Ares launches next US real estate fund

The Los Angeles-based alternative asset manager received a $100m commitment from PennPSERS, which also recently backed Carlyle’s latest US opportunistic fund.

Ares Management has secured a large early commitment for its latest US property fund, Ares US Real Estate Fund IX, according to documents from the Pennsylvania Public School Employees’ Retirement System.

PennPSERS approved a commitment of up to $100 million to the fund at its board meeting last week. Last month, Ares co-founder Michael Arougheti said on the firm’s fourth-quarter earnings call that the Los Angeles-based firm had “recently” launched fundraising for the ninth fund. A spokesman for the firm declined to comment.

With capital from the fund, Ares plans to invest across the four main property types in deals ranging from $50 million to $100 million of equity, according to PennPSERS. The fund’s term spans eight years, with two possible one-year extensions. A fund target was not disclosed in the PennPSERS documents.

“The fund will primarily pursue investments in US growth markets that have diversified economies, well-developed transportation networks, long-term growth potential and/or high barriers to entry, as Ares believes such investments have reduced downside risk,” Steven Novick, managing principal at Courtland Partners, PennPSERS’ real estate advisor, wrote in a letter to the pension’s board. “Even as property and capital market conditions have improved in recent years, Ares believes that there remain a number of owners lacking the time horizon, capital requirements, or operating expertise to effectively own, manage, and improve assets across multiple property sectors and geographies.”

The firm is “cautious” of property types outside of multifamily, office, hospitality, retail and industrial, viewing more niche sectors as “less liquid in down cycles or more operationally intensive or specialized.”

PennPSERS has committed $225 million to the two previous Ares US Real Estate funds in the series, which had a combined 15.3 percent net internal rate of return as of September 30, according to PennPSERS documents. The pension system has also committed $445 million to four other Ares real estate vehicles. Ares does not use a placement agent, according to PennPSERS.

Ares managed $9.8 billion in real estate and $99 billion overall as of December 31, according to its fourth-quarter earnings report.

PennPSERS also allocated $200 million to The Carlyle Group for the firm’s latest US opportunistic fund, Carlyle Realty Partners VIII. The Washington, DC-based firm started pre-marketing Carlyle Realty Partners VIII in the third quarter, co-chief executive David Rubenstein said on firm’s October analyst call. CRP VIII has a 10-year lifespan, with the option to extend the fund for one year, according to PennPSERS’ documents.

Carlyle has a $5 billion target for CRP VIII – $800 million more than its predecessor vehicle, which closed on its $4.2 billion hard-cap in December 2014, PERE previously reported. CRP VII had $2.2 billion invested and a 1.2x investment multiple as of December 31, according to the fourth-quarter earnings statement. The firm did not disclose gross or net returns for the fund, however.

PennPSERS has been a longtime investor in Carlyle’s funds, previously investing a total of $871 million to five of Carlyle’s US opportunistic funds and additional investments in two of Carlyle’s energy funds, according to PennPSERS’ documents. The five CRP funds have generated a 14.5 percent net internal rate of return and a 1.6x multiple as of September 30.

Bill Conway, Carlyle’s other co-CEO, said the firm will continue focusing on demographic-driven real estate investments through the latest fund, such senior housing as the US population continues to age. Carlyle plans to deploy the majority of CRP VIII’s capital to multifamily and “active adult living,” according to PennPSERS’ documents.

“Our demographic focus is something that sets us apart,” Conway said on the firm’s fourth-quarter earnings call. “We’re less dependent on GDP growth, like the office market might be.”

Carlyle managed $158 billion in total assets, with $34.3 billion in real assets, as of December 31, according to the firm’s fourth-quarter earnings.