Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We've got to look
Speaker 1: at alternative asset managements, which is really what so many
Speaker 1: different investment managers have been talking about. Is the alternative
Speaker 1: to this whipsaw headspinning world that we've been talking about
Speaker 1: all morning. Areas Management, a global alternative investment manager with
Speaker 1: over five hundred and seventy billion dollars in assets on
Speaker 1: our management reporting second quarter earnings today, highlighting solid financing
Speaker 1: growth momentum and seeing the market come back to life.
Speaker 1: Joining us now, I'm so pleased to say, is Ares
Speaker 1: Management CEO Michael Aragetti, thank you so much to be
Speaker 1: here with us. For being here with us, I want
Speaker 1: to start with this idea that you did a really
Speaker 1: solid performance despite the fact that LBO volumes were materially
Speaker 1: lower than last year, and there's this expectation that deals
Speaker 1: were going to pick up in the second half because.
Speaker 2: Of trade certainty.
Speaker 1: Well have we gotten that certainty to really kickstart that
Speaker 1: type of corporate activity.
Speaker 3: There's a misconception that alternative asset management is just driven
Speaker 3: solely by M and A and private equity volumes. But
Speaker 3: when you really zoom out, you say, what is going
Speaker 3: on in the private markets. We are active in digital infrastructure,
Speaker 3: real estate, private credit, asset based finance, and really a
Speaker 3: broad cross section of the global economy. So if you
Speaker 3: look at our quarter, we put twenty seven billion dollars
Speaker 3: to work this.
Speaker 2: Quarter in a very subdued deal environment.
Speaker 3: What's happening now in the private markets is there's a
Speaker 3: huge need for liquidity solutions and refinancing. If you look
Speaker 3: at private equities one example, there's about three trillion dollars
Speaker 3: of private equity that's been invested that needs to get
Speaker 3: returned to invest to investors, and about a trillion dollars
Speaker 3: of new capital that needs to get put to work.
Speaker 2: So there's this huge imbalance. And so one of the things.
Speaker 3: That private market providers like us are doing now is
Speaker 3: really coming in with creativity and innovative solutions to try
Speaker 3: to buy down that install base of private equity. So
Speaker 3: we're not really reliant on deal volume. Obviously, we love
Speaker 3: it when the markets are ripping, but whether or not
Speaker 3: it's still pretty good.
Speaker 4: Does that mean that the lesson you learn from this
Speaker 4: period of when things are backlogged and again just given
Speaker 4: the breath of the success in your earnings, that you
Speaker 4: need to de emphasize some parts of the business that
Speaker 4: are more sensitive to M and A, that have more
Speaker 4: of a cyclical type of attribute to them.
Speaker 2: I think I don't know if we want to de emphasize.
Speaker 3: I think part of what we have tried to build
Speaker 3: is a business that provides solutions through cycles to our
Speaker 3: investee clients, whether they're private equity sponsors or large corporates,
Speaker 3: and our investor clients. And the only way that we
Speaker 3: could do that is to diversify the products set geographically,
Speaker 3: where we invest in, the capital structure, what returns, what
Speaker 3: the structures are. So ideally what you want to have
Speaker 3: is a business which we're demonstrating that can perform regardless
Speaker 3: of the market environment.
Speaker 4: Well, part of the diversification was also things are uncertain
Speaker 4: in the US. To Lisa's point, is that period over
Speaker 4: is certainty restored? Is it time to hit the go
Speaker 4: button again on deals?
Speaker 2: You know?
Speaker 3: It felt it's always great when I come on the
Speaker 3: show because you go to bed and you're like, oh,
Speaker 3: we're going to have this really nice, calm conversation about
Speaker 3: how certain things are and how deal lines are going
Speaker 3: to pick up, and then we get a new headline
Speaker 3: and as you said Lisa. I think you have to
Speaker 3: try to find this signal through the noise, and when
Speaker 3: we look at our portfolios around the globe, fundamental performance
Speaker 3: is still really strong. There's a lot of liquidity in
Speaker 3: the markets. There is a lot of pent up demand
Speaker 3: to transact. We saw that in June. I think once
Speaker 3: we got the tax bill done and we saw some
Speaker 3: certainty on tariffs, the market really picked up. So I
Speaker 3: don't want to say that one headline on one day
Speaker 3: is going to knock us off course, but yeah, I
Speaker 3: think there's a real pent up demand for M and
Speaker 3: a corporate m and as picking up. Private equity pipelines
Speaker 3: are picking up.
Speaker 2: So I'm still optimistic.
Speaker 4: What does that optimism look like throughout the year. What
Speaker 4: is your expectation when we get something that does look
Speaker 4: back to normal, that does see this pipeline that's being
Speaker 4: built up really be put into force.
Speaker 3: I think in the on the private market side, you
Speaker 3: have to appreciate that the structure of the capital actually
Speaker 3: has a timeline on it, and so one of the
Speaker 3: things that people need to understand is just the weight
Speaker 3: of money in the private markets requires transaction activity, and
Speaker 3: so that three point two trillion dollars that I mentioned.
Speaker 3: You know, half of it is over five years old,
Speaker 3: and there's a desire to get that money back to investors,
Speaker 3: to get the gears moving again. And so even if
Speaker 3: you don't have M and A, people are going to
Speaker 3: be looking for ways in the secondary market, for example,
Speaker 3: to do transactions. So I think you're going to continue
Speaker 3: to see, you know, the weight of the money and
Speaker 3: the time constraint push companies into the market, and I
Speaker 3: think on the corporate side, you know, there's there's a
Speaker 3: desire to grow too.
Speaker 2: We did see.
Speaker 3: Corporate M and A pick up dramatically even in the
Speaker 3: last week. I'm sure if you talk to the cell
Speaker 3: side bankers, they'll tell you the level of pipeline pipeline
Speaker 3: activities picking up dramatically. So you know, I can't quantify
Speaker 3: what that looks like, but if June was an indicator
Speaker 3: and we get some stability here, I think third and
Speaker 3: fourth quarter could be pretty robust.
Speaker 1: You mentioned the tax bills behind us, tariff uncertainty potentially
Speaker 1: some of it behind us, and you see a lot
Speaker 1: of signal less noise coming from that, and then there's
Speaker 1: this idea of deregulation.
Speaker 2: Is that's what pushing potentially some of this M and A.
Speaker 3: I think there's absolutely a tone that's funny. You saw
Speaker 3: pre Liberation Day January February, just the exuberance with the
Speaker 3: new administration pro business deregulation, and you saw people come
Speaker 3: off the sidelines dramatically, and then we took a pause.
Speaker 3: Now that we've digested, you're beginning to feel that again.
Speaker 3: So I don't want to say that the animal spirits
Speaker 3: have been unleashed, but the confidence that the administration wants
Speaker 3: to push transaction volume is pro business and focused on drag,
Speaker 3: I think is going to be a catalyst for sure.
Speaker 1: When you talk, I hear an economy flush with capital.
Speaker 1: I hear an economy that has plenty of access to financing.
Speaker 1: I hear that financing is not tight in any capacity.
Speaker 1: We're talking about titus spreads in the global credit market
Speaker 1: in public markets going back to two thousand and seven.
Speaker 1: Do you think it is appropriate to start talking about
Speaker 1: more accommodation from the FED or do you think that
Speaker 1: that's problematic given what you're actually seeing on the ground
Speaker 1: with some of the companies that you're investing in.
Speaker 3: Everything that we're seeing says that the economy is on
Speaker 3: stable footing.
Speaker 2: We're seeing continued growth.
Speaker 3: As an example, we reported earnings in our publicly traded
Speaker 3: BBC thirteen percent year over year ebitdog growth and those companies,
Speaker 3: while LeVert, have actually digested the higher cost of capital
Speaker 3: pretty well. So to your point, we're living in a
Speaker 3: higher rate environment. The plumbing is working, nothing's broken. Almost
Speaker 3: every liquid market is near all time tights, so it
Speaker 3: doesn't feel necessary to take a more accommodative stance. I
Speaker 3: think tariffs will be inflationary. I know that there's an
Speaker 3: argument that some people put forward that it won't be,
Speaker 3: but to the extent that they will be, and the
Speaker 3: economy continues to grow, that would argue for rates to
Speaker 3: stay higher for longer, or at least to see a
Speaker 3: slower trend down.
Speaker 4: So, Mike, in this quarter you had really robust fundraising
Speaker 4: coming from a variety of sources, but part of that
Speaker 4: was wealth too. We're in this environment right now where
Speaker 4: there's an expectation that the Trump administration is going to
Speaker 4: open up four A one ks to some private assets.
Speaker 4: You've seen some of your peers, KKR, Blackstone, Blue Owl
Speaker 4: already set up partnerships with four oh one K providers
Speaker 4: is that something you're looking at as well.
Speaker 3: Yeah, we're probably the number two or number three player
Speaker 3: in the wealth channel right now. We raised about six
Speaker 3: point three billion dollars in wealth product alone this quarter.
Speaker 3: Close to half of our AM is in permanent capital
Speaker 3: vehicles right now. The four to one K conversation is
Speaker 3: an interesting one. I am a huge believer in increasing
Speaker 3: access to alternatives to the individual investor, whether that's directly
Speaker 3: or in the retirement market. There's no reason that an
Speaker 3: individual shouldn't have the same access to alternative assets that
Speaker 3: institutional investors do. The four toh one K question, I
Speaker 3: think is reason for enthusiasm if you look at the
Speaker 3: size of that market and the solutions that are already there.
Speaker 3: That market for forever has really been fee first, and
Speaker 3: when we talk about fiduciary duty to the retail investor
Speaker 3: in defined contribution, it's what's the cheapest solution that I
Speaker 3: can get, And I don't think that that's the way
Speaker 3: that you want to be.
Speaker 2: Shopping for investment solutions.
Speaker 3: It is a complicated set of circumstances in the sense
Speaker 3: that you still have to get through the executive order,
Speaker 3: which we haven't seen, although we expect to come then
Speaker 3: we need to see rulemaking. There's going to be a
Speaker 3: whole flurry of class action lawsuits. I'm sure we're going
Speaker 3: to have to get plan sponsors comfortable with the idea,
Speaker 3: and then we're going to have to demonstrate that we
Speaker 3: can deliver excess return net of new fee agreements to
Speaker 3: the investor that get them excited.
Speaker 2: So we're enthusiastic.
Speaker 3: We have product that's already geared and ready to go
Speaker 3: into that market. We have had significant dialogue with potential
Speaker 3: partners in that market. So if and when that time comes,
Speaker 3: I think you'll probably see us jump in, just given
Speaker 3: our leadership position there. But we're being a little bit
Speaker 3: more tempered in our enthusiasm.
Speaker 2: Yah.
Speaker 4: It's interesting to hear some of that caution because other
Speaker 4: people have decided that this is off to the races
Speaker 4: for getting that involved in the four oh one K
Speaker 4: And part of the criticism that comes up sometimes is
Speaker 4: they're going to get players that dump their worst assets
Speaker 4: in there, and then that brings with it more regulation
Speaker 4: and hurts the industry as a whole.
Speaker 2: Is that a real concern. I've heard people say that
Speaker 2: that is not the concern.
Speaker 3: I think one of the significant transformations we've seen in
Speaker 3: wealth from prior versions is you are getting the largest
Speaker 3: brand name managers around the world that are coming into
Speaker 3: this market with institutional quality product.
Speaker 2: We're not going into these markets because we have to.
Speaker 3: We're going into these markets because we want we want to,
Speaker 3: and so there's really no motivation or incentive to do that.
Speaker 3: So I don't really understand that. But one of the
Speaker 3: things I always try to say to our people and
Speaker 3: even to our investors in the research community, when the
Speaker 3: four oh one K market opens, similar to just the
Speaker 3: wealth market opening, it doesn't have a transformational.
Speaker 2: Impact on what we can do as a manager.
Speaker 3: I'm just now taking assets that otherwise would find their
Speaker 3: way into an institutional fund and putting them into somebody's
Speaker 3: four oh one K. That's exciting because it now increases accessibility,
Speaker 3: it opens up new fundraising markets, it diversifies our business,
Speaker 3: but it doesn't give me a new product to then
Speaker 3: go into the market and deliver value to my customer.
Speaker 3: So we're excited about it, but you know, until we
Speaker 3: get to a world where we're feeling like we're constrained
Speaker 3: in our ability to raise capital and other channels, I
Speaker 3: just you know, again, I have temperate enthusiasm. If you
Speaker 3: look at our fundraising this quarter, we had our second
Speaker 3: largest fundraising quarter on record. We raised about twenty six
Speaker 3: billion dollars of capital this quarter. The fundraising has not
Speaker 3: been the challenge I think for most all managers. Really,
Speaker 3: can I find great quality things to invest in? And
Speaker 3: so the idea that we're going to continue to bring
Speaker 3: more capital, and you know, it has as much possible
Speaker 3: risk as it does opportunity.
Speaker 1: Michael Aauergetti Areas Management, Chief executive Officer. You've reported earnings,
Speaker 1: you go on vacation now Monday. Okay, well a lot
Speaker 1: of people are hoping to do the same. Thank you
Speaker 1: so much for being with us this morning.