Tony Ressler, director at Ares Management LLC, likes to say you won't find the firm he co-founded in 1997 splashed across the front pages of the financial press. Although Mr. Ressler is married to actress Jami Gertz, he shuns the spotlight and rarely gives interviews. He stresses the firm's successes are the result of a team effort.
Greg Margolies is a relative newcomer to the Ares team. Mr. Margolies, senior partner and head of Ares' capital markets group, worked with Mr. Ressler years before joining the firm in 2009. In fact, Mr. Margolies was to join Ares a couple of years earlier but Bank of America's acquisition of Mr. Margolies' former employer, Merrill Lynch, delayed their plans.
Ares' capital markets group has grown to $25 billion, making up nearly half of the firm's $59 billion in total assets under management. But the capital markets group is only one leg of Ares' three-legged stool. The other two areas are private equity and middle-market private debt, which includes commercial real estate debt.
Mr. Ressler was part of a group that left failed boutique investment bank Drexel Burnham Lambert in 1990 to form what is now Apollo Management LLC, the publicly traded megabuyout firm. Mr. Ressler headed Apollo's capital markets group, which was spun out to form Ares. In 2003, the firm added another asset class when it raised its first private equity fund. The following year, Ares carved private debt out of its capital markets group; commercial real estate was added in 2011.
The firm's growth was helped with a $375 million cash infusion in 2007 by the Abu Dhabi Investment Authority. All the proceeds remained in the firm. In 2011, Ares Management acquired Indicus Advisors, a European leveraged finance and global structured corporate credit management firm.
Last year was a busy one for Ares Management. In November, it launched the Ares Dynamic Credit Allocation Fund, a publicly traded closed-end fund that raised about $350 million in net proceeds. The fund invests in high-yield bonds and investment-grade tranches of collateralized loan obligations. In August, Ares Management closed the $4.7 billion Ares Corporate Opportunities Fund IV, a special situations private equity fund. Four months earlier, Ares Commercial Real Estate was launched, a real estate investment trust that raised net proceeds of about $139 million.
Why did you spin Ares out of Apollo Management?
Mr. Ressler: A number of us wanted to focus on building our capital markets business and a private equity business focused on middle-market companies. Since then, Apollo rebuilt its credit business; it is a fabulous firm. Ares has done well too — growing from approximately $3 billion at the time of the spinoff to approximately $60 billion today, and from 20 people in Los Angeles to now having more than 560 people across North America, Europe and Asia.
Over the past 15 years ... we've maintained a consistent focus on credit — whether in the private equity group, the capital markets group, the private debt group or the commercial real estate group. Each, at its core, is credit-oriented where our professionals focus on downside protection first and growth second.
Why does Ares Management concentrate on credit investing?
Mr. Margolies: Credit generates yield. It also can offer some appreciation with less volatility than traditional public equities, and credit is not correlated to other asset classes. Ares has four core pools of capital: private-equity-style funds, open-end funds that are like hedge funds, separately managed accounts and public vehicles.
What is Ares Management's approach to multistrategy investing?
Mr. Ressler: We offer our clients the ability to go a la carte in a particular asset class or permit us to combine some of our capital markets, private debt and commercial real estate investment strategies into one portfolio where we actively manage and allocate depending on market conditions.
Mr. Margolies: More specifically, separately managed accounts in which we allocate among the asset classes Tony mentioned offer 8% to 12% returns with far less volatility than a global equity portfolio. Our multistrategy core product has an enormous opportunity for growth for us and managers like us.
Do you plan to take Ares public?
Mr. Ressler: It's not something we are actively considering or have enormous interest in today. We watch. We are never the first. But, we are aware of it as an opportunity. In 2007, Abu Dhabi Investment Authority made an investment in Ares. All of the proceeds were reinvested in our firm to enhance and broaden our platform. Ares had around $15 billion of assets in mid-2007, around the time the transaction closed.
What was the advantage of selling off an interest in Ares?
Mr. Ressler: We felt then, and strongly do now, that there are “have” and “have-not” investment firms. We thought that this additional capital would demonstrate that we are a “have” with meaningful capital and permanence. Since the time of the investment, our assets under management have quadrupled and, more importantly, our investment performance has benefited from our scale and collaborative culture.
Ares capital markets and private debt groups invest in the U.S. and Europe; what about private equity and real estate?
Mr. Ressler: Both will be in Europe in a short period of time. Both will have European investment professionals and investment activity in the next 12 months. Private equity already has a group in Shanghai, China, with a relatively small pool of capital ... Private debt lending and commercial real estate have an opportunity to grow outside of the U.S. and Europe in the foreseeable future. We are looking at several places: Asia, South America would be the obvious places.
Is Ares in competition with its old firm Apollo Management?
Mr. Ressler: Of course we are, just like we are with many other firms that do aspects of what we do. We don't run into Apollo too often on the private equity side because they tend to look at larger companies .... Frankly, we don't have a big brand name. We are not on the cover of (The) Wall Street Journal or the Financial Times. We are not as well-known globally as well as our peers — KKR, TPG, Oaktree, Blackstone, Apollo or Carlyle — who have built tremendous franchises based on a dominant pool of capital, often private equity. That's how they built their reputation. We are trying to build our business without a dominant pool of capital.
Mr. Margolies: The part that is critical is that pension plans can invest across our platform and that platform does not have one dominant pool of capital but all four businesses together result in a much stronger platform. It's a tremendous competitive advantage.
Doesn't Ares have half of its assets in one group, capital markets?
Mr. Ressler: If you think our dominant pool of capital is private equity or private debt, or tradable debt, you would be wildly incorrect. They are all good businesses. All of them are addressing some of the most significant problems that large pension funds and sovereign wealth funds are facing — high volatility in equities and low returns in investment-grade fixed income. For example, we may look at a business where the equity may not be exciting, but refinancing the business is. So the groups talk to each other and make use of our extensive information flow and experience.
