Ares’ Arougheti sets out plans to take advantage of ‘inflection point’ in secondaries

Ares' close of the Landmark Partners acquisition this quarter, along with strong fundraising, helped boost the firm's AUM to nearly a quarter trillion dollars.

Ares Management, the 19th-ranked manager on this year’s PEI 300, outlined drivers for its growth in secondaries on its earnings call Thursday.

These drivers include making use of the retail investor base, credit secondaries, the globalisation of the secondaries market, as well as playing to the preexisting strengths of the firm it recently acquired: secondaries veteran Landmark Partners.

The firm also announced that key acquisitions, including Landmark, and strong fundraising have greatly bolstered the group’s assets under management.

The firm now controls $247.9 billion of assets, a 56.5 percent increase from $158.4 billion at at the end of Q2 2020, according to chief executive Michael Arougheti. This is thanks to its fundraising haul from its direct lending, private equity and listed vehicles. That figure also benefited from the acquisitions of SSG Capital Holdings and F&G Reinsurance. Landmark, which closed in the second quarter, added nearly $20 billion of AUM and sits in the firm’s newly created secondaries solutions group.

There also remains a strong pipeline of funds in market, according to Arougheti, who added that he expects 2021 to exceed the 2020 fundraising record of $41 billion on the backs of additional closings of the firm’s sixth private equity fund, second special opportunities fund, inaugural climate infrastructure fund, sixth Asian special situations fund, both US direct lending flagship funds and an inaugural sports and entertainment fund.

The 17th private equity secondaries fund and the ninth real estate secondaries fund, which Ares assumed ownership of after acquiring Landmark, will also see closings this year, according to Arougheti.

He elaborated on the growth drivers for Landmark, noting that “as you think about the ‘retailisation’ of private equity, particularly some of the opportunities being talked about to allow for private equity ownership in 401(k) and defined contribution plans, the best way to access that exposure will be through secondaries portfolios”.

The firm is actively thinking about how to deliver its secondaries product into retail channels, according to Arougheti.

Other drivers for Landmark’s growth into Ares’ offering apparatus include 1) continuing to grow core, private equity, real estate and infrastructure; 2) expanding into credit on the strength of Ares’ existing platform; and 3) a globalisation of existing offerings, particularly in Europe and Asia, where secondaries markets are accelerating, according to Arougheti.

“We believe the secondaries industry is at an inflection point,” he said, noting the dominance of GP-led transactions as very favourable to the firm given Ares’ deep set of relationships. “The combination of Landmark’s industry leadership and [Ares’] global sponsor investor relationships will provide meaningful growth opportunities.”

In 2020, for the first time, GP-led deals took precedence over LP stakes. While the total secondaries market volume last year was estimated at around $60 billion, GP-led deals comprised 53 percent, according to Evercore’s 2020 full-year volume report, compared with 32 percent for the year before. In data released this week by Jefferies, the figure has jumped even higher: GP-leds accounted for 60 percent of total market volume during the first half of 2021 – a 38 percent increase on H1 2020 in terms of volume.

Earlier this week, Secondaries Investor reported that New-York based partner John Stott, who had been with Landmark since 2013, departed from Ares. His destination is unclear.

In 2018, Stott was included in Secondaries Investor‘s Young Guns of Secondaries – now Next Gen Leaders – a ranking of the most impressive industry professionals below age 36.