Partner & Co-President, Ares Management Corporation
Blair Jacobson Discusses Ares' Approach To Capital Deployment | Ares Management
"We’re looking to back the best companies we can find and, importantly, in the most defensive industries.” Blair Jacobson, Co-Head of Ares’ European Credit, joined Bloomberg Daybreak to discuss Ares’ highly selective approach to deploying capital. He also discussed the consistency of Ares’ model amid concerns over the risk factors that face the European private credit market and outlined the firm's approach to the current market environment.
Source: Bloomberg Daybreak: Europe
Host: Dani Burger
Date Aired: September 15, 2022
Listen to the full conversation here: https://www.aresmgmt.com/news...
About Blair Jacobson
Blair Jacobson, co-president of Ares Management, discussed private markets in two media appearances in June 2026. At SuperReturn International, he described a "disconnect between market anxiety and the fundamental performance" he is seeing, stating that portfolio companies are growing 8 to 12% per year and that non-accrual rates are lower than historical averages. He called AI-driven infrastructure investment a "supercycle megatrend of our lifetimes," citing a projected $2 trillion opportunity over five years to build data centers and $1.5 trillion to power them. Jacobson also noted that Ares is increasing its market share as fundraising concentrates among larger managers. In a Bloomberg interview, Jacobson said that most companies prefer to remain private due to the availability of capital from private equity, credit, and infrastructure sources. He pointed to a trend of declining public company listings and stated that institutions continue to back private funds because they need asset returns to meet growing liabilities. Jacobson reported that Ares had record fundraising for two consecutive years and expected another record in 2026.
Transcript (25 segments)
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Host0:00
US is backing European private capital. They are expected to double in the next four years to just under five trillion dollars, that's from data from Preqin. Now a lot of that growth is going to be led by debt private markets. You know, at the same time though, this is a sector as we've been speaking about that has to contend with risk from rising interest rates to those recessionary fears, of course, all which potentially could sour sentiment and spur defaults. So joining us now is someone who's both very familiar with those risks and the growth of the industry. It's Blair Jacobson, the co-head of European credit at Ares Management, who manages over 300 billion dollars and of course a pioneering force in direct lending. Blair, thanks so much for joining. So I mean, it's a fascinating time for the industry considering you just came off of COVID, this huge lending spree coming from you and your peers. Has it held up this year as we're staring down the possibility of a recession?
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Blair Jacobson0:53
So you're right, we are facing three major concerns at the moment. We're seeing the highest levels of inflation frankly that many of us have seen in our professional careers. It started the end of last year, that certainly continued and been exacerbated by the war. Secondly, we are in a rising rate environment as you've cited many times on this program. The central banks have said it's going to continue. And lastly, what you just mentioned, certainly some fears around an economic slowdown and potential recession. From a deployment perspective, we've been consistent, we've been cautious. In fact, we're benefiting from the fact that private equity firms in Europe are still sitting on record amounts of dry powder, and the dry powder in our sector is maybe about a third of that, maybe 35 percent. It's at least a pretty favorable supply-demand imbalance for us.
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Host1:39
So you're still deploying capital, but are you scaling back in terms of how risky you're willing to get and how conservative you're being in deploying that capital and loaning money?
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Blair Jacobson1:47
I think part of our model is we've always been highly selective. We talk to maybe 1,200 companies every year in Europe. We make new loans to maybe between 30, 40, 50. So we're definitely looking to back the best companies we can find and importantly in the most defensive industries.
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Host2:07
Blair, good morning to you. Thanks for joining us both. It's good to have you and get your take. You said you've become more cautious and more considerate. The natural pro quo to that is if out of 1,200 you do 40, where are you most cautious about? Where are you most worried about default risk really?
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Blair Jacobson2:26
Sure. Our portfolio naturally underweights sectors that are most default-prone. You won't see a lot of consumer retail in our portfolio. You won't see energy, oil, power, gas, media, advertising. We're much more focused on stable sectors that are less linked to GDP growth, sectors like telecommunications, healthcare, software, and business services.
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Host2:51
Well, let me ask you this then, because we have heard anecdotally of others who are pulling back on lending, who are fearful, who are worried about defaults. So what are you seeing differently that's allowing you to continue to do this when others aren't?
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Blair Jacobson3:03
I think it starts with a very strong capital base in Europe. Plus, we have 80 people in six offices looking for transactions. And again, it's really depending on which companies you're focused on, your capital base. And we've really shifted towards focusing on being senior in the capital structure. We've tightened up our loan documentation just so that we're prepared in case things do decline.
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Host3:25
Is that what you're seeing though? I mean, you're preparing for it, but are you expecting some defaults to come? Are you expecting a default wave potentially?
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Blair Jacobson3:33
Again, right now we are obviously mindful of the macro. However, we're long-term investors. We've seen in certainly the first six months of this year, companies are continuing to grow. They tend to have pricing power. They've passed on the inflation that they've seen by raising prices. Will it continue? We'll see. But again, as a lender to these companies, we have a different outlook for what needs to happen compared to say what the equity or the key stakeholders in the business need to see happen.
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Host4:02
But in part that's about the capital structure, isn't it? And therein lies the point, Blair. A lot of Danny and I were chatting about this, private credit loans are floaters. The majority of them we understand are on floating rate. Are you seeing a large appetite to switch? Are you having to consider that to help weather the storm coming forward?
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Blair Jacobson4:26
Yeah, that's a great observation. Clearly, as we said, we're in a rising rate environment despite the macro. And for us, it's a bit of a double-edged sword. Clearly, our returns and our investors' returns go up when the base rates increase because roughly 90 plus percent of our loans are indeed floaters. So that's a positive. But the question you're getting at is at what point do the companies have challenges absorbing those base rate increases. And we've done a lot of math on this as it relates to our portfolio. And by our estimates, base rates need to rise to about six percent for to really start pinching the companies. And the other factor which I think you're getting at as well is starting in January this year, most of our companies started to hedge their interest rate exposure from loading.
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Host5:15
There's a risk of six percent rates. Do you think there's a risk of six percent rates as Ray Dalio?
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Blair Jacobson5:21
Yeah, it could certainly happen. The forward curves wouldn't indicate that it's expected, but when I moved to the UK in 2005, the rates here were five percent going up to six percent. So yes, it could certainly happen.
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Host5:35
I do wonder, I mean, are you hiring more restructuring experts right now in your business?
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Blair Jacobson5:40
So we've always had that as part of our 80-person team in Europe. We have 15 who are solely dedicated to helping monitor their portfolio.
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Host5:48
So you're not then, or including, restructuring experts?
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Blair Jacobson5:51
Yes, we have three senior-level restructuring experts, but really we've always had them. The cornerstone of our strategy is capital preservation. And when you're lending to middle-sized companies like we do, things can happen even in good environments. So playing strong defense has always been a key part of our strategy.
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Host6:07
I mean, you are very, you know, perhaps cautiously optimistic for Ares, but what about when you look across the industry? Because obviously a feature of COVID was this hunger for deals, people perhaps blending out and doing these covenant-light lending where they had less protections. Are you fearful for the industry as a whole at this moment?
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Blair Jacobson6:24
So we did observe that trend in particular 2021 coming into 2022. By our estimates, the European direct lending market, maybe five percent of the market went to covenant-light. And basically what that means is as a lender, you only really have rights when the company has a liquidity issue or frankly misses an interest payment. Those aren't loans that we've participated in, and certainly I would be concerned if I had a lot of those in my portfolio going into what will be a challenging macro environment.
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Host6:54
So you're concerned for others then that have done this?
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Blair Jacobson6:56
We are.
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Host6:57
Okay, fair enough. Glad we didn't do them there. Okay, one last squeeze on you. Who's the most desperate for funding at the moment? Let's just punch one last one out of you because we're fascinated. Who is the most desperate at the moment at your door?
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Blair Jacobson7:12
Sure. I think what we've seen is increased demand from larger companies. This is an interesting dynamic to spend a moment on. As you've probably covered, the capital markets are basically closed right now. Commercial banks are risk-off, investment banks are risk-off, and that's actually created a nice dynamic for us because again, we're a large-scale fund manager, we're more relevant to larger companies. So the average profitability of a company that we're lending to is probably up 30, 40, 50 percent this year than it was last year. So again, big convergence trend, lending to larger companies that frankly can't get capital today in the traditional liquid markets.
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Host7:51
Go for size or go home. Thank you very much, Blair Jacobson, the co-head of European credit at Ares Management. We thank you for joining us.