Ares Management Breaks Private Credit Fund Record at $34B

In the battle for alternative asset supremacy, there’s a new king.

The Los Angeles-based Ares Management, headed by CEO Michael Arougheti, has built a record-breaking $34 billion private credit fund that attracted roughly $15 billion in total equity commitments. The Ares Senior Direct Lending Fund III even surpassed its original goal of $10 billion and has already deployed $9 billion into 165 companies. “The middle market continues to experience significant demand for reliable capital,” Mark Affolter, co-head of Ares US Direct Lending, said in a release.

Ares, which has $428 billion in assets under management, is far from the only “shadow bank” (ooo, spooky) getting bullish on the $1.7 trillion private credit market. 

It’s a Private Matter

The global financial crisis spurred federal regulators to increase scrutiny and capital requirements on traditional lenders, and last year’s regional bank failures only furthered calls for more oversight. As a result, traditional banks have reassessed their risk management and stepped away from handing out loans to every Tom, Dick, and Harry. 

But when interests rates are at their highest level in more than 20 years, and there’s no clear sign of when they’ll go down, private credit’s doors are wide open:

• Morgan Stanley forecasts the private credit market will grow to $2.8 trillion by 2028, and JPMorgan describes growth in the industry as “healthy, not bubble-esque.”
• Last month, HPS Investment Partners raised $14.3 billion for a new fund, and in May, Goldman Sachs reported that it brought in more than $20 billion for its West Street Loan Partners V fund.

Too Big to Fail? While private credit sometimes sounds like another Lehman Brothers waiting to happen, that may or may not be the case. Private credit loans largely go toward massive companies with healthy balance sheets. Last summer, Oak Hill Advisors and Blue Owl Capital led a group of investors on a $5.3 billion loan to help Vista Equity Partners — a firm with more than $100 billion in AUM — refinance Finastra Group Holdings’ debt. 

However, there are examples of loans entering murky territory. Recently, tech workforce development company Pluralsight shifted assets away from lenders so it could raise $50 million in new financing. Ares, one of the creditors, said it marked down the value of its loan to Pluralsight more than 50% as a result, and just last month, control of Pluralsight was handed over to its private lenders, The Wall Street Journal reported. And who owned Pluralsight. Well, Vista Equity of course.