Ares Management is set to own pan-Asian credit manager SSG Capital Management. The announcement this week caused some double takes in our newsroom. It represents a significant move in a region where Ares had little in the way of investment operations.
But the transaction is a logical step. One of the industry’s largest players, Ares is also a latecomer to the region. Aside from a Chinese growth equity strategy, the firm’s offices in Asia-Pacific were mainly providing investor relations and business development.
The strategy has been focused in the US and Europe, where it has achieved scale few others have. In that time, a raft of other alternative lenders have launched Asia-driven funds and had investment personnel in the region for maybe a decade or more – to varying degrees of success.
Bain Capital and Värde Partners, among others, have raised Asia-dedicated special situations and credit funds and been investing out of other vehicles in the region for some time. By relying on organic growth, Ares would have had a lot of ground to make up in a short period of time.
With the SSG acquisition, the firm is slated to become one of the largest credit managers in Asia at one fell swoop. The purchase was also consistent with hints Ares has been dropping, as it thought about expansion into the region.
“For a whole [host] of reasons, I think Asia has been not as investable as other geographies,” Ares chief executive Michael Arougheti said on the 2019 second-quarter earnings call in response to an analyst’s question. “We’re beginning to see that shift. And so, through a combination of organic and potentially inorganic growth, I think you’ll continue to see us driving scale into that region.”
SSG, not unlike Ares, has been a fundraising powerhouse. The Asian lender manages $6.2 billion and has $3.9 billion in dry powder, according to an investor presentation Ares circulated.
Arougheti told us his firm sees SSG as a “platform for expansion”. It gives Ares a chance to launch new non-credit products, which would help diversify the firm’s asset base. Private equity and real estate represent slightly more than one quarter of the firm’s $144.3 billion AUM, much different from some of their competitors’ AUM mix, which is more balanced or even weighted towards other asset classes.
Ares had already established an investor base in Asia, with 14 percent of its LPs residing there. Now, the firm is making a foray into deal activity in the area, and the acquisition of SSG presents it with a good platform for growth.
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