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Ares Management reported strong inflows in the first quarter, as investor commitments to real estate, infrastructure and European credit funds offset a slowdown in its core private credit franchise.
The Los Angeles-based asset management firm said it drew in $29.5bn during the first quarter, including $19.7bn of equity commitments from investors and a further $9.8bn of leverage. That pushed overall assets under management to $644bn, eclipsing Wall Street forecasts.
The company has diversified beyond its roots in private credit, with chief executive Michael Arougheti striking a number of acquisitions to bolster its business in real estate, systematic credit and secondaries investing.
The firm raised $5bn across its real estate strategies and a further $1.2bn in infrastructure funds, and closed an $8.3bn opportunistic credit fund after drawing in a final $1.5bn during the first three months of the year.
Arougheti on Friday said that Ares remained on track for a record year of fundraising, even as interest in some of its flagship US private credit funds has cooled.
The private credit sector has been knocked by concerns that it is overexposed to software companies that are vulnerable to disruption from AI.
But Arougheti said: “Everything we’re seeing on the ground is that the institutional investor is not anxious.”
“They’re not allocating away from private credit. In fact, I think they are looking at this as a huge opportunity to take advantage of a bizarre dislocation and bring liquidity into the market to capture excess return.”
Fresh commitments in the quarter mitigated a slump in subscriptions to US private credit funds aimed at wealthy individuals, who are holding back ahead of a potential shake-out among groups that lent to private equity-backed software companies.
Wealth managers have been inundated with requests from clients to pull out of private credit funds. Ares, like rivals, limited withdrawals from one of its flagship funds after redemption requests surged in the first quarter.
Analysts still believe the firm’s fundraising prowess remains intact with larger institutional investors, projecting assets under management will rise to nearly $700bn by the end of the year, according to Visible Alpha.
Arougheti has set his sights on hitting $775bn by the end of 2028, a figure analysts forecast the firm will surpass a year ahead of schedule.
He told analysts that Ares had experienced some of its fastest growth in other periods of stress, pointing to both the 2008 global financial crisis and the Covid-19 pandemic.
Arougheti noted that while deal activity had slowed in its US lending strategy, dislocations in the market meant new loans were generating larger fees and priced with higher yields.
He also said he expected private equity groups to resume dealmaking, as sponsors get a better sense of the effect the war in Iran is having on inflation and interest rates.
“We’ve seen people pick their pencils back up and the pipeline is re-engaged,” he added.
A test of investor demand will come later this year, when Ares sets off on a fundraising push for its next senior direct lending flagship fund. That asset growth is critical to bolster the predictable management fees that investors on Wall Street prize.
The management fees Ares collected on its funds surged by more than a fifth to nearly $1bn in the first quarter, although that fell slightly short of forecasts. Ares said its effective management fee rate slipped 0.03 percentage points from a year prior.
Fee-related earnings also marginally missed Wall Street projections, rising 26 per cent to $464mn.
Ares shares rose 1.4 per cent on Friday. The stock remains down more than 25 per cent for the year.