Ares Management is putting itself in position for what the firm expects will be a real assets comeback, executives for the $463.8 billion alternatives manager said during its Nov. 1 third-quarter earnings call.
“Within the real asset markets, we are at a meaningful inflection point with rising transaction activity, strong fundamental performance and promising supply-demand dynamics on the horizon,” said Michael Arougheti, co-founder and chief executive officer, during the call.
During the third quarter, Ares raised $1.2 billion for real estate debt strategies, and firm executives held a first close of its fourth European value-added real estate fund totaling €1 billion. The firm is on pace to exceed the previous vintage, which raised €1.5 billion, Arougheti said.
“Lower short-term rates are starting to have a positive impact, leading to higher valuations for rate-sensitive assets and increasing real estate transaction activity,” Arougheti said. “We're optimistic that we'll see increasing transaction volumes over the coming year as the expected rate-cutting cycle progresses. “
Ares’ real asset AUM was $70.4 billion at the end of the third quarter, up 3.9% from $67.7 billion at the end of the second quarter and a 10% increase from $63.9 billion from the year-earlier quarter. In the last two months, Ares announced the purchase of two real asset businesses, “which we believe will not only diversify our business mix but also enhance our growth profile,” Arougheti said.
In October, Ares announced the acquisition of $44 billion GCP International, which is expected to nearly double Ares’ real estate business. During the presentation, Arougheti said the GCP acquisition will expand Ares’ real assets presence in the Asia Pacific region, including in Japan and Vietnam; increase its industrial real estate capabilities into Japan, Europe, Vietnam and Brazil; and provides a global presence in data center development and asset management.
Ares' assets under management grew 3.7% from the end of the second quarter and 17% year-over-year driven by fundraising and its 2023 acquisition of $3.8 billion Asia-focused private equity firm Crescent Point Capital.
Ares took in a total of $20.9 billion in gross capital commitments in the third quarter, including $2.9 billion from the real asset business. Ares saw total net inflows of capital of $19.8 billion, while distributions in the third quarter were $8.8 billion and redemptions in the quarter were $1.1 billion.
Most of the distributions and redemptions during the quarter were from credit with $7.7 billion and $854 million, respectively. Ares’ gross deployment in the third quarter was $29.6 billion compared to $26.4 billion in the prior quarter and $16.7 billion in gross deployment in the year-earlier quarter.
The firm’s largest business by AUM is credit with $335.3 billion as of Sept. 30, up 3.8% from $323.1 billion at the end of the prior quarter and up 18.4% from $283.2 billion year over year.
During the call, Arougheti said he didn’t think there was too much money raised to invest in private credit. In July, Ares raised one of the industry’s largest funds, $15.3 billion Ares Senior Direct Lending Fund III. Also in the third quarter, Intermediate Capital Group closed on its $17 billion ICG Senior Debt Partners Fund 5.
“Private credit fundraising is actually down sequentially for the last three years,” Arougheti said. “So, one of the things that you're actually seeing and this has been a trend that's been in place for close to a decade that the dollars getting raised and the dollars getting deployed are actually becoming more concentrated in the hands of the larger managers.”
He added that the “market leaders” continue to grow their private credit businesses “nicely in high quality assets in what has been a fairly benign M&A market.”
And even with the return of the broadly syndicated loan market “there's a general debanking trend that I think is outpacing whatever competition we're seeing from the traded sub-investment grade markets,” Arougheti said.
Ares’ third largest business, secondaries, had $27.3 billion in assets at the end of the third quarter, up 3.9% from $26.3 billion as of June 30 and a 17.7% increase from $23.2 billion as of Sept. 30, 2023.
Private equity had $24.5 billion at the end of the third quarter, down less than a percentage point from $24.6 billion as of June 30, but up 22.5% from $20 billion at the end of the year-earlier quarter.
Ares other businesses category that includes insurance was at $6.4 billion as of Sept. 30, up 16.4% from $5.5 billion as of June 30 and up 39% from $4.6 billion as of Sept. 30, 2023.
