Ares Raises $8 Billion Fund in Private-Credit Arms Race

Ares Raises $8 Billion Fund in Private-Credit Arms Race
Written by Publishing Team

Ares Management corp.

Ares -1.58%

It raised $8 billion for a fund that provides direct loans to US small and medium-sized businesses, escalating the fight among alternative asset managers for market share in the booming private credit market.

Asset management companies including Apollo Global Management company ,

Ares and Blackstone company

They are increasingly turning to trust funds to bolster assets under management, which is the main driver of their stock valuation.

The new Ares fund raised nearly double its initial target of $4.5 billion and nearly triple the amount the company raised for its direct lending fund it launched in 2018. Blackstone raised $9.4 billion earlier this year through a business development company that provides direct loans. . HPS Investment Partners, a private company, closed a direct lending fund of about $12 billion in September.

“More than anything, it has to do with low interest rates.”

– Kipp deVeer from Ares Credit Group

Investors often take out direct loans as an alternative to traditional fixed income, which has yielded diminishing returns as central banks have kept interest rates low to stimulate economic growth and cushion market shocks.

“It’s more about low interest rates than anything else,” said Kip DeVere, president of Ares Credit Group. “Many investors are frustrated by the low return on the fixed income they have traditionally allocated to it, whether it is loans, government bonds or high-quality companies.”

The new fund, which invests in major corporate secured loans, will increase debt, allowing it to provide up to $14 billion in new loans over three years. Ares, based in Los Angeles, this year closed a European direct lending fund that can invest up to 15 billion euros, equivalent to 17 billion dollars, and in October a special trust fund that will provide small or more risky loans amounting to about 5 billion dollars. The company announced $181 billion in fiduciary assets under management as of September 30.

The company’s CEO, Michael Arugetti, told Wall Street analysts in a presentation in early December that Ares’ diversified investment strategies allow it to acquire several major fund raising capital in any year.

The latest direct lending fund provides loans primarily to support corporate buyouts by private equity funds, and its growing size allows for larger deals traditionally backed by Wall Street banks to be won. Aris, Blackstone and others loaned $2.6 billion this summer for Thoma Bravo LP’s acquisition of Small businesses such as Golub Capital and Blue Owl Capital company

It arranges loans of $1 billion or more.

The Ares direct lending fund, which launched in 2018, provided average unrealized annual returns of 7.3% through September 2021, according to the company’s earnings report. Comparatively large corporate loans sold to investors by investment banks have returned an average of about 5.5% since 2019, according to data from Citigroup.

It can be difficult to sell direct loans in periods of distress, and the rapid growth of the market has drawn criticism for excessive risk-taking.

Mitch Goldstein, co-chairman of Ares Credit Group, said Ares’ direct lending business has generated steady returns for more than a decade, as it survived the 2008-2009 global financial crisis and the market turmoil caused by the coronavirus last year.

write to Matt Wirz at

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