Executives at Ares Management and Carlyle Group are, in different ways, focusing on expanding their credit and other non-private equity businesses.
During Carlyle's third-quarter earnings call on Thursday, CEO Kewsong Lee said Carlyle expects to buy other money managers to expand its investment businesses.
"The likely areas are more in the global credit areas or in (global investment) solutions as opposed to private equity in terms of where we think the opportunities would be," Mr. Lee said. Investment solutions includes Carlyle's secondary market and co-investment business, AlpInvest.
Carlyle reported total assets under management of $293 billion as of Sept. 30, up 6% from the prior quarter and up 27.4% year-over-year. Private equity is by far Carlyle's largest business with $161.2 billion as of Sept. 30 — a 7.4% increase from the end of the first quarter and a 89.6% rise from the end of the year-earlier quarter.
By comparison, Carlyle reported $66.3 billion in global credit AUM and $65.6 billion in global investment solutions AUM as of Sept. 30.
Carlyle's credit business grew 8.5% in the prior quarter and 32.6% from a year earlier.
Investment solutions' AUM rose by 1.5% as of June 30 and by 26.2% at the end of the year-earlier quarter.
As for Ares, on June 2 the firm closed its acquisition of secondary market manager, Landmark Partners, giving Ares "a large foothold in the growing secondary market," Michael Arougheti, Ares co-founder, CEO and president, said during the alternative investment manager's third-quarter earnings call on Wednesday.
Mr. Arougheti said that he expects Landmark, which raised more than $1 billion in the third quarter, to steer the alternative investment firm's secondary market business away from its private equity roots.
One of the ways to expand Landmark's business is "to grow the business ... into real estate, infrastructure and credit," he said. "Landmark already has a meaningful running head start in doing that. They're a market leader in the real estate side of the business."
Ares' private equity business is its third-largest business with $32.7 billion in AUM as of Sept. 30. Ares' private equity business, which includes special situations and infrastructure, raised $2.2 billion in the third quarter including $1.5 billion for the latest fund in its flagship private equity fund series, Ares Corporate Opportunities Fund VI, Mr. Arougheti said. Nearly 50% of Ares' sixth private equity fund is invested or committed to invest in companies in the health care, services and technology, consumer and retail, and industrial sectors, he said.
Indeed, Ares' private equity business has been on a growth trajectory over the 12-month period ended Sept. 30 with an increase in AUM of 6.5% as of June 30 and up 22.5% at the end of the year-earlier quarter.
That said, there are some benefits to concentrating in areas other than private equity for the firm. In Ares' credit and other non-private equity businesses, "the performance income is more diversified supported by broader portfolios and supported by yield as opposed to a private equity portfolio that ... requires monetization activity and is going to be lumpier," Mr. Arougheti said.
Ares reported total AUM of $282 billion as of Sept. 30, up 13.8% from the end of the second quarter and 57.4% from Sept. 30, 2020. Ares' largest business is credit with $181.2 billion as of Sept. 30, an increase of 8.1% at the end of the prior quarter and 38.1% year-over-year.
Real estate is Ares' second-largest business with $36.5 billion at the end of the third quarter, up 85.3% from June 30 and up 153% from Sept. 30, 2020. Ares' real estate business was given a big asset boost from the July 1 closing of its acquisition of domestic real estate manager Black Creek Group, which had $13.7 billion of AUM when the deal closed, Mr. Arougheti said. By the end of the third quarter, Black Creek's AUM had risen to $15 billion, he added.
Black Creek manages core and core-plus real estate strategies in two non-traded real estate Investment trusts and various institutional funds.
Rounding out Ares' business units are secondary solutions, reporting $20.8 billion in AUM, and strategic initiatives with $10.8 billion as of Sept. 30. Strategic initiatives manages alternative investment assets in the Asia-Pacific region.
