Ares Management's CEO on Public Markets, Private Equity, and More | At Barron's

It's great to be here. Thank you. Thanks for the invite.

Sure. So, the firm was founded in 1997. Today the firm is close to $600 billion of assets under management in what broadly the markets define as alternatives or said differently private markets investing. We have market-leading businesses around the globe in private equity, real estate, infrastructure, private credit and have really been enjoying a secular growth trend that's happening in private markets as well as I think a couple things that we've done well to capitalize on that trend. We have about 4,000 employees in 40 offices in 20 countries around the globe. And so I think that positions us uniquely to have a lens into the real economy on a global basis.

Management. Yep. That's what you call strong management. Biggest softball question. Okay. How come your stock's up? Couldn't be. You know I phrase it that way. You know, it's funny because before I became the CEO of Ares Management, I was actually the CEO of our publicly traded business development company, Ares Capital Corporation, and ran that company for a decade before moving up to the parent. So in fact we actually had a subsidiary company that was public and growing before we IPOed the parent. I think what I learned and it's reflected in the valuation being in the public markets is fundamentally different than being in the private market. So it's always I don't want to say awkward but interesting for us as private markets practitioners to also have this large growing profile in the public markets. I think the key differentiators for us and what we've tried to do is simplify a complex industry so that people understand the role that we play in the global economy, what trends are driving the growth and I think that's critical for success in the public markets. You touch so many different individual and institutional investors and articulating just in very plain terms who you are, what you do, why you do it and why they should be affiliated with you. And second, we've tried to be very clean in the financial profile of the business. And what I mean by that is we are a pure play asset manager. We manage capital for the largest sovereign wealth funds, pension funds, insurance companies on the planet, but we also manage money for hundreds of thousands of individual investors. And that's the core business. And I think a lot of our peers have changed the business model over time to be insurance heavy or balance sheet heavy. And I think it's gotten a little confusing. So we focus on keep it simple, execute on the core strategy, and then make sure that we're growing consistently because I think as a set of professional investors, the ability to underwrite a business plan and consistent performance is always key. And if you look at Ares as a firm, we've grown roughly 25% compound annually for the last 25 years in every market and I think in the public markets particularly in a world where attention span is shortening by the day just that consistency and predictability I think has been a big underpinning of the value.

Yeah. You know, so I have the benefit of not having to invest in the public markets and having been in and around them for 30 plus years in my career. Now I think it's getting harder to differentiate as an active investor in the public markets. You've seen a cutting in half of the number of public companies in the last 25 years. You've seen a significant concentration in market cap in the top 10. You've seen the advent of passive investing, algorithmic trading, changing of the economics of research and intermediaries. So the structure of the market I think just makes it really really difficult to generate alpha and you can see that even over the last decade traditional public equity managers are having a hard time growing their flows because people want to buy beta exposure. So I'm a big big believer in owning equities and compounding wealth over a long period of time but I think it's getting very very difficult to be an individual stock picker. So, what do I think? I think the public equity markets today are fully valued. I don't want to say that they're overvalued. I think that they are fully valued. I think they're reflecting this concentration of market cap. It's reflecting a change in the discount rate. And obviously there's a big wave of enthusiasm that's running through the markets right now around the technology sector, the AI revolution and the productivity gains. And I could get behind that as a catalyst for value, but they're not cheap. Let's put it that way. At these value multiples, they're obviously well in excess of historical averages. And that's always cause for concern.

Yeah, look, putting aside that we will benefit from the growth in that, I feel great about it because I don't understand why a large institution should have access to a differentiated investment and an individual shouldn't. And so without calling it democratization but just increasing access and choice for individual investors with appropriate governance I think is always a good thing. And I think innovation in the financial markets generally has been positive for the investment community. So I'm a big believer in that. I also remind people that most of you in this room or listening to this podcast have access to alternatives in other parts of their lives whether it's your mortgage or your pension plan. So this idea of 401ks revolutionizing access I think is a little bit of a misconception because most large state plans, insurance companies, they're all investing in alternatives in a very large and diversified way. So it's not as though this is the first exposure people are going to get. But this will be the first time that individual investors will have the opportunity in their retirement plans to opt into these investments. And I think with the right structures, I think it's great for the investor.

Yeah, I've heard that many times articulated and I don't know who's propagating that, but it's probably the media. Yeah, usually blame the media. It's fake news. I think look anytime you go from institution to retail people get anxious about risk-taking. So investor protection, investor education has to be prominent in this conversation but there is no reality that I see where lower quality assets find their way to the retail investor because the institutional investor is saturated. I have been I don't want to say dampening the broader enthusiasm for this trend for that reason which is to say the market is not short on demand for private markets assets. The market is short on the ability to create private market assets for people to invest in. And so it's great that we continue to open up these new distribution channels and insurance and wealth 401k plans, but the constraint to growth and the proliferation of alts is the ability for folks like us to actually create new assets, build new apartment buildings, build data centers, buy companies, and all package consumer loans and all of these things. So I think it will diversify the funding sources but I don't think it's going to overwhelm the traditional institutional business.

Yeah, we have retail distribution. We have and I think that's a big part of the conversation now. It's fascinating. So when we went public gosh almost 15 years ago the alternative asset managers in the public market were trading at a deep discount to the traditional asset managers. And part of the narratives that we were talking about was convergence. And what we meant by convergence was not that traditional assets become alternative and alternative become traditional but that the consumer whether it's retail or institutional will want to buy liquid and illiquid exposures in one place. And that's now finally coming to fruition. But ironically the valuation has flipped because the growth and the differentiation is now on the alternative side.