Thank you very much and thank you everyone for being here. I have the huge honor of interviewing somebody who I've come to really respect and admire as a person, equally for his leadership traits. So without further ado, Mike Arougheti, CEO and co-founder of Ares, thanks for saying that. So many of you might know Mike, but I've had the fortune of getting to know him through the eyes of baseball. So we're going to talk a little bit today about how he's really nailed two asset classes: private credit and sports. And many of you may not realize the depth of both his personal and professional sports investments, but it'll be great to hear from somebody that actually is in every major league. But I want to start with private credit. So when you became CEO in 2018 at Ares and you were already a co-founder, what did you see?
Well, I'm going to go back maybe just to the founding because it's interesting. When you look at the world of alternative investment, and we've spent a lot of time obviously at this conference talking about it, I don't know if people really appreciated just how large and concentrated these markets would become. And I think one of the things that we did differently as a pioneer in the private credit space was to understand that you had to go out and create investments, create assets. If you go back to the early foundings of alternative management, it was largely private equity driven or coming from the capital markets perspective. And so I think most people who founded alternative asset managers were used to being the client, right? A banker is going to call me with a deal or the trading desk is going to call me with a security to buy. We were coming at it from a different perspective, which is we said we want to go serve the client with innovative credit product. And I think we started building large, durable origination networks earlier than most, and that set us up for a pretty straightforward global expansion in private credit and other assets. In terms of what changed when I took over CEO seven plus years ago, just kind of leaning into that ethos and advantage. Jerry said it on the panel a little while ago is that we need more builders. And so what we've tried to do, following the roadmap that we did in private credit of creating our own product, now in our real assets business—infrastructure, data centers, industrial warehouses—is a vertically integrated approach to real assets, i.e., go out, build, develop, create your own product. And that's actually, I think, allowed us to continue to scale. So not a lot changed, but just trying to understand the scarcity value of high-quality assets. And at the end of the day, I think the world has more cash right now than high-quality assets. And so I think you win by sourcing the best quality assets and then figuring out how to own them for a really long time.
All right, so let's talk a little bit about fundraising. In this past year, when most people had struggle fundraising, you had a record year fundraising. And meanwhile, made dozens of baseball games. So how do you manage going to baseball games and scouring for capitals to shatter these records? Just host the investors at the baseball game and you kill two birds with one stone.
It's—I feel like I'm one of those guys like post the GFC where everybody looked at your golf index and figured out how much you were golfing when you were supposed to be managing the company. But baseball's been a passion of mine, and we could talk about why that is. But you know, obviously we spend a lot of time with our investors. We've cultivated trusting relationships over 30 years. I think what we got right over the last couple of years is just having the right product to meet the client demand. And this goes back to a client-centric approach, not just to investing but a client-centric approach to capital raising. Right? You could have the greatest product in the world, but if nobody wants to invest in it, you can't grow. And so we've tried to create a transparent feedback loop of what can we actually create in the market and what do our investors want. And if we can get those two things to meet where we can really exploit a market opportunity, that's when the fundraising scales.
All right, I know you want to talk about sports, but one more thing on private credit. Do you think in a high interest rate environment—obviously that's how you guys have done so well and bringing solutions to managers as well—but what will happen if interest rates change? Has the Ares brand become so well known that you guys will be fine, or where do you see this playing out?
You know, I don't—the growth in private credit, and hopefully other people have talked about this, is not a reflection of the rate environment. Right? The global private credit markets, whether we're talking about corporate lending or real asset lending, is just being driven by a need and a demand for credit that's not being met by traditional sources. That's happening in mature markets like the US. We saw it develop quite rapidly in Europe, and now we're starting to see it develop in other parts of the world. And so there's just a massive secular demand for innovative credit solutions. We talk a lot that money makes the world go around, but credit makes money go around. And if you don't have healthy, creative credit markets, you can't actually spur the type of economic growth that people need. So it really starts with an understanding that this is not a rate play, it's a secular demand play. One of the things that people love about most private credit instruments is that they are short-duration, floating-rate. And so clearly, when rates go up and stay elevated, people are making more money. The mitigant to your point is it puts stress on the borrower community, and you have to work through that balance. I think now that we've generally peaked in the global rate environment in most developed markets, the portfolios have weathered the storm and have held in quite well. So we've been in this business for 30 years, and generally, as rates come down, spreads widen; as rates go up, spreads tighten. So the total return shouldn't really change. So I don't expect there to be any less demand as rates begin to move.
Well, as a GP, I've had the honor of working with your team. We are in a greenhouse company together, Gotham Greens, and I've been amazed just learning the private credit playbook when you sit on the equity side. So it's been interesting to see how you use that combination of debt and equity.
Yeah, look, the structure of the markets is structured for a reason. So banks have regulatory capital frameworks that exist for a reason. Insurance companies, unlevered investors—so understanding private credit again through the needs of the client, and this goes back to our relationship, we can do things with a level of creativity and flexibility and proximity from a relationship standpoint that you just can't get in other places.
All right, so let's change gears a little bit. Many people may not know this, our firm is based in Vail, Colorado. Every January, instead of going to Davos where a lot of the world's elite is, you and all of Ares for weeks on end are in Vail. But what I admire most is you bring all of your GPs, all your portfolio company, everybody wears Ares ski goggles. But explain this, what has been part of the culture of Ares which is relatively different than other large institutional firms?
So I just want to say for the record, I don't know if there's media here or not, but Ellie's giving the impression that we go to baseball games and ski, but I just want to assure you that we're running a company. But we go to Vail not Davos because the snow is just better and more consistent. But I think to your point about culture, and I'm glad you mentioned that, the specific conference that you're referencing now is probably 250 of our closest GPs that we have relationships with that we've cultivated over 30-plus years. And there's probably a waiting list of 100 GPs that actually can't get in because we can't accommodate them. And that's not me pounding my chest, but if you go back to the first year that we did that, which was probably 27, 28 years ago, it was 10 or 15 GPs. And it speaks a little bit to the way that the market has scaled, but it goes back to this client centricity, which is at the end of the day, the investment business is about trust and relationships. Right? Capital in many respects is a commodity in everything that we do. And so we all want to do business with people that we trust, whether they're external counterparties or internal. And so I think what we've tried to cultivate is our own culture. And I've been fortunate to work with my partners for almost 30 years, and they're some of my closest friends. It's a real understanding of the value of building trusting relationships. Things don't always go according to plan. Cycles come and go, markets are volatile. You know, it's hard enough when you're all getting along and you've got deep client relationships, so heaven forbid that you have the opposite. I can only imagine how difficult it could be.
All right, last question on culture, and I don't want people to think you don't work because that's not true. But the other one that truly shocked me was you and your partners bought a bar in Minter, which is a historic town in Colorado. And I couldn't believe the first time I got to go to the Ares Summit, there you were, and after skiing, you were hanging out together. It was not a scene that I was familiar with. And I couldn't believe you guys were really best friends. This was not a facade just for the event. Is this continuous, or does this just happen in Vail, or do you do this throughout?
