Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: You're watching Open Interest. I'm Shinali Backzek. I'm sitting here
Speaker 2: with Aris Management CEO Michael Arraghetti and it's interesting. Mike.
Speaker 2: Good to see you today.
Speaker 3: Thanks for coming down.
Speaker 2: Oh, you're welcome. This is on the heels of some
Speaker 2: news at areas. This is on the heels of a
Speaker 2: big set of promotions. You announced co presidents for the firm,
Speaker 2: but that also set off a wave of promotions underneath
Speaker 2: them as well. What does this mean for the future
Speaker 2: of areas in the direction you're trying to be so happy?
Speaker 3: So Kip Devere and Blair Jacobson, who I think you're
Speaker 3: sitting down with later two of my oldest friends. We've
Speaker 3: been friends for thirty years, business partners for twenty five
Speaker 3: years in the case of Kip, fifteen plus years in
Speaker 3: the case of Blair. So anytime you can elevate, you know,
Speaker 3: good quality people, it's caused for celebration. But as you
Speaker 3: hinted at, we've been I think really good at succession.
Speaker 3: You know, private equity firms historically are great at succession
Speaker 3: I think within their portfolios, but when it comes to
Speaker 3: themselves have sometimes missed the mark, and I think any good,
Speaker 3: high quality growth company needs to be great at succession
Speaker 3: and needs to create pathways for growth for future leaders.
Speaker 3: So the reality is, over the last year, we've elevated
Speaker 3: co heads in our European direct lending business, We've elevated
Speaker 3: co heads in our US direct lending business, We've elevated
Speaker 3: people in real estate, and there's just been this massive,
Speaker 3: you know, wave of growth and promotion. I think part
Speaker 3: of what makes our culture unique speaking to the friendship
Speaker 3: that I have with Blair and Kip, but it pervades
Speaker 3: the whole organization is we have people here who are
Speaker 3: now running businesses that started at areas twenty twenty five
Speaker 3: years ago as an analysts and really grew up in
Speaker 3: this in this culture. So I just couldn't be happier.
Speaker 2: You know, It's interesting this is not just happening at areas.
Speaker 2: It's kind of happening across the street, where you're seeing
Speaker 2: more people in high level roles being tapped to be
Speaker 2: elevated to the number two, three, four positions. What does
Speaker 2: this say about the talent war on Wall Street? What
Speaker 2: are you seeing when you talk to the banks and
Speaker 2: you talk to your rivals about people who might want
Speaker 2: to come here.
Speaker 3: Look, I think you win in this game by developing
Speaker 3: and retaining great talent. I think we've been fortunate. We
Speaker 3: have very very low turnover, and you can see that
Speaker 3: in the way that our leaders are growing and developing here.
Speaker 3: There's always going to be a war for talent. I
Speaker 3: think the reality is the large firms in our business
Speaker 3: are getting larger. There's huge benefits to size and scale,
Speaker 3: So I'd like to think that we and others are
Speaker 3: kind of net beneficiars of that war for talent. I
Speaker 3: would imagine certain other parts of the market, whether some
Speaker 3: of the investment in commercial banks are probably struggling to
Speaker 3: maintain talent just given some of the secular changes that
Speaker 3: are happening in our market.
Speaker 2: To that end, a few people realize that you added
Speaker 2: about one hundred investment professionals last year.
Speaker 3: We did, so, we grew our investment teams over ten
Speaker 3: percent last year, and we just came out of our
Speaker 3: planning meetings for this year and I would expect growth
Speaker 3: this year will be similar. So obviously the businesses are growing,
Speaker 3: they're diversifying, they're globalizing, and the way you support that
Speaker 3: growth and complexity is, you know, adding.
Speaker 2: High quality time one hundred more people.
Speaker 3: Yeah, well we're up to almost four thousand people now, obviously,
Speaker 3: so that's part of the conversation around the elevation of
Speaker 3: Kip and Blairs, obviously, just putting some of our most
Speaker 3: proven business builders and leaders against this growth and complexity.
Speaker 2: You know, the growth is coming against an interesting backdrop.
Speaker 2: I was looking at the ten year yield from the
Speaker 2: beginning of the year to now and the drop off
Speaker 2: is pretty stunning. You are more than a half a
Speaker 2: percentage point from the highs that you suggest in January.
Speaker 2: The market is afraid of growth, are you.
Speaker 3: We're not, you know. And if you look, consumer confidence
Speaker 3: is feeling a little wobbly, CEO confidence is not showing
Speaker 3: the same anxiety.
Speaker 2: You know.
Speaker 3: Obviously one of the benefits of running the business that
Speaker 3: we run as we see things happening in the real
Speaker 3: economy all over the globe and we're just not seeing
Speaker 3: the deceleration and growth. So our base case coming into
Speaker 3: the year was that you'd continue to see solid fundamental growth.
Speaker 3: You'd see persistently high prices and inflation. Labor markets are
Speaker 3: still very tight, so you know, it's interesting when you
Speaker 3: think about public markets versus private markets. The public markets
Speaker 3: can get a little schizophrenic day to day, week to week,
Speaker 3: and I think in the private markets we try to
Speaker 3: keep a longer term view and at least based on
Speaker 3: what we're seeing. We haven't changed our faces.
Speaker 2: But what are you preparing for more at this point
Speaker 2: for interest rates to be higher or lower from here?
Speaker 3: I'm still in the camp of stable to higher for
Speaker 3: longer than changing our view that we're going to see
Speaker 3: increasing cuts throughout the end of the year.
Speaker 2: We are still seeing a number of bankruptcy filings come
Speaker 2: to market. We are seeing some signs of stress. Given
Speaker 2: we're in this higher for longer environment, what are you
Speaker 2: seeing out there? Are there places in the market that
Speaker 2: you're avoiding right now because of it?
Speaker 3: There's all the way that we've set the business up.
Speaker 3: It's interesting if you look at our history, we've grown
Speaker 3: at almost a twenty five percent growth rate over the
Speaker 3: last twenty plus years. We've grown fastest coming out of
Speaker 3: the financial crisis and coming out of COVID. So the
Speaker 3: way that the business is designed, just based on the
Speaker 3: products that we have is to be a liquidity provider
Speaker 3: in good markets and challenge markets. So coming into any
Speaker 3: given year. We don't have anxiety about the ability to deploy.
Speaker 3: It's just a question where's that deployment going to come from.
Speaker 3: Obviously in the more interest rate sensitive sectors that we
Speaker 3: invest in, real estate will show signs of stress, low
Speaker 3: end consumer lending will show signs of stress. But when
Speaker 3: you look at it indexed across everything we do, it's
Speaker 3: still we expect it's going to be a good year.
Speaker 2: So let's talk again about areas as growth strategy for
Speaker 2: a moment here, because what's been so notable is that
Speaker 2: you've made a recent multi billion dollar acquisition and the
Speaker 2: industry has been consolidating. Do you see more acquisitions in
Speaker 2: your near future?
Speaker 3: I think acquisitions are always going to be part of
Speaker 3: our growth. The bar for acquisitions is getting higher and
Speaker 3: higher as we fill out our BINGO card, if you will,
Speaker 3: in terms of capabilities and geographies. But consolidation in our
Speaker 3: industry will absolutely continue. If you look at the benefits
Speaker 3: of scale in this industry in terms of capital raising,
Speaker 3: capital deployment, talent acquisition, and retention, the bigger getting bigger
Speaker 3: for good reason, and size is actually showing up in performance.
Speaker 3: So unlike public markets where people get concerned that the
Speaker 3: bigger you get, the harder it is to perform. I
Speaker 3: think we and the large publics are showing that as
Speaker 3: we consolidate and accumulate capability information edge that we're actually outperforming,
Speaker 3: and so I think you're going to continue to see
Speaker 3: people fill out capability, geography, distribution in in this phase
Speaker 3: of growth.
Speaker 2: Speaking of distribution, you're seeing some interesting partnerships starting to
Speaker 2: come together in the market, and a lot of it
Speaker 2: is for the idea of bringing private capital, particularly private credit,
Speaker 2: into the hands of retail investors. Just today you saw
Speaker 2: the launch of that Apollo State Street Private Credit ETF.
Speaker 2: Would you start an ETF?
Speaker 3: Well, I always try to remind people there's a big
Speaker 3: difference between investment grade private credit and what the market
Speaker 3: generally thinks of as private credit private credit, and those
Speaker 3: are offering different types of exposures and they have opportunity
Speaker 3: for different types of distribution with both retail and institutional investors.
Speaker 3: So that's point number one. Point number two is if
Speaker 3: you look at Areas as an example, we run a
Speaker 3: BDC called Ares Capital Corporation. We have a twenty year
Speaker 3: track record and an almost thirty billion dollar portfolio of
Speaker 3: private loans private credit that has daily liquidity and is
Speaker 3: available to any retail investor around the globe. We also
Speaker 3: have a large interval fund that invests in a diverse
Speaker 3: array of high grade and below investment grade credit exposures.
Speaker 3: It offers liquidity. So I think these are more evolutionary moves.
Speaker 3: But I think it's important that people understand this is
Speaker 3: not a huge transformation. There's already technology that exists that's
Speaker 3: well understood, well Troden, well bought and has performed well
Speaker 3: where retail investors can get access to private credit and
Speaker 3: other private market assets.
Speaker 2: So I totally have one more question with you, although
Speaker 2: I have many on the et Apple, I'll have your
Speaker 2: co presidents later. Got to ask you about the NFL. Yes,
Speaker 2: you really were involved in the first deal that went
Speaker 2: to the hands of private equity, the Miami Dolphins. What's
Speaker 2: the next team?
Speaker 3: You know, I can't tell you what we're going to
Speaker 3: do next. But this NFL opening up to private capital,
Speaker 3: I think is so indicative of just the role that
Speaker 3: private markets and private capital plays generally in the opening
Speaker 3: up of new markets. Right, So if you just think
Speaker 3: about sports investing and the NFL five years ago, institutional
Speaker 3: capital was not actually able to access the NFL or
Speaker 3: the other major sports leagues around the globe and post COVID.
Speaker 3: Now we've in aided to bring creative capital solutions into
Speaker 3: these markets and created just a whole new market, and
Speaker 3: now we're offering those exposures to institutional and retail investors.
Speaker 3: So I think this is, you know, this is a
Speaker 3: recurring theme of how private markets can actually come in
Speaker 3: with flexibility, creativity, liquidity where other traditional forms of capital
Speaker 3: can to really do something special.
Speaker 2: It certainly brought me into the world of sports reporting
Speaker 2: much more. Mike, you glad, We thank you so much
Speaker 2: for your time. That is Michael Arraghetty, of course, the
Speaker 2: CEO of Areas Management