
A version of this article is published in the Inside Alts Information Bulletin of CNBC, a guide to the rapidly growing world of alternative investments, investment capital and private credit to hedge funds and venture capital. Register To receive the next editions, directly in your reception box.
HAS ARES GESTION Last month, on the analyst day, the alternative asset manager discreetly increased its funding objectives over three years.
CEO Michael Arougheti told CNBC that the change was due to a better than expected dynamic among wealthy individual investors.
A recent survey by State Street has revealed that the “retail trade revolution” will lead to more than half of the private market flows in the coming years, a seismic change compared to traditional fund collection sources, which were historically made up of institutional investors. Ares has been one of the main beneficiaries of this trend, offering different types of vehicles at retail for more than two decades.
“What has changed now is the quality of the product, the extent of the product – the investment we have made in product maintenance,” said Arungheti in an interview.
Ares has 185 people in 10 offices worldwide working on product development and customer education, he said. The company already manages more than $ 50 billion in assets from semi-liquid vehicles intended for retail. AROUGHETI said ARES ‘market share on the retail segment is approaching 10 %.
As the retail allocation dynamics in alternatives are strengthening, some have warned that managers would channel the lowest transactions to individual investors, while reserving the best assets for institutional investors. A recent article from Harvard University has revealed that there is a disadvantage in terms of performance among the funds sold to a greater number, which, according to the author, “raises the possibility that poorly efficient products are oriented towards less rich and less financially sophisticated investors”.
“This story that the weakest products are reserved for retail trade is simply not true,” said Arungheti, adding that only the largest managers offering “highest quality” transactions have enough scope to build their wealth management platforms.
“We actually allocate our investments according to available capital, and therefore a large part of the investments that are found in our portfolios of institutional customers are also found in our wealth management product,” said Arungheti. “And so they grow up together.”
ARES had around 572 billion dollars of assets under management at the end of June, including two thirds in credit. The company has investments in more than 3,000 intermediate -sized companies.
As for the value proposal – why individual investors would be so interested in the alternatives at the moment, especially when public actions have reported so much in recent years – Arugheti has said that it is thinking that this is a response to the growing concentration of liquid titles.
“It is actually quite difficult to navigate a diverse portfolio on public procurement,” said Arungheti. “They are looking for a diversified and not correlated actions exhibition, therefore Private Equity, real estate, etc.”
The retail revolution on which Ares is so optimistic does not even take into account the potential opening of retirement accounts 401 (K) for a greater allowance for alternatives, which could further strengthen the asset objectives under the management of the company. But Arungheti was somewhat skeptical about the speed with which this market would make it happen for industry.
“In fact, I don’t think we will see a change in behavior as long as there is no change in the regulations,” he said.
“And the challenge with this sector, which is almost in disadvantage of the end customer, is that it is very, very sensitive to the costs, and the close definition of the fiduciary obligation is the cost, and not what my return unit provided for this cost,” said Arougheti. “So, almost by definition, structurally, the market is not oriented towards alternatives, where the costs are higher, but where you pay for a much higher net return. So, until you give regime promoters the insurance that they are free from litigation for not having respected their fiduciary obligation, I think that it will be difficult.”
However, as the industry evolves towards the masses, Arungheti has encouraged to rethink the term “alternative”.
“There is nothing alternative in what we do, right?” he said. “The biggest false idea is that, in one way or another, the private markets create risks of investment which would not exist otherwise, that we create a demand for capital which would not exist, instead of simply understanding that it is a natural evolution and innovation on the financial markets that we have observed for generations.”