WEBVTT - Ares CEO Arougheti Talks Succession Plans, Fed, Mergers 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>You're watching Open Interest. I'm Shinali Backzek. I'm sitting here

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<v Speaker 2>with Aris Management CEO Michael Arraghetti and it's interesting. Mike.

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<v Speaker 2>Good to see you today.

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<v Speaker 3>Thanks for coming down.

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<v Speaker 2>Oh, you're welcome. This is on the heels of some

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<v Speaker 2>news at areas. This is on the heels of a

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<v Speaker 2>big set of promotions. You announced co presidents for the firm,

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<v Speaker 2>but that also set off a wave of promotions underneath

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<v Speaker 2>them as well. What does this mean for the future

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<v Speaker 2>of areas in the direction you're trying to be so happy?

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<v Speaker 3>So Kip Devere and Blair Jacobson, who I think you're

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<v Speaker 3>sitting down with later two of my oldest friends. We've

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<v Speaker 3>been friends for thirty years, business partners for twenty five

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<v Speaker 3>years in the case of Kip, fifteen plus years in

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<v Speaker 3>the case of Blair. So anytime you can elevate, you know,

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<v Speaker 3>good quality people, it's caused for celebration. But as you

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<v Speaker 3>hinted at, we've been I think really good at succession.

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<v Speaker 3>You know, private equity firms historically are great at succession

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<v Speaker 3>I think within their portfolios, but when it comes to

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<v Speaker 3>themselves have sometimes missed the mark, and I think any good,

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<v Speaker 3>high quality growth company needs to be great at succession

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<v Speaker 3>and needs to create pathways for growth for future leaders.

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<v Speaker 3>So the reality is, over the last year, we've elevated

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<v Speaker 3>co heads in our European direct lending business, We've elevated

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<v Speaker 3>co heads in our US direct lending business, We've elevated

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<v Speaker 3>people in real estate, and there's just been this massive,

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<v Speaker 3>you know, wave of growth and promotion. I think part

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<v Speaker 3>of what makes our culture unique speaking to the friendship

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<v Speaker 3>that I have with Blair and Kip, but it pervades

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<v Speaker 3>the whole organization is we have people here who are

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<v Speaker 3>now running businesses that started at areas twenty twenty five

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<v Speaker 3>years ago as an analysts and really grew up in

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<v Speaker 3>this in this culture. So I just couldn't be happier.

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<v Speaker 2>You know, It's interesting this is not just happening at areas.

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<v Speaker 2>It's kind of happening across the street, where you're seeing

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<v Speaker 2>more people in high level roles being tapped to be

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<v Speaker 2>elevated to the number two, three, four positions. What does

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<v Speaker 2>this say about the talent war on Wall Street? What

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<v Speaker 2>are you seeing when you talk to the banks and

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<v Speaker 2>you talk to your rivals about people who might want

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<v Speaker 2>to come here.

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<v Speaker 3>Look, I think you win in this game by developing

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<v Speaker 3>and retaining great talent. I think we've been fortunate. We

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<v Speaker 3>have very very low turnover, and you can see that

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<v Speaker 3>in the way that our leaders are growing and developing here.

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<v Speaker 3>There's always going to be a war for talent. I

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<v Speaker 3>think the reality is the large firms in our business

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<v Speaker 3>are getting larger. There's huge benefits to size and scale,

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<v Speaker 3>So I'd like to think that we and others are

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<v Speaker 3>kind of net beneficiars of that war for talent. I

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<v Speaker 3>would imagine certain other parts of the market, whether some

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<v Speaker 3>of the investment in commercial banks are probably struggling to

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<v Speaker 3>maintain talent just given some of the secular changes that

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<v Speaker 3>are happening in our market.

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<v Speaker 2>To that end, a few people realize that you added

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<v Speaker 2>about one hundred investment professionals last year.

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<v Speaker 3>We did, so, we grew our investment teams over ten

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<v Speaker 3>percent last year, and we just came out of our

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<v Speaker 3>planning meetings for this year and I would expect growth

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<v Speaker 3>this year will be similar. So obviously the businesses are growing,

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<v Speaker 3>they're diversifying, they're globalizing, and the way you support that

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<v Speaker 3>growth and complexity is, you know, adding.

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<v Speaker 2>High quality time one hundred more people.

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<v Speaker 3>Yeah, well we're up to almost four thousand people now, obviously,

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<v Speaker 3>so that's part of the conversation around the elevation of

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<v Speaker 3>Kip and Blairs, obviously, just putting some of our most

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<v Speaker 3>proven business builders and leaders against this growth and complexity.

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<v Speaker 2>You know, the growth is coming against an interesting backdrop.

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<v Speaker 2>I was looking at the ten year yield from the

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<v Speaker 2>beginning of the year to now and the drop off

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<v Speaker 2>is pretty stunning. You are more than a half a

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<v Speaker 2>percentage point from the highs that you suggest in January.

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<v Speaker 2>The market is afraid of growth, are you.

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<v Speaker 3>We're not, you know. And if you look, consumer confidence

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<v Speaker 3>is feeling a little wobbly, CEO confidence is not showing

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<v Speaker 3>the same anxiety.

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<v Speaker 2>You know.

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<v Speaker 3>Obviously one of the benefits of running the business that

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<v Speaker 3>we run as we see things happening in the real

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<v Speaker 3>economy all over the globe and we're just not seeing

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<v Speaker 3>the deceleration and growth. So our base case coming into

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<v Speaker 3>the year was that you'd continue to see solid fundamental growth.

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<v Speaker 3>You'd see persistently high prices and inflation. Labor markets are

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<v Speaker 3>still very tight, so you know, it's interesting when you

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<v Speaker 3>think about public markets versus private markets. The public markets

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<v Speaker 3>can get a little schizophrenic day to day, week to week,

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<v Speaker 3>and I think in the private markets we try to

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<v Speaker 3>keep a longer term view and at least based on

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<v Speaker 3>what we're seeing. We haven't changed our faces.

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<v Speaker 2>But what are you preparing for more at this point

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<v Speaker 2>for interest rates to be higher or lower from here?

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<v Speaker 3>I'm still in the camp of stable to higher for

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<v Speaker 3>longer than changing our view that we're going to see

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<v Speaker 3>increasing cuts throughout the end of the year.

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<v Speaker 2>We are still seeing a number of bankruptcy filings come

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<v Speaker 2>to market. We are seeing some signs of stress. Given

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<v Speaker 2>we're in this higher for longer environment, what are you

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<v Speaker 2>seeing out there? Are there places in the market that

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<v Speaker 2>you're avoiding right now because of it?

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<v Speaker 3>There's all the way that we've set the business up.

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<v Speaker 3>It's interesting if you look at our history, we've grown

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<v Speaker 3>at almost a twenty five percent growth rate over the

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<v Speaker 3>last twenty plus years. We've grown fastest coming out of

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<v Speaker 3>the financial crisis and coming out of COVID. So the

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<v Speaker 3>way that the business is designed, just based on the

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<v Speaker 3>products that we have is to be a liquidity provider

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<v Speaker 3>in good markets and challenge markets. So coming into any

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<v Speaker 3>given year. We don't have anxiety about the ability to deploy.

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<v Speaker 3>It's just a question where's that deployment going to come from.

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<v Speaker 3>Obviously in the more interest rate sensitive sectors that we

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<v Speaker 3>invest in, real estate will show signs of stress, low

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<v Speaker 3>end consumer lending will show signs of stress. But when

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<v Speaker 3>you look at it indexed across everything we do, it's

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<v Speaker 3>still we expect it's going to be a good year.

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<v Speaker 2>So let's talk again about areas as growth strategy for

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<v Speaker 2>a moment here, because what's been so notable is that

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<v Speaker 2>you've made a recent multi billion dollar acquisition and the

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<v Speaker 2>industry has been consolidating. Do you see more acquisitions in

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<v Speaker 2>your near future?

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<v Speaker 3>I think acquisitions are always going to be part of

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<v Speaker 3>our growth. The bar for acquisitions is getting higher and

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<v Speaker 3>higher as we fill out our BINGO card, if you will,

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<v Speaker 3>in terms of capabilities and geographies. But consolidation in our

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<v Speaker 3>industry will absolutely continue. If you look at the benefits

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<v Speaker 3>of scale in this industry in terms of capital raising,

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<v Speaker 3>capital deployment, talent acquisition, and retention, the bigger getting bigger

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<v Speaker 3>for good reason, and size is actually showing up in performance.

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<v Speaker 3>So unlike public markets where people get concerned that the

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<v Speaker 3>bigger you get, the harder it is to perform. I

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<v Speaker 3>think we and the large publics are showing that as

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<v Speaker 3>we consolidate and accumulate capability information edge that we're actually outperforming,

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<v Speaker 3>and so I think you're going to continue to see

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<v Speaker 3>people fill out capability, geography, distribution in in this phase

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<v Speaker 3>of growth.

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<v Speaker 2>Speaking of distribution, you're seeing some interesting partnerships starting to

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<v Speaker 2>come together in the market, and a lot of it

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<v Speaker 2>is for the idea of bringing private capital, particularly private credit,

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<v Speaker 2>into the hands of retail investors. Just today you saw

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<v Speaker 2>the launch of that Apollo State Street Private Credit ETF.

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<v Speaker 2>Would you start an ETF?

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<v Speaker 3>Well, I always try to remind people there's a big

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<v Speaker 3>difference between investment grade private credit and what the market

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<v Speaker 3>generally thinks of as private credit private credit, and those

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<v Speaker 3>are offering different types of exposures and they have opportunity

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<v Speaker 3>for different types of distribution with both retail and institutional investors.

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<v Speaker 3>So that's point number one. Point number two is if

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<v Speaker 3>you look at Areas as an example, we run a

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<v Speaker 3>BDC called Ares Capital Corporation. We have a twenty year

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<v Speaker 3>track record and an almost thirty billion dollar portfolio of

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<v Speaker 3>private loans private credit that has daily liquidity and is

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<v Speaker 3>available to any retail investor around the globe. We also

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<v Speaker 3>have a large interval fund that invests in a diverse

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<v Speaker 3>array of high grade and below investment grade credit exposures.

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<v Speaker 3>It offers liquidity. So I think these are more evolutionary moves.

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<v Speaker 3>But I think it's important that people understand this is

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<v Speaker 3>not a huge transformation. There's already technology that exists that's

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<v Speaker 3>well understood, well Troden, well bought and has performed well

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<v Speaker 3>where retail investors can get access to private credit and

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<v Speaker 3>other private market assets.

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<v Speaker 2>So I totally have one more question with you, although

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<v Speaker 2>I have many on the et Apple, I'll have your

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<v Speaker 2>co presidents later. Got to ask you about the NFL. Yes,

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<v Speaker 2>you really were involved in the first deal that went

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<v Speaker 2>to the hands of private equity, the Miami Dolphins. What's

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<v Speaker 2>the next team?

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<v Speaker 3>You know, I can't tell you what we're going to

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<v Speaker 3>do next. But this NFL opening up to private capital,

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<v Speaker 3>I think is so indicative of just the role that

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<v Speaker 3>private markets and private capital plays generally in the opening

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<v Speaker 3>up of new markets. Right, So if you just think

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<v Speaker 3>about sports investing and the NFL five years ago, institutional

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<v Speaker 3>capital was not actually able to access the NFL or

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<v Speaker 3>the other major sports leagues around the globe and post COVID.

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<v Speaker 3>Now we've in aided to bring creative capital solutions into

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<v Speaker 3>these markets and created just a whole new market, and

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<v Speaker 3>now we're offering those exposures to institutional and retail investors.

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<v Speaker 3>So I think this is, you know, this is a

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<v Speaker 3>recurring theme of how private markets can actually come in

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<v Speaker 3>with flexibility, creativity, liquidity where other traditional forms of capital

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<v Speaker 3>can to really do something special.

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<v Speaker 2>It certainly brought me into the world of sports reporting

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<v Speaker 2>much more. Mike, you glad, We thank you so much

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<v Speaker 2>for your time. That is Michael Arraghetty, of course, the

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<v Speaker 2>CEO of Areas Management