Ares Management’s real estate business still pales in comparison to the firm’s more mature credit and private equity platforms, Ares executives said during the firm’s first quarter earnings call, PERE’s sister publication PDI reported.
“Real estate is not at the scale we believe it can achieve,” Ares chief financial officer Michael McFerran said on the firm’s first-quarter earnings call.
Of the Los Angeles-based asset manager’s $136.7 billion in total assets under management, the $11.8 billion in real estate assets account for just 8.63 percent. The $11.8 billion real estate AUM consists of $3.9 billion from its US real estate equity strategy, $3.9 billion from European real estate equity and $4 billion from real estate debt. The firm reported $101.1 billion and $23.8 billion in AUM for its credit and private equity platforms, respectively.
Total AUM grew 21.5 percent year-on-year from the $112.5 billion in AUM reported during the first quarter of 2018, driven largely by fundraising for Ares’ credit strategies. The vast majority of the firm’s current AUM – some $101.1 billion – resides in credit strategies.
Meanwhile, the real estate AUM grew 8.25 percent year-on-year, from the $10.9 billion reported during the same period in 2018. Ares reported $735 million in new capital commitments across its real estate strategies in the first quarter of 2019.
The firm is looking to scale its real estate business, identifying the asset class as a $10 trillion end-market. Ares ranked 14th on the 2018 PERE 50 list, compared to 15th in 2017 and 12th in 2016. To push scale in real estate, the firm said on the call that it plans to pursue a combination of acquisitions and organic growth.
Ares Management continued its rapid pace of credit-focused capital raising in the first quarter, raising $5.7 billion out of the total $6.46 billion it locked down across all strategies. The Los Angeles-based firm raised the bulk of its credit capital among four collateralised loan obligations, closing two such vehicles in the US and pricing one CLO each in the US and Europe. The firm also raised $969 million for US direct lending and $738 million for European direct lending.
Ares saw a year-on-year spike in dry powder as well, increasing from $26.76 billion to $35.05 billion on the back of closes of its €6.5 billion Ares Capital Europe IV direct lending fund and $3 billion for the Ares Senior Direct Lending Fund. The shadow AUM, or capital not yet earning fees, also increased in the first quarter to $27.02 billion from $17.29 billion as of the same time last year, driven by closing of these credit funds.