Robert Givone, Miami-based partner and co-head of opportunistic credit at Apollo Global Management Inc., said credit funds are growing to satisfy investors' "insatiable demand for safe, private, non-mark-to-market credit investments."
"With fixed income yielding less than 2% globally, more investors are allocating capital to private credit where one can invest in low LTV (loan-to-value) loans and still generate meaningful excess spread by accepting some illiquidity rather than moving up the risk curve in public markets," Mr. Givone said.
Ares Management Corp. revealed that its new crop of funds will be at least 20% larger than the prior funds in the series, with many much larger than that. Ares has raised $5.1 billion in the first close of its second U.S. senior lending fund, Ares Senior Direct Lending Fund II, which already exceeds the fund's fundraising target and is 70% larger than its predecessor fund size, said Michael Arougheti, Ares' CEO and president, during the firm's July 29 earnings call. With expected fund leverage, the fund currently has about $8.1 billion in buying power and is still raising capital, Mr. Arougheti said.
Ares' second pan-Asian secured lending fund, SSG Secured Lending Opportunities III, which closed with more than $1.6 billion, is double the size of the prior fund.
Ares executives expect fundraising in 2021 to exceed 2020, he said. The firm benefits from "strong secular tailwinds" in investor demand for "private and durable yield," Mr. Arougheti said.
In credit, scale matters, said Kewsong Lee, CEO of The Carlyle Group Inc., during the firm's July 29 earnings call.
"Funds are being raised faster than ever before, and accelerating impact from disruptive technology and changes from the pandemic are powering an increased demand for private capital across sectors and regions," Mr. Lee said. Carlyle's 3-year-old opportunistic credit business had close to $6 billion in assets under management as of June 30, up 22% year-over-year, "with further growth ahead," he said.
Carlyle is currently raising its second opportunistic credit fund, Carlyle Credit Opportunities Fund II, with a $3.5 billion fundraising target, 40% larger than the first fund that closed in 2019 with $2.4 billion.
In all, Carlyle's global credit business — which includes collateralized loan obligations, real estate credit and other credit strategies — had $61 billion in AUM as of June 30.
At the same time, the funds' investment periods are getting shorter, especially for credit funds, because deals are being executed and financed on shorter timelines, Mr. Lee said. Typically, Carlyle executives invested a fund across a four- or five-year time horizon, which has "sped up" to four and, "in some instances three years, maybe even sooner in certain high-velocity asset classes like credit," he said.