The Exchanges

Q As you look out now over the next couple of years, how do you scope out what you think this opportunity is in the space?

A It's funny. A lot of different people are looking at it and come up with vastly different numbers. But I think the point is it is a very large and growing market. Importantly for us, it's just been historically for Aries untapped. So if you look at our roughly five hundred billion of AUM today, about Forty billion of that is from the wealth channel. Most firms like Aries expect that 40% of their capital raising going forward will come from the wealth channel. That's not our expectation, but I mean, I think if we think about sizing new capital on an annual basis, my guess is something like 20% of our forecast for 2025 would be retail flows from the wealth channel.

AI assessment note: “something like 20% of our forecast for 2025 would be retail flows”

Q As you look out now over the next couple of years, how do you scope out what you think this opportunity is in the space?

A It's funny. A lot of different people are looking at it and come up with vastly different numbers. But I think the point is it is a very large and growing market. Importantly for us, it's just been historically for Aries untapped. So if you look at our roughly five hundred billion of AUM today, about Forty billion of that is from the wealth channel. Most firms like Aries expect that 40% of their capital raising going forward will come from the wealth channel. That's not our expectation, but I mean, I think if we think about sizing new capital on an annual basis, my guess is something like 20% of our forecast for 2025 would be retail flows from the wealth channel.

AI assessment note: “something like 20% of our forecast for 2025 would be retail flows”

Q Let's just say on the corporate side, what does new underwriting look like today compared to two years ago?

A The new business is very easy from a corporate direct line. I mean, it's five to five and a half times debt to EBITDA. Quality of EBITDA is actually good instead of not so good, which it was for years. Much better documents, very lender friendly in that regard, and it's probably a SOFR plus 600 or six 50 over. With fees if you're leading the deal. So I mean, it's an, it's an 11 or 12% return with fees. So it's easy for us. It's pretty exciting vintage. You see a fair amount of people out there saying, oh, it's the golden age of private credit. It's the greatest time. It is. It's great. It's easy. But I put an asterisk on that because as I say a lot to a lot of people, you can't finance the US economy with senior debt at 12%. You'll create a depression. So it's a nice point in time. Do I think it's going to last for the next four years?

AI assessment note: “five to five and a half times debt to EBITDA. Quality of EBITDA is actually good”

Q So without going step by step, what is Aries today?

A So Aries today is about 2600 people. We have 30 offices. The rough breakdown today is about 700 in New York, 700 in L.A. and about 400 in London. And then the balance are either folks out originating new deals or looking for clients. 360 something billion of AUM. But we're really still known as a credit first shop, right? We're about two hundred and fifty billion of credit. And that kind of leads everything that we do. And it's led us into a bunch of other businesses. You know, private equity was there when we got there, but a lot of what we're doing in our private equity business is credit oriented. Core buyout reserves, probably a third to a half of what they do for restructuring and reorganization type situations where they'll go in and either buy debt or do some sort of hybrid security that they think will put them in a position to own a company. The other half of the fund is sort of just regular way buyouts. And we actually run our entire distressed and opportunistic business alongside the private equity group, and they have 10 plus billion in capital. So a lot of the distressed investing we're doing, we're doing with long-term ownership-oriented private equity mindset, not trading, you know, loans and bonds. We do that too, but it's a less significant part of the business.

AI assessment note: “Aries today is about 2600 people. We have 30 offices.”

Q If you want to think about it that way, what are the types of situations where you'll get involved in the equity?

A So the simplest one is private equity transaction where we co-invest with private equity, right? So it's three hundred million dollar MES deal on a thirty million dollar co-invest alongside sponsor XYZ. That's the most common place. But in a lot of our non-sponsored deals, what we find is we're the only real institutional capital because your counterparties are family businesses, entrepreneurs, folks who have scraped it together and generated a lot of sweat equity, and then they're either trying to build a plant, They're trying to buy a competitor, and while they have money on paper, they probably don't actually have any real money. They don't want to sell their company because they believe there's upside, so they look to somebody like us that says, we can provide some sort of flexible debt plus some sort of equity participation to help you accomplish what you're trying to accomplish. Those are probably the top two.

AI assessment note: “So the simplest one is private equity transaction where we co-invest with private equity”

Q So we're going to dive in on the Private Wealth Channel in particular, and I'd love to hear what Your capital formation trajectory in that space from when it started to where you are today?

A We started focusing six or seven years ago, and frankly did a couple of things early, some good, some not so good. But it was obvious to us that that market was very large, that there was a tremendous amount of demand from that market to the alternative asset classes that we manage. But the way that we really started building wealth was actually through an acquisition. So we bought a company during that COVID period called Black Creek that was based out in Denver. But with, in our head, what was really a real estate acquisition to bulk up on the industrial side and add talent investing, we inherited a 75 person retail and wholesaling team. We were fortunate because the now head of our wealth management business was a pretty experienced Morgan Stanley guy. His name's Raj Donda. Who had actually left Morgan Stanley a couple of years prior to go out and be the CEO of Black Creek. So we had somebody pretty sophisticated there who understood wealth. He had been a banker by background, but had ended up in the wealth business at Morgan Stanley, and that was sort of the allure of Black Creek, and had been continuing to upgrade the talent in what was a 75 person U.S. wholesale or retailer, selling both through wires, but also through the RIAs and the independent folks. We accelerated the growth quickly, although nervously at his insistence, which was the right thing to do. But he basica…

AI assessment note: “We started focusing six or seven years ago, and frankly did a couple of things early”

Q What are some of the challenges that you've learned in managing these products in the channel that you might not have known when you jumped into it?

A It's very resource intensive. It requires a lot of people and a lot of education and going to a lot of conferences. And for us, it's building the Aries brand. Believe it or not, we're still at a point that when you go to certain places, people are just have a better feel for A firm like Blackstone or KKR, who's been around 20 years and is always on the front page of the Wall Street Journal. Aries historically, because we don't have a large cap private equity business, didn't have that history of being on the front page of the Wall Street Journal for a while. Some of that by design for a long period of time before we went public, but after we went public, part of that exercise was building the brand, getting it out there, and having people understand what the firm is, how we're different from other alternatives managers that they can select with, so. Not that the institutional marketing business isn't people intensive, it is, but this is particularly people intensive. And you really need to be in geography. Our institutional sales force is all over. I mean, we have folks in California and the Northeast and the Southeast in Asia and Europe. We need somebody pretty close because they actually have to go into a local market like that and see the FAs there. And these are FAs that manage Five hundred billion to a billion dollars of client money. And if you want to try to get that dee…

AI assessment note: “It's very resource intensive. It requires a lot of people and a lot of education”

Q So we're going to dive in on the Private Wealth Channel in particular, and I'd love to hear what Your capital formation trajectory in that space from when it started to where you are today?

A We started focusing six or seven years ago, and frankly did a couple of things early, some good, some not so good. But it was obvious to us that that market was very large, that there was a tremendous amount of demand from that market to the alternative asset classes that we manage. But the way that we really started building wealth was actually through an acquisition. So we bought a company during that COVID period called Black Creek that was based out in Denver. But with, in our head, what was really a real estate acquisition to bulk up on the industrial side and add talent investing, we inherited a 75 person retail and wholesaling team. We were fortunate because the now head of our wealth management business was a pretty experienced Morgan Stanley guy. His name's Raj Donda. Who had actually left Morgan Stanley a couple of years prior to go out and be the CEO of Black Creek. So we had somebody pretty sophisticated there who understood wealth. He had been a banker by background, but had ended up in the wealth business at Morgan Stanley, and that was sort of the allure of Black Creek, and had been continuing to upgrade the talent in what was a 75 person U.S. wholesale or retailer, selling both through wires, but also through the RIAs and the independent folks. We accelerated the growth quickly, although nervously at his insistence, which was the right thing to do. But he basica…

AI assessment note: “We started focusing six or seven years ago... really started building wealth was actually through an acquisition”

Q What were some of those key inflection points with the acceleration of assets over the last 20 years?

A Most of the time for us it's downturns. The privates market overall consolidates share away from the public markets during downturns. So O-two was kind of a more normal Credit cycle, actually pretty similar, in my opinion, to where we are today, which is, uh, concerns about inflation, tightening monetary cycle, questioning certain business models. Back then it was tech one point O and telecom, too much leveraged finance issuance in those sectors, et cetera. Credit markets and the banks sort of sell off and private credit makes its first push. And I think we were there to make that first push, but the same thing happened during, you know, the GFC. That was the most significant one. But the GFC, I think, really taught public market investors that they didn't have the liquidity that they thought they had in liquid markets, and that was really When a lot of really sophisticated investors also, cause we'd been putting track record together came to us and they're like, so this private market stuff doesn't seem to be quite as volatile, doesn't offer liquidity, but seems to offer pretty good longer term returns. Can you explain it to us? COVID was a bit of a inflection point too. So it's usually downturns that actually accelerate inflows into our business.

AI assessment note: “Most of the time for us it's downturns.”

Q What's your rule of thumb of how many companies an individual sourcer can cover?

A Different people have different views, and it depends who they are. A person who covers Blackstone at Goldman Sachs, like he has one client. Right. So it depends who they are. I would argue that if you're covering large cap sponsors that do high volume, you know, the Advents or the Premieres, you know, Hellman Friedman, a couple of those will keep you pretty busy. And those obviously sit with probably our most experienced people. And then if you go down the, I don't want to say value chain, but if you go down to the younger group a little bit, they probably need. 20 or 30 sponsors to cover because just the volume isn't there. To be as productive as you'd like them to be.

AI assessment note: “they probably need. 20 or 30 sponsors to cover because just the volume isn't there.”

Q As you've grown over the years and scaled the size of your team and presumably also the size of deals, how have you thought about what's optimal in terms of the size of loans that you want to make?

A We have this perception that I don't like very much, which is folks think that we don't want to work on small deals anymore, which is not the case. That being said, we have found that there's real benefit to being with larger issuers because they tend to have better credit profiles. They're just larger businesses. They have more diverse revenue streams. They aren't concentrated to single products or a couple of products. They're not in just a smallest geography. They're either national or multinational companies. They tend to have better management teams. So what you've seen from us over the years is we've taken our weighted average EBITDA numbers up substantially and doing larger transactions. Some of that's just math, right? If you do four times a bigger number, the math skews that the weighted average goes up. So we publish a median as well, which is smaller, but kind of the middle of the strike zone these days, probably a hundred to two hundred million of EBITDA, but we'll play on both sides of that. And what's interesting. And this has changed too with some of the competition and direct lending. We actually don't see any delta in pricing or terms for the most part between a fifty million EBITDA company and a two hundred and fifty million dollar EBITDA company. Leverage levels are about the same. Pricing's about the same. And the reason for that is there are a lot of small …

AI assessment note: “middle of the strike zone these days, probably a hundred to two hundred million of EBITDA”

Q As you look out over the next five or 10 years, what do you think Aries becomes from here?

A Well, my partner Mike, who's a CEO, has charted everybody on getting to five hundred billion of AUM as a growth target, which I think is great and achievable. We've filled a lot of the gaps that I think that we had in the last five years. We don't have that many more flags to plant, right? I think we're geographically where we want to be, with the possible exception of being on the ground in Tokyo. I think we're happy with the businesses that we're in. When we talk to our LPs and our investors, There are not a lot of things that they look at in alternatives that we don't do. There's nothing out there for us that's, uh, gosh, we really need this, you know, in terms of acquisitions in the future. We had 1300 employees pre-COVID, and we came out of COVID with 2800 employees. So this year for us is a little bit of, uh, people actually really need to integrate and know each other better than they maybe do when they were sitting in front of their Zoom screens during the pandemic, right? And especially with Asia, we were thrilled with SSG, but part of the plan was You guys are going to come to New York and London a lot, and we're going to go to Asia a lot, and that didn't happen for two years. So that's, that's what we're doing right now.

AI assessment note: “getting to five hundred billion of AUM as a growth target”

Q So how'd you find your way from business school into the credit markets?

A The simple answer is, the couple of folks that I opened the New York office with, you know, we shift forward at Aries, I've been working with for 20 years, so I went to work there with them, which was a place called Indusways Capital, that we had a boutique inside a French bank, doing kind of what I wanted to do. Deal driven, entrepreneurial, middle market companies, but we were way ahead of the game, I think, in terms of the playbook for Direct lending and private credit, right? There was still so much going on in the big banks, and we had all said, we don't really want to work in the big banks. We want to work with these smaller, acquisitive, middle market companies looking to grow. And a couple of guys who had left Drexel and Kitter Peabody had set up this partnership in 92 with a French bank. So my long partners, Mike Arrighetti is the CEO of Aries today. Michael Smith and Mitch Goldstein were all there. I went to work there for the summer just to try it out, and I loved it. But we were early, early days on the credit markets, and it was all just beginning to happen.

AI assessment note: “I went to work there for the summer just to try it out, and I loved it.”

Q I'd love to turn to some of your thoughts on, on the current markets and maybe kick that off with just rising rates, inflation risk, as you said, not terribly dissimilar from 20 years ago. How are you thinking about investing in these markets?

A I'll try to not play economist, but play more of credit person. This is an interesting period of time, I think, and it's true of credit, but it's true if you're a private equity person or a real estate person or, you know, It's kind of true across any of the geographies. Our view now is the economy is actually doing pretty well. So the portfolio company performance that we see is good. That being said, we had low rates for too long that encouraged a lot of bad behavior. And sometimes that means companies have too much debt, even if they're doing well. Sometimes if you're the owner of that company or asset, it means that you paid too much. So to try to keep it very simple, well, it does two things. It slows transaction activity, right? So deal flow is very light in all of our businesses, but you have this huge installed base of capital. As I was saying around the secondaries piece of folks who were like, I'm not quite sure where to go with this. And because our lending businesses are so large, we feel reasonably good about how we're positioned, even if companies have too much debt. Because we feel that we've got a lot of room for error. So just to put some numbers around it, private equity firm paid 15 times EBITDA for a company when base rates were zero. We lent them five and a half times. All of a sudden base rates were much higher. They have less cash flow. They can't de-leve…

AI assessment note: “we feel reasonably good about how we're positioned, even if companies have too much debt.”

Q So you mentioned a surprising interest last year from Europe, and maybe this year is going to be the year of Asia. What are you seeing in the international markets for wealth?

A Growth, and it's interesting because we, for a really long time, because of the public BDC, spent a lot of time in London trying to figure out how to basically get some listed income fund in Europe, and we talked to every bank and everybody, and there were a couple examples of things that got done pre the GFC. That actually didn't go so well. We found that there were burnt fingers on these traded or non-traded income products. We gave up and just said, we're just raise institutional capital here. And I don't think this is going to work. Launching some of these income products in Europe, pretty eyeopening for us because we attracted a lot more capital than we expected. That's a good sign. We think Asia, part of it is just, we're new there with people on the ground. So we have the first year effect. My comment on Asia is more about our first year effect this year than anything else. Look, it's a big market with a lot of the same dynamics that exist here, which is you just have folks that increasingly are hearing about all this stuff that these alternative managers are doing, and they're saying, why don't I have any exposure to this? And if we're smart, and others are smart, which I think we've been, in developing the right products, and just simply making them available, and making phone calls to make them available, there's demand there.

AI assessment note: “Growth, and it's interesting because we... attracted a lot more capital than we expected.”

Q What are some of the challenges that you've learned in managing these products in the channel that you might not have known when you jumped into it?

A It's very resource intensive. It requires a lot of people and a lot of education and going to a lot of conferences. And for us, it's building the Aries brand. Believe it or not, we're still at a point that when you go to certain places, people are just have a better feel for A firm like Blackstone or KKR, who's been around 20 years and is always on the front page of the Wall Street Journal. Aries historically, because we don't have a large cap private equity business, didn't have that history of being on the front page of the Wall Street Journal for a while. Some of that by design for a long period of time before we went public, but after we went public, part of that exercise was building the brand, getting it out there, and having people understand what the firm is, how we're different from other alternatives managers that they can select with, so. Not that the institutional marketing business isn't people intensive, it is, but this is particularly people intensive. And you really need to be in geography. Our institutional sales force is all over. I mean, we have folks in California and the Northeast and the Southeast in Asia and Europe. We need somebody pretty close because they actually have to go into a local market like that and see the FAs there. And these are FAs that manage Five hundred billion to a billion dollars of client money. And if you want to try to get that dee…

AI assessment note: “It's very resource intensive. It requires a lot of people and a lot of education”

Q So you mentioned a surprising interest last year from Europe, and maybe this year is going to be the year of Asia. What are you seeing in the international markets for wealth?

A Growth, and it's interesting because we, for a really long time, because of the public BDC, spent a lot of time in London trying to figure out how to basically get some listed income fund in Europe, and we talked to every bank and everybody, and there were a couple examples of things that got done pre the GFC. That actually didn't go so well. We found that there were burnt fingers on these traded or non-traded income products. We gave up and just said, we're just raise institutional capital here. And I don't think this is going to work. Launching some of these income products in Europe, pretty eyeopening for us because we attracted a lot more capital than we expected. That's a good sign. We think Asia, part of it is just, we're new there with people on the ground. So we have the first year effect. My comment on Asia is more about our first year effect this year than anything else. Look, it's a big market with a lot of the same dynamics that exist here, which is you just have folks that increasingly are hearing about all this stuff that these alternative managers are doing, and they're saying, why don't I have any exposure to this? And if we're smart, and others are smart, which I think we've been, in developing the right products, and just simply making them available, and making phone calls to make them available, there's demand there.

AI assessment note: “Growth, and it's interesting because we, for a really long time”

Q What do you think it was about you that you rebuffed that trend at the time?

A I don't know. I'm a little bit of a, uh, contrarian. I think most of the time people who work with me and live with me would probably say, I do like to challenge the common underpinning of what people seem to think. And look, the Valley is an incredible place in terms of the innovation and the intellects and all of that, but it's also really tough place in terms of just crowd thinking. People really tend to kind of move in the same direction all the time. So I think just being a little bit of a contrarian, being a little bit of a skeptic, I mean, I run a credit business, so that's That's how my brain's wired. A little bit more for downside protection and a little bit less for wild growth at any price.

AI assessment note: “I'm a little bit of a, uh, contrarian.”

Q What if you found over the years are some of those benefits that have accrued to the scale you've amassed?

A This is one of the few investment businesses, in our opinion, that's actually easier the bigger you get, so long as you continue to invest behind it. The purview of most of our private credit businesses are, whether it's asset-focused, corporate, US, sponsored, Europe, is really all about origination. So for us, as we've grown, it's just, it's really about adding people and adding capabilities. And I can build on that a little bit, but what started as a largely sponsor coverage-oriented model, Has expanded pretty substantially, but in the sponsor business, the scale, I have more people to cover more sponsors and it's just feet on the street and capacity and all of that. We've always believed in having flexible capital and that drives origination. If you're just a Mez fund, you only get calls on Mez deals. If you're just a Unitranche guy, you just get calls on Unitranches, right? So, and by the way, sometimes being in the Unitranche is better risk reward than being in the Mez and sometimes it's the other way around. And it depends on the deal and the company and the economic environment and the rate environment. So we've always said fullest product suite that we can possibly offer. We'll deploy it the way that we want to for our investors, but for borrowers, we want to be able to show them a truly customized solution that we can work with them on. That's how you lead deals and g…

AI assessment note: “easier the bigger you get, so long as you continue to invest behind it.”

Q Curious how the competition kind of coopetition works. Like you mentioned earlier, not surprisingly, you have sponsor coverage. Someone's covering Blackstone. They're also a competitor in the credit business. How does that sort of play out when you're in the markets?

A So part of that's competition. The biggest concern that private equity firms have is, is my partner going to be a friendly performing credit type person, or are they going to flip the coin and turn into a distressed person, right? So we need to draw very clear lines between our performing lending businesses and our opportunistic businesses. And look, there are five or six large firms like Aries, whether it's Blackstone or KKR that have credit businesses and have private equity businesses. And it just, Kind of is what it is these days. So the key to it is organize yourselves well, make it very clear, you know, when you're coming into a situation, what the expectation is and how you'll likely behave, you know, in different circumstances and stick to it. And if you don't, you'll lose your relationships and other people win that business and you won't.

AI assessment note: “we need to draw very clear lines between our performing lending businesses and our opportunistic”

Q What did it feel like when you were out in the valley with all that tech stuff happening and you had kind of your early Wall Street background?

A I'll give you the quick story, which is I told people that I was moving back to New York in 1999 to work in finance, and they were like, are you nuts? You know, what are you doing? Because about 25% of my class were CEOs of venture capital-backed, funded startups. Most of them, as I made fun of them leaving the Bay Area, were not gonna be real companies, and most of them weren't, and we were late. Right. Graduating 99 with too many people with too much money and the Internet one point oh by, I guess that was the spring of 2000, right, that it all sort of melted down and we joke in 99 that we were, we were the only class where no one did great right out of school. 95, 96, 97, 98. I mean, I could give you a couple of examples of folks that I know from those days who started a company as CEO, ran it for nine months and sold it for two hundred million dollars nine months out of business school. I'm not sure I believe they were lasting, but they were eye opening.

AI assessment note: “I told people that I was moving back to New York in 1999 to work in finance”

Q How do you describe that Aries way of doing things that can supercharge the business?

A Our way of doing things is we want to be viewed as great partners. That's the most important thing because all we have at our firm is people and money. So you're either selling yourself as a person, otherwise you're just selling money, which lots of other firms have. And it doesn't matter if you're in the real estate business or equity or anything else. So I think we are culturally a little bit different than a lot of the other firms and that we actually collaborate as an organization. So to your question on the secondary side or any of the other businesses, how do we catalyze it? It's give them people and resources, but I also think we have a pretty special culture of how we think about sharing information and best practices and all of that. So if the secondaries folks come for the first time to the US direct lending annual meeting, They're like, whoa, that's a serious thing. Like you guys have this really well-honed and we're like, yeah, we've been at it for 20 years, so we kind of do. So there's a lot of that sharing of best practices. It's actually a pretty nice place to work. People want to help each other, and I think that translates across the firm.

AI assessment note: “Our way of doing things is we want to be viewed as great partners.”

Q How do you think about opportunities internationally compared to in the US?

A I'm more comfortable personally, obviously living in and around New York with the US than I am with anything else. We think the European market is a great market actually for what we do because it's just less institutionalized. We were one of the early folks. We've got a real leadership position there that we can grow into. It's a little bit different in a couple of ways. The banks won't quite exit the market completely. Because, you know, there's still some French banks, and they're nationalistic about lending in France, and there are German banks that want to lend in Germany, and Swedish banks that want to lend in Sweden, so it's a little less easy to totally disintermediate banks in Europe. You can have your own view on the economies there. Europe isn't one thing. The US isn't necessarily one thing either, even though we call ourselves one thing. There's a big difference between doing deals in the UK versus doing deals in Italy. Of which we do very few. So that business for us focusing on healthy companies and healthy geographies feels a lot like the US, right? You're talking about sophisticated large economies with real legal structures in place that allow for lending. You have to be excited about Asia because of the growth prospect there. That being said, it's very noisy over there right now, right? For a lot of reasons. And COVID was part of that. But I think there's a lo…

AI assessment note: “We think the European market is a great market actually for what we do”

Q As you look at the market for some of these products, maybe particularly say interval funds, how have the fee load evolved as these products have gotten rolled out relative to what you might see in the institutional market?

A What's nice here is that the fees are almost off the shelf. If you were to launch a non-traded BDC today, you'd say, who are the biggest non-traded BDCs? What are their fees? Boom, by the way, they're all exactly the same, and they haven't moved much. That's true of the other asset classes as well, so everybody's a carbon copy of one another. By the way, the fees that are then paid through to distribution, so if you're going through a wire, are also standard. It's off the shelf and there hasn't been a lot of discussion about it. It gets bigger and more folks have more capital with you. They always negotiate fee. We'll see if that happens in time, but it's not part of the discussion today. Everything is right off the shelf.

AI assessment note: “they're all exactly the same, and they haven't moved much.”

Q As you look at the market for some of these products, maybe particularly say interval funds, how have the fee load evolved as these products have gotten rolled out relative to what you might see in the institutional market?

A What's nice here is that the fees are almost off the shelf. If you were to launch a non-traded BDC today, you'd say, who are the biggest non-traded BDCs? What are their fees? Boom, by the way, they're all exactly the same, and they haven't moved much. That's true of the other asset classes as well, so everybody's a carbon copy of one another. By the way, the fees that are then paid through to distribution, so if you're going through a wire, are also standard. It's off the shelf and there hasn't been a lot of discussion about it. It gets bigger and more folks have more capital with you. They always negotiate fee. We'll see if that happens in time, but it's not part of the discussion today. Everything is right off the shelf.

AI assessment note: “they're all exactly the same, and they haven't moved much.”