Alternative asset manager Ares out with earnings yesterday now has 546 billion in assets under management. Executives told analysts on the earnings call they're optimistic about his portfolio given limited exposure to tariff rate changes. Joining me now is Michael Arougheti. He's the CEO of Ares. Good to see you.
And nice to have you coming off earnings. Sorry, almost 550 billion in assets.
Yeah, hard to believe. Obviously you and I have talked for years. I can remember when it was a far smaller number.
Does that in any way mitigate your ability to continue to generate what I would argue have been somewhat outsized returns? One of the key reasons for your success because you're a big boy now. You're not playing in a small pond.
It's so fascinating because every time you grow at the rate that we've been growing, 20 to 25% per year for a really long time, you ask yourself where's the outer bound? I think what we've learned in alternatives and particularly in private credit size actually enhances performance. And the reason is we just are able to put more people in more offices around the world with more products so we have more relevance to a bigger client base and a bigger investor base. So in some respects, growing off of the $500 billion plus AUM base is easier than growing when we were 50 billion.
You could just source more opportunities.
Exactly. Yeah. I think we have more competitive advantages, more scale, deeper relationship networks, broader distribution, and then you get this network effect that gets created when you have these portfolios at scale. So one of the things people don't fully appreciate when you look at our credit business, half of our deployment is into the existing portfolio. So you just create these big compounding portfolios.
And you don't think you need to kind of climb the risk ladder to a certain extent to generate similar returns?
I don't think so. I mean alternatives have expanded over the last 20, 30 years from what used to be very high absolute return product relative to the liquid markets. Today alternatives span 3% high grade all the way down to private equity and all things in between. So you don't necessarily need to reach for risk to grow. In some respects, growing the lower risk, lower return things is probably the easiest to do.
Yeah, you added I think 20 billion in assets during the last...
Yeah, we added 20 billion coming off of a record last year we raised 93 billion.
Can you continue at that rate?
Yeah, I think we can. We told the market to expect that we would come at or near what we did last year. We have about 35 funds in the market around the globe. The product set is diversified. We're deep in the institutional channel. We're deep in the wealth and retail channel, deep in insurance. So the broadening out of the product set and the broadening out of the distribution is making those numbers pretty consistent at this point.
The next opportunity seems to be at least trying to really gather up retail to a certain extent. I spoke with Mark Rowan from Apollo. They launched that ETF. Blackstone seen potentially doing something similar. BlackRock probably not far. Is that something you think about and how do you address this question of providing daily liquidity for what is underlying an illiquid asset?
There's a lot to unpack, so I'll try to keep it brief. First of all, sorry, it's a long question. Ares is very, very significant in the wealth channel. So we have about 170 people around the globe with 10 products that are giving people diversified access to what we think is the best of Ares durable income product, differentiated equity, tax advantage infrastructure. We did about 5 billion of asset origination in the wealth channel this quarter alone.
That's not a daily liquid product.
No, they tend to be monthly or quarterly. So we are huge believers in broadening access to alternatives for the retail and high net worth investor. It should not just be the purview of the institutional investor. I think what makes them so valuable is in some respects, the lower liquidity, right? I mean part of what has happened in the retail products that were available in the past, BDCs, mortgage REITs, yield cos, MLPs, the retail investor has tended to buy pro cyclically and sell when the market is probably most attractive. So in some respects locking up that capital is able to protect the investor from themselves and drive higher return.
Yes. I personally am not sold on the idea of making illiquid products liquid. Why not?
I think there's already a diversity of product in the market. So if you take ARCC, which is our traded BDC, $30 billion portfolio, 20 year track record, daily liquidity, trades on NAV. So that technology exists, it's proven, there's no need for market making. There's no hand wringing over the valuation of those assets. And so there's a lot of energy going around trying to innovate how to make illiquid assets liquid and I feel like that technology already exists.
