Ares Management has closed a $3.4 billion direct lending fund that will provide junior financing to companies backed by private equity firms.
The fund will focus on North American borrowers in the upper middle market, as more traditional financing sources, including high-yield investors, continue to target larger companies, the alternative asset manager said in an announcement Thursday. Fundraising was completed in less than a year, with Ares Private Credit Solutions exceeding its goal by almost $1 billion, according to a spokesman for the Los Angeles-based firm.
Private debt funds have been on the rise, with a record 324 pools seeking to raise $153 billion globally in November, according to Preqin, a provider of alternative-assets data. It has become cheaper for institutional investors to allocate capital to private debt funds, as management fees in 2017 have fallen to a ten-year low, Preqin data show.
“The success of the fundraise, which closed well in excess of our initial target, clearly illustrates the tremendous market opportunity and our leading market position in the U.S.,” Michael Arougheti, president and chief executive officer of Ares, said in the statement.
[II Deep Dive: It’s Getting Cheaper to Invest in Private Debt]
While the firm’s direct lending business had more than $40 billion in direct lending assets in the U.S. and Europe at the end of the September, Ares Private Credit Solutions is its first fund focused on junior capital, according to the statement. The new fund began investing in April and has already deployed 20 percent of its committed capital.
“We expect the fund will benefit from our ability to source investments from our existing relationships and our strongest incumbent portfolio companies as they graduate into the upper middle market,” Michael Smith, co-head of Ares Credit Group, which manages about $70.5 billion of assets globally, said in the statement.
The U.S direct lending team has invested $48 billion since 2004, including second-lien and mezzanine financing provided to borrowers in the upper middle market.