Ares Management’s dedicated wealth unit expects to see a broader product line-up for individual investors and more tech partnerships in the near term as it seeks to scale its platform.
About 19 percent of Ares’ AUM stems from the retail channel, mostly in the US, Raj Dhanda, Ares’ global head of wealth management, told affiliate title Private Equity International.
He added that the firm’s vision is to have both semi-liquid, perpetual offerings in private credit, private equity, infrastructure and other real assets, as well as drawdown funds that periodically allow opportunistic executions.
“It’s been quite a whirlwind, and we believe that we are making progress in having a strong product line-up in place,” Dhanda said.
The Los Angeles-based firm began building out its wealth unit, Ares Wealth Management Solutions, in 2021 through the acquisition of real estate investment manager Black Creek Group. The move sought to enhance Ares’ retail distribution capacity for its existing and new products, according to a statement at the time.
Fast-forward nearly three years later and Ares’ wealth team has grown to 120 professionals in the US, Europe and Asia across various functions, including sales and marketing, product development and client services.
In April, the firm launched a non-traded fund targeting high-net-worth investors in the US, which it seeded with approximately $1.5 billion in investable capital, affiliate title Private Debt Investor reported at the time. Of this, more than $847 million of equity commitments came from institutional investors and about $625 million from credit facility commitments, according to a statement. As of end-September, the fund had $2.1 billion of assets in holdings in more than 200 companies, per a quarterly statement.
In October, the firm launched its first direct lending fund for individual investors in Europe and Asia, which will invest in directly originated, senior secured, floating-rate loans to businesses in Western Europe.
“We see it as a significant opportunity to be able to deliver perpetual capital AUM to the firm. It’s something the firm has actually always thought about doing, but historically did not have the scale and the full breadth of resources in place until acquiring Black Creek Group in 2021,” Dhanda said.
Speaking about the firm’s European direct lending strategy, Mark Serocold, partner and head of EMEA for AWMS, noted that it offers access to one of the largest teams of loan originators in the industry. “My belief is that individual investors in Europe who want exposure to direct lending haven’t had the right access points to invest in it before now.”
Private wealth appetite for more alternatives in investment portfolios is bolstered by challenging markets and the need for portfolio diversification and better returns. As such, semi-liquid structures and yield-oriented asset classes like credit and real estate have drawn particular interest in recent years.
The rising interest rate and inflationary environment has “completely changed the investment paradigm”, according to Dhanda. “It’s a big part of why Ares has grown so quickly institutionally. Floating rate, lending to mid-market companies globally is a defensive, uncorrelated strategy to the public markets that we talk about a lot in today’s high interest rate environment.”
This push into the wealth channel is also supported by friendlier fund structures and positive regulatory trends including the European Long-Term Investment Funds Regulation, the Long-Term Asset Fund in the UK and the Crea y Crece (business creation and growth) law in Spain, among others.
According to Bain & Co, individual investors hold roughly half of all global wealth, which is estimated at between $275 trillion and $295 trillion, but account for just 16 percent of private capital AUM. Retail capital AUM is expected to grow from $4 trillion in 2022 to $13 trillion in 2032.
Despite growing activity in alternatives and the individual investor channel, Serocold stressed there’s an education curve to get over. “It’s one thing talking to an industry professional about the asset class, and another trying to convince an individual to reallocate a share of their publicly traded European equity or fixed income exposure into a completely new asset class. There’s work for us to do on the education front, and it’s a huge part of what we do.”
AccessAres, the educational division of Ares’ wealth unit, offers resources to help individual investors get started on private markets investing.
The impact of regulation also differs across geographies. Europe, for example, is not a homogenous market, Serocold said, and presents its own challenges when it comes to executing such a strategy. “Product innovation-wise, we have an eye on all of that and we’re trying to identify markets where our clients want our products and capabilities.”
Along with innovative fund structures, technology is expected to play a greater role in lowering barriers to entry for individual investors. Similarly for firms, tech platforms are set to expand distribution and enhance the user experience.
Ares teamed up with fintech platform iCapital last year to build a servicing platform that will offer evergreen, drawdown, exchange and 40 Act funds, according to a statement.
“We believe that the emergence of AI-related and fintech-related capabilities will help answer the question of, ‘How does a group of 120 people cover 10 million clients globally?’ We expect our growth in the next several years in terms of our sales and outreach will be through a variety of technology-related sales platforms,” Dhanda said.
“More importantly, today you actually don’t need to meet every client personally. You can actually begin to reach clients through some of the technological innovation that exists now… By 2027 or 2028, you may see in Europe a lot of what’s happening in the US. The execution is very similar to a traditional mutual fund in terms of your method of purchase, and the documentation and marketing need to be streamlined.”