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deVeer: Lead private credit lenders hold a free call option on companies
“The point is you have this free call option as a lender to own companies if you have to. And if you're lending to good companies and you control your outcomes, where you're a lead investor, you can probably get to better resolutions.”
DeVeer: Pro-Cyclical Retail Credit Capital Inherently Risks Underwriting Discipline
“I would not want 75% of my credit capital to be in a pro-cyclical structure like this, which it inherently is, and that's where you can lose discipline.”
Private Credit Gets Easier to Execute as Firms Grow Larger
“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.”
Lenders Cannot Effectively Price Bad Credit Due to Asymmetric Downside Risk
“You can't price bad credit. You can try, but you probably won't be right. The thing that's tricky about credit is has a totally asymmetric risk profile. You get paid fees and you get paid a coupon and hopefully you get paid back. If you're wrong, you lose all …”
Lenders See No Pricing Delta Between $50M and $250M EBITDA Borrowers
“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.”
Sustained 12% Senior Debt Rates Would Cause an Economic Depression
“You can't finance the US economy with senior debt at 12%. You'll create a depression.”
New Liquidity Gives Capital Providers Power to Dictate Restructuring Terms
“And the only thing that's going to solve the lack of cashflow servicing a lot of debt is new liquidity. And if you have liquidity and you can drive terms on Outcomes. I think you're going to be pretty impactful. And if you don't have liquidity, I don't think y…”
Relying on 40% Loan-to-Value Metrics for Credit Safety Is Dangerous
“I think there's too much comfort gained by the, oh, we're only in at 40% LTV. And you're learning that right now in every asset class. Things, even in private markets, can revalue very quickly. So you have to have a lot of conviction around where you are in a …”
DeVeer: Blackstone Held 60% Share in Private Wealth Alternatives Around 2021
“When we were in the midst of negotiating the acquisition, we saw it as an asset that we could unlock, but it was really interesting period of time in 2002 1001, whenever it was, Blackstone, because of their early lead in the market, had a roughly 60, 65% marke…”
deVeer: Ares 20-year charge-offs beat public market default rates
“If you look at our historical charge-offs versus defaults in the public markets, they're just better over a twenty-year period because of that control”
Kipp deVeer: Redemption Gates in Semi-Liquid Funds Protect Investors
“The way these structures are set up are actually set up to protect investors because the alternative is a fire sale of assets at bad prices, which creates bad outcomes for the investor.”
DeVeer: Retail Inflows Push Competitors to Loosen Underwriting Discipline
“If they have a big flow quarter in a particular product, we'll see them be very competitive on new underwritings because they have a bunch of cash sitting around that they need to deploy.”
Private Markets Take Share From Public Markets During Economic Downturns
“The privates market overall consolidates share away from the public markets during downturns.”
Higher Interest Rates Will Spark a Shining Moment for Secondaries
“Our view is there's a lot of this private capital that's now stuck. With higher rates that really is going to create liquidity issues for a lot of investors. So this could really be a shining moment for the secondaries business.”
Ares Default Charge-Off Ratio Is Under 5 to 10 Basis Points
“So of course we have a cumulative default charge off ratio, which is very, very low, like under five and 10 basis points for both senior and junior assets.”
The US Has Too Many Banks and Smaller Institutions Face Trouble
“The reality is we have too many banks in the US, right? And we shouldn't have 4600 banks. So I wouldn't be surprised if there's a little more noise from some of these smaller banks.”
Domestic Nationalism Will Keep European Banks Active in Corporate Lending
“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 …”
Modern High-Yield Restructurings Are Driven by New Capital, Not Covenants
“The covenants are nice to have. They allow you to reprice risk along the way. We still have them in most of our middle market deals, but the big quality companies, syndicated loan market, et cetera, the high yield market, they don't have covenants. So the rest…”
DeVeer: Five Alternative Managers Hold 40% Share in Private Wealth Channel
“There are now four or five firms, including Blackstone and Aries, that have probably 30 or 40% market share at the top of the stack.”
DeVeer: Financial advisors favor semi-liquid funds over volatile public BDCs
“I had this debate for years with financial advisors where I'd say, just buy the BDC. Well, my clients don't like it when the stock goes up and down and they don't like the correlation to the market and the volatility. And so we'll do what we do. And stock goes…”
DeVeer: Ares Expects 20% of New Capital From Wealth, Trailing Peers
“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 forec…”
DeVeer: Most Financial Advisors Prefer Allocating Across Three to Five Managers
“Most of the FAs we talk to will say, I want three to five managers That have a pretty well curated set of products.”
Kipp deVeer: Semi-Liquid Funds in Concentrated Private Equity Are Risky
“I'd be concerned looking at a fund that was, quote, semi-liquid in a concentrated pool of private equity assets because there's no easy way to create capital to the extent you need it.”
DeVeer: Retail Alternative Fund Fees Are Identical Across Major Managers
“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 car…”
DeVeer: Competitors Have Queued Retail Credit Capital to Limit Inflows
“We've actually seen one or two of our competitors queue credit capital over the last year or two.”
DeVeer: Retail Private Credit Investors Have Not Yet Faced a Downturn
“The retail investor hasn't been tested yet because most of this has come online.
With COVID and coming out of COVID and it's been a pretty easy low vol period of time.”
Ares US Direct Lending Netted 12% to 13% Over 20 Years
“Our US direct lending business, I can show someone a hundred plus billion dollar track record over 20 years through market cycles that's generated a net 12 or 13.”
Multi-Product Platforms Originate Better Deals Than Single-Strategy Credit Funds
“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 othe…”
Junior Private Credit Sourcers Need 20 to 30 Sponsors for Deal Flow
“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 do…”
Ares Opens Its Investment Committee Meetings to All Firm Employees
“We don't have a behind the door investment committee. Everybody in our organization literally sits in on our investment committees.”
Leveraged Loan Defaults Historically Concentrate in Six to Ten Industries
“So if you decompose the LCD index, it's really obvious where the defaults are. They're in six to 10 industries, and most of the other industries tend to outperform.”
Credit Markets Will Spend 2023-2024 Muddling Through Overleveraged Assets
“I think the remainder of this year and even into next year is going to be a lot of that. It's going to be a lot of just muddling through over levered assets and owners who aren't quite sure what to do about that.”
Contagion Risk Interconnects the Top 8 to 10 Alternative Asset Managers
“If something happens to Blackstone or Apollo or KKR, we're going to get the same question. What does your exposure look like? How do you guys think about this? So it's, yeah, there's an interrelatedness of eight or 10 of these companies for sure.”
deVeer: Ares Management Reaches About $500 Billion in AUM
“We're about five hundred billion of AUM today.”
DeVeer: Ares Doubled Global Wealth Distribution Team to 150 People
“Raj basically said, we need to go from 75 to a 150 people globally like yesterday. Which we did, although took a little bit of a breath before we did it.”
DeVeer: Ares Expects Asian Wealth Fundraising to Match European Surge
“The capital raising that we did in Europe was tremendous and a little bit of a surprise for us, and I think this year may be that year for Asia, but being global is important because I think it's a global opportunity.”
DeVeer: Private Wealth Investors Write Sticky $200K to $500K Checks
“Generally, what you're seeing from these clients is they're putting 200,000 to 500,000 dollar check sizes to work, and we found that that money is quite sticky.”
DeVeer: Wealth Channel Accounts for $40 Billion of Ares' Total AUM
“So if you look at our roughly five hundred billion of AUM today, about Forty billion of that is from the wealth channel.”
DeVeer: Retail Credit Funds Are Ares' Largest and Fastest-Growing Products
“The funds that we have in the retail channel and credit are not surprisingly the largest ones that we manage and are growing the quickest.”
DeVeer: Ares Relies on iCapital and CAIS for RIA Distribution
“There are folks out there who do that for a living, whether it's iCapital or Case. They do a really nice way of Really being deep with that community that we couldn't possibly go make one-off calls on all the time.”
Early Private Debt Paid 600-700 Bps Over the Risk-Free Rate
“I mean, a senior deal was Three and a half times levered with a six or 700 basis point spread to the risk free rate. Mez deals were 15, 16% fixed rate coupons with seven and a half percent of the company in warrants that struck at zero. He charged five point f…”
Ares Manages Over $360B in AUM With $250B in Credit
“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 A…”
Ares Caps Single-Position Fund Allocations Mostly Under One Percent
“We really don't like running portfolios probably more than two and a half percent positions just from an overall risk management perspective, but we're big enough now that most of the allocations to funds are less than one percent.”
Ares Estimates Non-Corporate Alternative Credit Is a $3T to $4T Market
“It's a very large market. We think it's a three, four trillion dollar addressable market.”
25% of 1999 Stanford GSB Class Led Failed Dot-Com Startups
“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.”
Ares Managed $3B in CLOs With Just 65 Employees in 2004
“But at the time when I got there, it was about 65 people. It was LA only. I think we managed probably three billion of CLO money, largely bank loans, but some high yield in there too, because they were all market value CLOs. And Tony and Ben Rosenthal were get…”