How Ares Management Turned Private Credit Into Wall Street’s Sexiest Business

Megadeals and private equity titans may dominate the headlines, but Los Angeles’ Ares Management has quietly amassed $352 billion in assets by offering steady returns regardless of what happens in the stock market.

Asan enterprising 13-year-old New York Yankees fan in 1986, Michael Arougheti ran a baseball card trading business, setting up tables at collectibles shows on weekends in suburban New York City. He made thousands but learned that flipping hundreds of cards for tiny gains was a better strategy than obsessively pursuing a rare Hank Aaron rookie card—which might be worth tens of thousands but was almost impossible to find. Since 2018, Arougheti has been the CEO of credit-focused alternative asset firm Ares Management. It has quietly become one of the most successful firms on Wall Street, but unlike its more famous private equity peers, Ares is beating the odds with a steady diet of thousands of singles.

The Los Angeles-based firm has grown to $352 billion in assets, more than tripling in size in the last five years, with $214 billion in its credit business, which makes loans to little-known mid-sized companies worldwide. While firms like KKR are known for bold equity bets with unlimi­ted potential gains, Ares’ upside is mostly limi­ted to the coupon interest payments—pegged to benchmark rates like LIBOR—on its loans. That’s just fine for its 2,000 pension funds, insurance companies and other institutional clients.

“People are gravitating toward durable yield. We were very early proselytizers of the value of compounding yield,” says Arougheti, 50, noting a boom in business precipitated by falling equity markets and higher interest rates.

Ares is a standout on the inaugural Forbes Financial All-Stars list, highlighting 50 global financial companies in seven sectors: banking, insurance, capital markets, consumer finance, mortgages, fintech and business development. According to analysts at KBW, these companies have high risk-adjusted five-year returns, as well as a host of impressive fundamentals including debt to equity and revenue growth. Ares’ 316% cumulative total return for the five years ending in September 2022, versus 56% for the S&P 500, tops the list.

Like other successful alternative asset mana­gers, Ares has become a billionaire factory. Arougheti and cofounders Bennett Rosenthal, 59, and David Kaplan, 55, are all billionaires, by Forbes’ reckoning. Executive chairman Antony Ressler, majority owner of the NBA’s Atlanta Hawks, is now worth an estimated $6.6 billion.

Ressler cofounded Ares in 1997 when he was 37 as the credit arm of Apollo Global Management, which he previously started in 1990 with colleagues from Drexel Burnham Lambert, led by Leon Black. Prior to its collapse in 1990, Drexel, under Michael Milken, pioneered the market for original-issue junk bonds. Ressler’s five years at Drexel served as a crash course in credit.

“That asset class forced you to be an analyst, forced you to understand companies, because historically, much of investment banking was to finance companies in the high-grade world, which didn’t require enormous analysis,” says Ressler, 62. “That has been the foundation of my career and of Ares. Understanding and pricing risk is fundamentally what we do for a living.”

Today’s incarnation of the firm began to take shape when Arougheti and Kipp deVeer, now the head of Ares Credit Group, arrived in 2004 to build its private credit business. Twenty years ago, private credit was a foreign concept. Institutional debt investors generally bought bank loans packaged together and sold by investment banks in liquid credit funds. Ares cut out the middleman, going directly to businesses to self-originate loans.

Like equity analysts, Ares does its own risk assessments, meeting with management and looking for growth, juicy margins and high return on invested capital. In 2021, it helped finance Thoma Bravo’s $6.6 billion acquisition of online postage retailer Stamps.com. Microstar Logistics, one of the world’s largest beer keg leasing companies, has tapped Ares for hundreds of millions in loans over a dozen years.

Nearly all of Ares’ investor offerings contain floating-rate bonds that are senior secured, meaning they’re backed by borrowers’ assets. That stability has helped the firm thrive in volatile markets. It raised $77 billion in gross new capital in 2021 and another $57 billion in 2022, and its management fee revenue—it char­ges between 0.35% and 1.5% for its credit funds—has more than doubled in the last three years to $2.1 billion.

While credit is its bread and butter, Ares has $138 billion in other segments like real estate, infrastructure and private equity. That includes a $5.5 billion “special opportunities” fund that invests in restructurings. Bets on formerly bankrupt Frontier Communications and Hertz have helped the fund return 25% annually since 2019. Ares raised a second $7.1 billion special opportunities fund last year. The firm also has $3.7 billion to invest in sports, media and entertainment, taking debt or minority equity stakes in 19 such companies, including the NHL’s Ottawa Senators and Formula 1 team McLaren Racing. (Outside the firm, Rosenthal also owns a significant stake in one of Los Angeles’ Major League Soccer teams.)

“These are noncorrelated assets. They have scarcity value,” Arougheti says. “The value of content is increasing, and there’s really no more unique unscripted content than live sports.”

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DREXEL BILLIONAIRE LAMBERT

Long before Antony Ressler made billions at Ares Management, he made his bones at Drexel Burnham Lambert, Michael Milken’s famed investment bank that fueled the go-go 1980s with junk bonds. He isn’t the only one from Drexel to ascend to Forbes’ billionaires list—here are the five richest.

Leon Black

Net worth: $9.3 bil

^{Cofounder, Apollo Global Management}

Josh Harris

Net worth: $6.2 bil

^{Cofounder, Apollo}

Michael Milken

Net worth: $6 bil

^{Drexel’s legendary junk bond king}

Marc Rowan

Net worth: $4.9 bil

^{Cofounder, Apollo}

Stephen Feinberg

Net worth: $3.8 bil

^{Cofounder, Cerberus Capital}

^{Image credits: Getty Images (3); Bloomberg; AP.}