Ares Management is to enter the secondaries market by acquiring Landmark Partners from BrightSphere Financial Group in a $1.08 billion deal, the firms said this week. The Simsbury, Connecticut-based secondaries firm will become the fifth strand of Ares’ business, alongside private equity, private credit, real estate and strategic initiatives.
Founded in 1989, Landmark has raised 16 vintages of funds in PE, eight in real estate and one in infrastructure. According to a presentation accompanying this week’s news, this makes for a total of $19 billion of assets under management, $8 billion of which is dry powder.
Along with TPG, Brookfield Asset Management and CVC Capital Partners, Ares is the latest firm to have entered or to have considered entering the secondaries market in the past two years, as firms position themselves to take advantage of lengthening fund lives and hold periods.
Executives held a call about the deal on Wednesday. Here are some key takeaways.
Landmark to enter credit secondaries space
Unsurprisingly, given Ares’ status as one of the world’s biggest credit investors, the asset class will play a significant part in Landmark’s future. Ares chief executive Michael Arougheti said the firm’s platform should bring the “relationships in the sponsor community, deep structuring capabilities and significant capital scale” needed to do GP-led deals in the credit market and to boost Landmark’s capabilities in PE and real estate.
Ares is running a GP-led secondaries process on one of its European direct lending funds, the firm said on the call. It previously carried out a process on one of its private equity funds in 2019 in a $1 billion deal backed by Coller Capital, as we’ve reported.
Fundraising central to Landmark’s incentive plan
Landmark’s 16 partners are taking equity as part of the transaction and will participate in a management incentive plan under which they will have to meet targets related to fundraising and revenue generation. If successful, the plan will pay out in 2023. Landmark’s historical fund terms – 10 percent carry on clearing a 1.5x multiple – will remain in place.
In February, Secondaries Investor reported that Landmark was targeting “north of $10 billion” in its latest fundraising cycle across its PE, real estate and infrastructure funds. The trajectory is continuing and “frankly should accelerate under Ares’ ownership”, Arougheti said.
Larger funds, a wider range of LPs
Landmark’s growth strategy also includes expanding the range of its LP base. Ninety percent of the firm’s current investors are US-based with a skew towards the domestic pension system. Ares’ investor base is split down the middle between the US and the rest of the world. Another ambition is to grow Landmark’s business in Asia-Pacific, where it has no presence.
Landmark will be able to call on Ares’ 825 financial sponsor relationships and its 1,100 LP relationships, while Ares will look to cross-sell to Landmark’s 600 LPs. Since 2015, the amount of capital committed by clients to six or more Ares funds has grown by 24 percent annually. “We expect to be able to help Landmark meaningfully grow its flagship funds,” at a similar pace, Arougheti said.
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