, raising $5.7 billion for the asset class out of the $6.46 billion it locked down across all strategies.

The Los Angeles-based firm raised the bulk of its credit capital among four collateralised loan obligations, closing two such vehicles in the US and pricing one CLO each in the US and Europe. The firm also raised $969 million for US direct lending and $738 million for European direct lending.

Income from management and other fees increased by 21 percent for the credit vehicles, due mainly to an increase in capital deployed across direct lending funds and an increase in certain fees to its business development company, Ares Capital Corporation.

Assets under management increased to $136.7 billion, growing from $130.7 billion at year-end and $112.5 billion in the first quarter of last year. The vast majority of the firm’s current AUM – some $101.1 billion – resides in credit strategies.

Ares saw a year-on-year spike in dry powder as well, increasing from $26.76 billion to $35.05 billion on the back of closes of its €6.5 billion Ares Capital Europe IV direct lending fund and $3 billion for its Ares Senior Direct Lending Fund, its initial closed-end direct lending fund.

The shadow AUM, or capital not yet earning fees, also increased in the first quarter to $27.02 billion from $17.29 billion as of the same time last year, driven by the close of the above credit funds. There was also a decline in the first quarter from the year-end $28.18 billion reported at year-end.

Translated into income, that shadow AUM amounts to more than $220 million in management fees. However, that figure could well be higher, as it doesn’t take into account certain ARCC fees, including additional management fees resulting from the planned increase in leverage.

In June, the BDC will be able to lever up to a 2:1 debt-to-equity ratio following a change in US federal statutes last year. Assets financed above a 1:1 ratio will be charged a 1 percent management fee, down from the base 1.5 percent fee.

Ares also addressed the size of its real estate business, which pales in comparison to the firm’s credit business. Of the alternative asset manager’s more than $130 billion in assets, not even $12 billion resides in the real estate platform.

“Real estate is not at the scale we believe it can achieve,” chief financial officer Michael McFerran said on the first-quarter earnings call, adding that Ares has “great confidence” in its real estate team.

Chief executive Michael Arougheti noted that real estate is the “largest global addressable market” for alternative asset managers.

“There is lots of space for consolidation because there aren’t that many scaled competitors. As a result of that desire to scale, we’re obviously spending a lot of time looking at buy versus build,” he continued, adding that the growth is likely to be a combination of the two.

The firm posted a net income of $44.9 million for the quarter, or $0.36 a share.