Michael Arougheti on Private Credit, Baseball & Building a Winning Team | The 19th Hole

Oh, wow. That's awesome. Well done.

Yeah, this is awesome. We're going to talk more about the Orioles, but I suspect this has been an incredible thing for you. It's been a thrill and I'm just happy to be able to share a little bit of it with you today.

I played a lot of sports growing up. My favorite sport to play was probably baseball. But you're not going to believe this, but I played basketball until I became a little bit too physically challenged to excel. But I actually played basketball in high school. I played soccer in high school and I played baseball. So I kept busy.

I loved playing it. It was from my earliest days. It was probably the thing I wanted to do the most. But again, I realized I wasn't going to become a professional baseball player. But I always loved that. I love the game. I love the purity of it. I love the fact it's actually one of the only sports that you watch in parallel with someone. You're there with your father, your mother, your kids, your grandparents, your friends, and you're having an experience together. There's something about the pacing and the rhythm of how you watch baseball that to me has always been incredibly special.

Yeah, let's go. We'll see Eutaw Street and maybe kind of get a feel for the place.

So this Eutaw Street is open. So it's like a thoroughfare. People will come and standing room only watch the game.

Yeah. Beer garden tables, high tops. It's got a really good vibe to it. I spent a lot of time down here at games with the fans, with our corporate partners in the community because that's kind of what's required to be successful. This is an asset of the city and the community. We have a deep sense of civic responsibility to do the best we can to advance the franchise, to advance the neighborhood. And we're going to do everything we can to do that. It is woven into the fabric of the community. And part of the social contract is we're going to put the best team that we can on the field and you're going to come support them and invest in them, right? So, it's a symbiosis. We have to invest in the community and they have to invest in the team.

So, I grew up in the suburbs of New York City in Rockland County, which most people think is in New Jersey. It's kind of on the other side of the river. I grew up in a town called New City, which was kind of one of the early flight out of the city type suburbs. Squarely American middle class suburb. Grew up in a split ranch home in a housing development. Both my parents were school teachers. When I reflect back on who I am today, their influence as educators, I think, is a big part of my core value system.

You know, it's so funny. I remember them being hard on me. They don't.

It's funny. My first means of supporting myself was in middle school and I would go to the grocery store and I would buy large bags of Dum Dums and Blow Pops and I would then break them up and sell them on the bus. So probably I think my cost of goods was a nickel and I sold them for 25 cents. So that was my first foray into free enterprise. And then when I was about 14, which is kind of interesting given my interest in baseball to this day, I started a baseball trading card company called Four Corners Sports Cards. And my parents, back to not being hard on me, but making me go through the required steps. They made me get a tax ID number and put together a budget and a business plan, do all those things. And I did that for a number of years driving around to the various hotels and convention centers.

Massively.

I was always intrigued by business and finance, but the degree that I got was actually a pretty broad-based degree. It was classical philosophy, political science, economics. I could have taken it in any number of directions. And as a 20-year-old because I graduated in three years, I didn't really know what I wanted. So, I thought maybe I was going to be a lawyer. I actually thought at one point I was going to be a professional chef. I applied to the Culinary Institute of America. It was an awkward time for me because graduating early, I was kind of looking to get into the workforce. I had been putting myself through school a little bit with financial aid and I was working in the dining hall, but I was off cycle. So, while all of my friends were kind of doing what normal juniors and seniors do in college, which is decidedly not look for a job, I was thrust into this world of having to figure out what I wanted to do next. I applied to a couple jobs on Wall Street and I was lucky that a friend of mine from the year prior at college was an analyst at Kidder Peabody. And so ultimately got an interview there and got a job and so I started my career as an M&A analyst at Kidder. So that was kind of almost by happenstance that I found my way into it.

Not very long. I was there for probably a year and a half. I went from Kidder to a place called Indosuez Capital which no one's ever heard of but it was a very small pretty substantial merchant bank at the time given the state of the private markets and we were effectively using the bank's balance sheet to do some very early LBO financing. So we were one of the early middle market lenders, if you will. That experience of working within a bank and watching the development of the private equity and the private credit markets and then feeling the constraints that existed working in a bank ultimately is what led us to go try to do our own thing. And yes, it was our precursor. It was Smitty, Kip, me, Dave Schwarz, but a bunch of people that are now still very senior people running big businesses at Ares. And it was a light bulb moment for us because we had now worked at two big banks that in theory you would think would want as much of this private credit thing that we were doing as possible and they just ran out of capacity.