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Wednesday, Jul 6, 2022

Ares Raises $5.1 Billion Middle-Market Fund

Century City-based Ares Management Corp. has raised $5.1 billion for a middle-market fund that aims to take market share from banks and other traditional lenders.
Ares originally had commitments of $4 billion for the new fund. It hopes to tap into a niche lending market of fast-growing businesses that generate in excess of $1 billion in annual revenue.

The news comes a few months after the alternative asset manager, with more than $262 billion in assets under management, disclosed plans to double in size by 2025.
The oversubscribed fund, called Ares Private Credit Solutions II, or PCS II, is about 50% larger than its 2017 predecessor fund, according to an Oct. 18 statement issued by Ares.

The new fund is targeting upper middle-market firms that are generally viewed as sought-after acquisition targets by private equity investors, as well as by strategic and financial buyers.

Ares said the new fund is tailored to “junior capital financing,” which is targeting younger companies often considered a stepping-stone to a larger market, especially for high-growth businesses.

With banks and other traditional lenders exiting this niche market, Ares sees an opportunity to step in with so-called mezzanine, private high-yield debt and preferred equity offerings.

In finance-speak, mezzanine capital represents a claim on a company’s assets senior to common shares.

“As a pioneer in private credit and a global leader in direct lending, we see significant and growing interest from a range of private equity firms and other corporate owners to partner with Ares to support their investment and business development objectives,” said Kipp deVeer, partner and head of Ares Credit Group.

The fund is off to a strong start, with 20% of the funds already invested across nine portfolio companies. An Ares spokesman did not respond to a request to identify those companies.

Ares’ U.S. direct lending team, which manages APCS II, oversees $69 billion of assets under management as of June 30. 
The growth spurt at Ares has been nothing short of head-turning.
Though not unprecedented, Ares’ huge surge in growth by more than $100 billion from June 2020 through June 30 is unusual for an alternative asset manager, according to analysts.

As for the catalyst behind Ares’ rapid growth, the analysts point to the 2019 sale of crosstown rival Oaktree Capital Group to Toronto-based alternative asset management company Brookfield Asset Management Inc., which took a 62% majority position in the downtown-based firm for $4.7 billion.

At the time of the sale, Ares had roughly $131 billion in assets under management.
By mid-2020, it had tacked on nearly $30 billion in additional assets under management, after which, its growth began to accelerate.

In Securities and Exchange Commission filings, Ares has mapped out how it plans to get to $500 billion in assets under management by 2025, mostly through new lines of business, organic growth and some blockbuster

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