Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: I'm Shanali bask I'm sitting here at the Goldman Sachs
Speaker 2: Financial Services Conference. Welcome to our Bloomberg television and radio audiences.
Speaker 2: I'm standing by now with Michael Araghetti, the CEO of
Speaker 2: Aris Management, and you broke records, record after record, really
Speaker 2: nothing for record, nothing but records. So how do you
Speaker 2: even begin to set up for twenty twenty five when
Speaker 2: it was a record breaking fundraising year for you.
Speaker 1: In many ways?
Speaker 3: Yeah, well, the year's not over, so hopefully we'll have
Speaker 3: a good, good push to the end of the year.
Speaker 1: This will be a record fundraising year.
Speaker 3: But what's nice about the way that our business has
Speaker 3: evolved and developed Ten fifteen years ago, we and others
Speaker 3: like us were very dependent on the traditional institutional market
Speaker 3: for fundraising. If you look at twenty twenty four, about
Speaker 3: thirty percent of our capital raising is actually coming from
Speaker 3: that traditional institutional part of the market.
Speaker 1: The other two thirds.
Speaker 3: Just coming from places like wealth and retail, our publicly
Speaker 3: traded permanent capital vehicles, our insurance business, our COLO franchise.
Speaker 3: So there's been a broadening out and deepening of our
Speaker 3: products set and our fundraising capability, which means that when
Speaker 3: we're going into a new year, we're doing it from
Speaker 3: a much higher base, so we're equally as optimistic for
Speaker 3: what next year.
Speaker 1: Holds as well.
Speaker 2: Fascinating, what is the look on the other side.
Speaker 1: If you're raising all that.
Speaker 2: Money, you need to put it somewhere. Are you finding
Speaker 2: enough investment opportunities? You know, even with the record breaking
Speaker 2: fund that you just had, did you find a way
Speaker 2: to put a lot of that to work yet?
Speaker 1: Yeah?
Speaker 3: It's actually it's the as we grow, we keep investing
Speaker 3: in our deployment, which is the big driver of our business.
Speaker 3: If you look at the last couple of years, as
Speaker 3: our dry powder has grown, so has our deployment, almost
Speaker 3: one for one. So we need to keep investing in
Speaker 3: new products, new markets, people, et cetera, which we're doing
Speaker 3: organically and inorganically. So my expectation is deployment will pick
Speaker 3: up in twenty twenty five m and a market feels
Speaker 3: like it's picking back up. Transaction volumes are accelerating. So
Speaker 3: we had a really good year, but I think twenty
Speaker 3: twenty five is setting up to be another big.
Speaker 1: What role is em and A going to play?
Speaker 2: There's an expectation of this big return, but of course
Speaker 2: you have a lot of concerns from private acute sponsors
Speaker 2: still out there. There's also a lot of uncertainty around
Speaker 2: interest rates, particularly if those Trump tariffs come to play.
Speaker 3: I think that is the big question in my mind
Speaker 3: for twenty five is the trajectory for rates and the
Speaker 3: impact of tariffs. We have believed and now continue believe
Speaker 3: that rates will stay higher for longer. That's actually really
Speaker 3: good for our private credit businesses just because we capture
Speaker 3: all of that excess return. It's not so good for
Speaker 3: the M and A market, and so I think twenty
Speaker 3: twenty five will have to strike that balance. That said,
Speaker 3: there's a lot of pent up demand to transact, right.
Speaker 3: You have people that have largely been sitting on the
Speaker 3: sidelines for twenty four months plus. The capital that they
Speaker 3: manage has you know, a timestamp on it. It needs
Speaker 3: to get invested, It needs to get returned to their investors.
Speaker 3: So I think it's more important that we have rate
Speaker 3: stability at this point as opposed to needing to see
Speaker 3: rates come down dramatically in order to see the transaction values.
Speaker 2: But do investors have it totally wrong? You look at
Speaker 2: the expectations for rate cuts.
Speaker 1: You get to as low as.
Speaker 2: Three point five percent, and do we get there or
Speaker 2: do you think that there's actually a risk that rates
Speaker 2: go higher next year.
Speaker 3: I don't know if there's a risk that they go higher.
Speaker 3: I think that there's a real possibility that they stay high.
Speaker 3: A lot needs to go right or wrong, depending on
Speaker 3: which side of the market you're in to see them
Speaker 3: actually move back up. But I think that there's a
Speaker 3: real strong case roumit that they will stay higher for longer,
Speaker 3: and probably higher than the forward curve is predicting. But again,
Speaker 3: we've lived in a three and a half and four
Speaker 3: percent based rate environment before, and so it's not as
Speaker 3: though the markets can't function well there. The key is
Speaker 3: how do we transition, And we're already beginning to see
Speaker 3: the markets transitioning to the new cost of But that's
Speaker 3: really all you need to see volumes.
Speaker 1: Pick up now.
Speaker 2: Mike, a week ago, the big elephant in the room,
Speaker 2: HPS sells to Blackrock, huge, huge deal.
Speaker 1: In the industry. What did you make of it? From
Speaker 1: where you're sitting.
Speaker 2: Do you think that it changes the competitive landscape in
Speaker 2: a significant way?
Speaker 3: Yeah, So, first, I'm super happy for all of them.
Speaker 3: I think it's a great partnership, two great companies coming together.
Speaker 3: I don't know if it necessarily changes the competitive landscape.
Speaker 3: Right If I look at we've been in this business
Speaker 3: for thirty years, and we've seen our competitors get bought before.
Speaker 3: We've seen Okill get bought by TIRA, we saw an
Speaker 3: Terry's get bought by CPP, we saw Churchill get bought
Speaker 3: by Neuvene. Right, that doesn't necessarily change the competitive dynamic.
Speaker 1: I think the.
Speaker 3: Competitors are the competitors more importantly. From my lens, and
Speaker 3: maybe it's self serving, I view it as a real
Speaker 3: validation of the competitive advantages that you create through scale
Speaker 3: in private credit. Right, So when a company as well
Speaker 3: positioned as black Rock chooses to buy HPS for thirty times,
Speaker 3: it's really for me a validation of the private credit
Speaker 3: investment thesis. And so, viewed through that lens, I think
Speaker 3: it's a great thing.
Speaker 2: What does this make of consolidation across the industry? You
Speaker 2: yourself have been a significant consolidator, but you have looked
Speaker 2: really outside that traditional private credit business of late. You
Speaker 2: went into real estate in a much bigger way.
Speaker 1: For example.
Speaker 2: Does that mean that the direct lending businesses as we
Speaker 2: know it is kind of at its peak and you
Speaker 2: need to look elsewhere to consolidate in order for the
Speaker 2: real growth in private market.
Speaker 1: So from the areas perspective, I don't think so.
Speaker 3: We are capturing a growing share of a growing market
Speaker 3: in the core corporate lending business, but we're also seeing
Speaker 3: the opening up of new markets real estate lending, asset
Speaker 3: based lending, infrastructure lending. We're globalizing the business, so we
Speaker 3: have a significant runway in Europe and Asia. So even
Speaker 3: if people believe that there's a maturation in the core
Speaker 3: US direct lending business, that's really just a small fraction
Speaker 3: of the investable market and we've already set ourselves up
Speaker 3: to grow in other parts of the world. I do
Speaker 3: think though, that consolidation in asset management will continue. We
Speaker 3: have learned over the last ten or twenty years.
Speaker 1: Size matters in this business.
Speaker 3: You need to be able to invest in growth, origination,
Speaker 3: portfolio management, technology, fundraising, and that's a sizable investment, and.
Speaker 1: So the big will get bigger.
Speaker 3: They'll do it organically, but they'll also fill in gaps
Speaker 3: in their products, set in capability by making.
Speaker 1: Acquisitions as well well.
Speaker 2: Speaking of those other capabilities, you're talking about real estate
Speaker 2: for a moment here. I mean, what is the biggest opportunity,
Speaker 2: particularly when people are looking around some of the parts
Speaker 2: of the industry and still seeing some pain, either pain
Speaker 2: on the office side or maybe you could argue over
Speaker 2: exuberance on the AI data center side in some ways,
Speaker 2: how do you feel about the opportunity?
Speaker 3: Real estate is always talked about as a hyper local market,
Speaker 3: we would agree, and it matters not just what market
Speaker 3: you're in, but what street in what street corner you're on.
Speaker 3: And so I think in order to be great at
Speaker 3: real estate, you have to be broad in your footprint
Speaker 3: and broad in your capability. You're right, there's distressed opportunity
Speaker 3: or transitional opportunities in office, there's growing opportunities in data centers.
Speaker 3: We're making significant investments in industrial real estate to take
Speaker 3: advantage of what we perceive to be a realignment of
Speaker 3: global supply chain. So there's a lot of different ways
Speaker 3: to play real estate. I will say, though, the things
Speaker 3: that drive value in real estate going forward are going
Speaker 3: to be rates again, whether.
Speaker 1: They come down fast or not.
Speaker 3: Stability and rates is a positive for real estate growth,
Speaker 3: economic growth, and.
Speaker 1: We're continuing to see strengthen the.
Speaker 3: US economy that will drive transaction volumes and then supply.
Speaker 1: And I think one of the things that people don't.
Speaker 3: Fully appreciate is because of the headwinds that the real
Speaker 3: estate market has had over the last couple of years,
Speaker 3: the market is fundamentally undersupplied.
Speaker 1: Which does two things.
Speaker 3: It supports the value of the existing assets of people,
Speaker 3: and it's going to create demand for new development and
Speaker 3: new capital coming into the market.
Speaker 1: So you've got to pick your spots.
Speaker 3: But I think generally when you view it through the
Speaker 3: lens of rates and supply, there's a tail when going
Speaker 3: into twenty twenty five.
Speaker 2: Five rates are staying higher for longer. Then you also
Speaker 2: set a potential distressed opportunity in real estate. How big
Speaker 2: is that distressed opportunity and would you play in it?
Speaker 2: Would you want to.
Speaker 1: Invest in it? Yeah?
Speaker 3: We cover the waterfront in terms of our real estate positioning.
Speaker 3: Multifamily and industrial have been our two largest exposures, but
Speaker 3: we also play to an increasing extent in data centers,
Speaker 3: student housing, self storage, so other growth markets. We have
Speaker 3: largely avoided office in the primary market. We have large
Speaker 3: pools of capital that are geared to invest in opportunistic
Speaker 3: real estate equity and opportunistic.
Speaker 1: Real estate debt.
Speaker 3: So what we've learned in past cycles is the way
Speaker 3: that distress plays out is sometimes it's a secondary market.
Speaker 1: Opportunity where you're buying good assets at good basis.
Speaker 3: Sometimes it's just to shift in the competitive dynamic in
Speaker 3: the primary market.
Speaker 1: So you have to be prepared for both.
Speaker 3: Right, if banks who are over exposed to commercial real
Speaker 3: estate office don't sell those assets, that probably means they're
Speaker 3: going to be less competitive in the primary market. So
Speaker 3: you have to be prepared for either outcome.
Speaker 2: Mike, we're running out of time. We have to leave
Speaker 2: it there. Of course, a big setup for twenty twenty five.
Speaker 2: That is Mike Arrogetty of Areas Management