Ares total gross capital invested in the third quarter was $16.7 billion, compared to $18.3 billion in the third quarter of 2022.
Due to economic conditions, cash flows from some of Ares credit investments are taking longer to materialize because of fewer loan repayments and fewer transactions, said Jarrod Phillips, Ares' chief financial officer, during an Oct. 31 earnings call.
"The extended fund duration has a positive compounding effect on the total realization value as the investments remain in our portfolio longer, but it impacts the timing of these realizations," Phillips said.
Credit is Ares' largest business with $268.9 billion in AUM as of Sept. 30, up 7.5% from $250.1 billion at the end of the second quarter and a 24.8% increase from $215.4 billion as of Sept. 30, 2022.
Most of Ares' investment activity now will be in opportunistic investments including rescue lending, opportunistic refinancings, secondaries and structured equity, "because the new issue volumes both in corporate private equity and institutional real estate are slow," said Michael Arougheti, Ares chief executive officer and president, on the same earnings call.
Ares executives also expect to see investment opportunities by partnering with banks, Arougheti said.
"There's about $2 trillion of consumer loan assets sitting on bank balance sheets that are going to need to get addressed in some form or fashion, not to mention some of the challenges that we expect we'll continue to see in the real estate books," he said. Most of those investments will be made through Ares alternative credit funds, Arougheti added.
Ares had $63.9 billion in AUM in its second largest business, real assets, as of Sept. 30, down from $64.8 billion in real assets AUM at the end of the prior quarter and $65 billion in AUM year-over-year. Ares real assets business includes real estate and infrastructure.
Ares reported GAAP net income of $61.8 million for the quarter ended Sept. 30, compared to net income of $144.5 million for the quarter ended June 30 and a GAAP net loss of $35.5 million in the year-earlier quarter.