Ares Management could pursue the acquisition of a sizeable private equity firm as it looks to strengthen its buyout platform and compete more directly with industry heavyweights such as Blackstone, KKR and Apollo Global Management, according to a report by the Financial Times.
The report cites Chief Executive Michael Arougheti as saying that the private credit-focused alternative asset manager has significant financial capacity to both build organically and pursue acquisitions, particularly as US retirement plans begin to open up more meaningfully to private markets. He suggested that a larger, more diversified private equity franchise will become increasingly important as defined contribution schemes expand access to alternatives.
Arougheti said Ares could look to grow its private equity business by increasing scale, diversifying geographically or adding sector-specific capabilities that would complement the wider platform. While stressing that no transaction is imminent and that there is no immediate gap requiring a deal, he acknowledged that Ares’ private equity arm remains relatively small compared with its peers.
Private equity currently accounts for about $25bn of Ares’ assets, or just over 4 per cent of total assets under management, down sharply from more than 13 per cent when the firm listed in 2014. This contrasts with Ares’ dominant position in private credit, which has been the primary driver of its growth and profitability.
Since taking over as chief executive in 2018, Arougheti has overseen rapid expansion at the Los Angeles-based group, which now manages just under $600bn and is targeting at least $775bn within three years. Strong returns from its lending strategies, including 12.1 per cent net returns from its flagship $35 billion direct lending fund since inception, have helped propel Ares to a market capitalisation of around $55 billion. This month, the firm joined the S&P 500, broadening its shareholder base.
Ares has a track record of using acquisitions to reshape its business. Its $3.4bn purchase of American Capital in 2017 significantly expanded its lending platform, while earlier this year it completed the acquisition of the international arm of GLP Capital Partners in a deal valued at up to $5.2bn. Arougheti said the firm has been active in M&A for two decades and has fundamentally transformed its profile over the past five years.
Although he declined to comment on specific targets, Arougheti indicated that even a private equity firm managing $100bn or more would be within Ares’ financial reach, noting that such a deal would not be outsized relative to the firm’s own market value. At the same time, he emphasised the importance of balance, saying he would not want Ares to swing from being underexposed to private equity to overly concentrated in the strategy.
Ares previously held discussions with French private equity firm Astorg but ultimately walked away, opting instead to pursue the GLP transaction, according to people familiar with the matter.
Looking ahead, Arougheti said the firm is considering how best to deploy capital returning from performance fees on maturing funds. Options include dividend growth, strategic investments, acquisitions and deleveraging, and he suggested the ultimate approach could involve a combination of all four.
